Finally A MERS Lawsuit With Some Cojones

Ingham County Sues MERS For Unpaid Real Estate Transfer Taxes

Steve Dibert, MFI-Miami,

I’ve been contemplating for the past week about how I was going to start this article when I finally realized the best way to start it was to write:

“Contrary to popular belief, MERS is not an illegal entity.”  

Now before everyone has sudden symptoms of uncontrollable IBS, Wagnarian fits or the Florida “Foreclosure Warriors” (or whatever they’re calling themselves this week) start sending me hate mail, calm down and listen to someone who has worked in mortgage financing for over a decade and who’s staff have another combined 45 years of experience.

Most states do not have laws on the books that state mortgage contracts or a security instruments have to be recorded on public record.   The problem occurs when it comes time to foreclose on the security instrument.  This is where things start getting complicated because each state is allowed to have it’s own requirements for land records and foreclosures as prescribed under the 10th Amendment to the U.S. Constitution.

For example, Michigan law states that if you are doing a non-judicial foreclosure by advertisement then the mortgage must be recorded.  However, you are allowed to foreclose judicially if the the mortgage is not recorded.  Judicial states like Florida or New York require a mortgage to be recorded prior to filing a lis pendens.

To say that MERS is a shadow registry service that was set up to avoid paying recording fees and hide the true identity of the note holder is all true.  However, like many of the things that were created in the mortgage industry from 1995-2007, it may be immoral, deceitful, underhanded, sleazy, a form tax dodging and yes, it pisses off County Registars, Clerks and Recorders because they lose revenue, but the way MERS conducts their business is not illegal.

When someone asked Angelo Mozilo, the former head of Countrywide Financial, about Countrywide’s questionable  lending practices, he said, “It’s only illegal when a judge tells us it is.”

MERS was and is no different.  When the industry created MERS there were no state or federal  law that said the banks could not do create their own registry service.   What mortgage activists and attorneys who have jumped on the foreclosure defense band wagon over the past two to three years fail to understand is that some of the highest paid and brightest attorneys in the finance industry were paid a lot of money to research this before the industry created it.

MERS Is Breakable But Most Attorneys And Politicians Aren’t Making The Right Arguments

The problem is not that MERS is unbreakable, it is.   The problem is that foreclosure defense attorneys that bring these cases don’t have a background in finance or lending and lack a basic understanding of how the system works.  Many jumped on the “bandwagon” in order to keep their practices afloat.  This is most prevalent in Florida where the foreclosure crisis has not only received the most attention since 2008, it has also seen the biggest increase in attorneys doing foreclosure defense work.  In May of 2008 you had 12-15 law firms doing any type of foreclosure cases.  Now you have over 500.  It’s gotten so chaotic in Florida that good attorneys are getting so desperate  for clients that they are filing lawsuit against MERS that have no merit in order to get free media attention.

There are other legal questions about MERS no one seems challenging.  For example, when does MERS lose it’s rights as nominee?  The mortgage contract states they are acting as a nominee for the originating lender so how can they act as the nominee years after that lender has gone out of business?

One lawsuit against MERS that has been successful was Residential Funding Corp. v Saurman in Michigan.   Saurman was successfully because it was argued on the state level and because Saurman was not necessarily about the legitimacy of MERS.  It was if MERS had legal authority to foreclose as a nominee.  The Michigan Court of Appeals ruled against MERS saying they don’t have that authority.

The devastation brought on by MERS has been receiving a lot of media attention in the past eighteen months thanks in part to Register of Deeds like Curtis Hertel, Jr., John O’Brien and Jeff Thigpen.    These three gentlemen  are constantly informing the public about how their counties have been affected by MERS.   This media attention has made other Registrars and Clerks across the US take notice and take action.

Duval County Clerk of Court Jim Fuller is seeking class action status in a lawsuit he filed Oct. 31 against MERS.  Fuller says in the lawsuit filed in Duval County Circuit Court that MERS, sidesteps public recording land rules and recording fees to the detriment of the public and the state’s 67 clerks of court.

He was quoted in the Palm Beach Post as saying,

“The MERS system avoids the recordation requirement, and the accompanying fees, and in doing so deprives the Florida Clerks of Court of the recording fees to which they are entitled and the public of its ability to identify the true mortgagee of mortgaged property,” the lawsuit says. “The effort to disconnect the debt (the note) from the collateral (the mortgage) to save on recording costs is at the heart of the unlawful scheme that is MERS.”

Unfortunately, Jim Fuller is following in the same path as the inexperienced foreclosure defense attorneys who attempted to make this same argument and lost.  Will Jim Fuller lose?  My money says yes, but this case is being heard in Duval County and I have seen stranger things have happen in Florida.

In September and with little fanfare, Washington County in Pennsylvania filed a similar lawsuit but with a unique spin.  They filed suit against US Bank, a MERS member, claiming the bank failed to pay a $52 recording fee when it acquired residential properties bundled in investment securities and sold them through the MERS.

Robert N. Pierce III, an attorney representing Washington County said, “While the lawsuit is focused on the recovering the lost recording fees, it indirectly challenges the validity of MERS when it is used in foreclosure proceedings.”

Although, Washington County’s suit is against US Bank, it is still a MERS recordation case with different packaging.  Unless Robert Pierce can make a compelling argument, the suit may very well may get shot down.

The Lawsuit To Watch

The case to watch and the one that has the most potential is one filed in Michigan this week by two Michigan Registers of Deeds, Curtis Hertel Jr. from Ingham County and Nancy Hutchins from Branch County.  If successful, the suit will cut off MERSCorp’s manhood and spoon feed it back to their executives.

Ingham County Register of Deeds Curtis Hertel, Jr

Filed earlier this week, the suit against MERS uses a similar argument to the one Hertel and Hutchins are making against the major lenders, the foreclosure mills, Fannie Mae and Freddie Mac for failure to pay the Michigan Real Estate Transfer Tax when properties transferred in and out of  the hands of Fannie Mae and Freddie Mac. (Disclaimer-MFI-Miami was involved in the research that lead to that lawsuit).

However, unlike the Fannie and Freddie lawsuits which alleges the defendants illegally claimed an exemption from the Michigan Real Estate Transfer Tax because Fannie and Freddie are government agencies.  This lawsuit alleges that when the  properties were transferred in and out of the MERS system to the public record, mortgage servicers and their legal representatives failed to pay the Michigan Real Estate Transfer Tax by misleading the state about the true value of the property.

Unlike MERS lawsuits filed across the country, this lawsuit doesn’t attempt to reclaim lost recording fees and it doesn’t limit the defendants to just MERS. It names, three attorneys who have signed as officers of MERS, Marshall Isaacs, the known robo-signer from Orlans Associates, Ellen Coon, the known robo-signer from Trott &Trott and Jeanne Kivi, also from Trott & Trott, eTitle owned by Linda Orlans, Lawyers Title Agency owned by David Trott, 1st Choice Title, Bank of America, JPMorgan Chase, Wells Fargo and Fannie Mae.  All of whom were instrumental in filing MERS assignments in Ingham and Branch Counties.

If Marshall Isaacs gives a repeat performance of the deposition he was forced to give describing his role as a Vice President of MERS this should get very interesting.  In his May deposition, he seemed totally clueless about about his role as a Vice President of MERS:

Issac-Adisho v.Orlans Part 1

#shadowregistry

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