Mortgage Electronic Registration System (MERS) has been used by lenders nationwide to track mortgages via the system's database. Lenders who are members of the program are represented in the enforcement of a promissory note secured by a mortgage. A U.S. Bankruptcy Judge in Nevada ruled earlier this year that MERS could no longer represent lenders foreclosing on homeowners in bankruptcy unless the actual loan document could be produced.
Typically, a mortgage note goes through several iterations of sale to different mortgage lenders, which makes it difficult to produce original loan documentation. When lenders begin foreclosing on homeowners in bankruptcy, the original note is often not available.
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MERS is a program that was initiated by several lenders over 20 years ago to simplify the complicated mortgage process. The system is designed to track mortgages and any associated sale of the note via a central database. Over 60 million mortgages are currently monitored by the program. Lenders who are members are represented by MERS throughout the foreclosure process.
Although the bankruptcy judge's ruling presents a roadblock for lenders in the foreclosure process, it is not the first time MERS was challenged in court. The same ruling was handed down in a Florida court; however, the company eventually won on appeal.
For homeowners who owe more than their home is worth, or are unable to pay their mortgage payments, the ruling may only delay proceedings for about a month or more. In attempts to further assist homeowners in default on their mortgage, a Nevada state representative introduced legislation to allow homeowners in financial hardship to ask for arbitration in their mortgage default process. This would overstep service providers like MERS, and require mortgage lenders to be involved, instead.
Even though it was handed down in Nevada, bankruptcy attorneys in other states have voiced appreciation in regards to the ruling. One noted Houston attorney stated that the new law could have a nationwide impact on the ability of lenders to enforce mortgage loans. In addition, it throws some negotiating leverage onto the playing field that was not available before for homeowners in foreclosure going through bankruptcy.
A deluge of complaints have been filed against service providers in regards to aggravating the excessive number of foreclosures initiated in the past two-and-a-half years. On the other hand, MERS argues that its services enable a broader range of home lending options for homebuyers.
The program maintains current mortgage information and ownership, and avoids the astronomical millions associated with recording fees, along with the associated paperwork. MERS officials noted verbiage from one Florida court decision that stated the program was "innovative."
Will the decision hold up? Regardless, as in the Florida case, MERS immediately appealed the judge's decision.
The bigger question, however, is whether the ruling will catch fire in other states. Also, it will be interesting to see if the Nevada statesman's proposed bill will be cause for pause for legislation in other states across the Union.
With all the twists and turns we're seeing in the courts of late, anything could happen.
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