Mortgage registrars cannot initiate foreclosure, court says
For many American homeowners, a mortgage can be somewhat of a mystery. This is because there are many banks and other businesses who become involved in the mortgage process somewhere along the way, often behind the scenes and without the knowledge of the homeowner. It is only if a foreclosure becomes necessary that the homeowner may hear from some of these parties, which can add complication and confusion to an already stressful process. Now, however, a court has ruled that one such business has acted without authority in transferring mortgages and initiating foreclosures on behalf of banks, potentially halting or reversing thousands of foreclosure proceedings.
Merscorp Inc. is a private company that is owned by large banks and mortgage processors. Referred to as MERS, which stands for Mortgage Electronic Registration Systems, the company exists to speed up the legal recordkeeping of mortgages and the sales of mortgage loans through a process known as securitization. It is estimated that MERS tracks 60 million mortgages, which is about half of all home loans in the country.
MERS has long engaged in the practice of filing foreclosure actions on behalf of the company’s owner banks. However, a recent ruling in a federal bankruptcy court may halt that action indefinitely. According to Judge Robert Grossman, MERS does not actually own the mortgage loans, and therefore it does not have the power to initiate foreclosures on the loans. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal,” he wrote. “This court finds that MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law.”
MERS has alleged that the ruling conflicts with a separate ruling in a Kansas bankruptcy court. If the federal ruling stands, thousands of homeowners in foreclosure may find themselves with clear title to their homes.
Source: Reuters, “Mortgage registrar cannot transfer mortgages – court“, Jonathan Stempel, 14 February 2011