Editor's note: This report is part of an occasional series about the legality of profits being made from the publication of foreclosure notices, as well as the roles of banks, trustees and the courts in this state-mandated process. Follow along at bendbulletin.com/foreclosures.
A private mortgage database set up by the country's biggest lenders drove the home-financing industry to record profits over the last decade.
But cracks in the Mortgage Electronic Registration Systems business model has homeowners, attorneys, counties and states crying foul. They are pushing back against MERS, whose virtual cache of 27 million mortgages lets lenders sell them to investors and other lenders, allegedly without publicly recording each transfer in the county in which the property is located.
County clerks collect fees when legal documents are filed, with the proceeds typically financing clerk's office operations and supporting county general funds. So the failure to file property records would reduce revenues and prevent the public from knowing who owns or has an interest in their homes.
Deschutes County may have been short-changed millions of dollars in recording fees since MERS was founded in 1995. County leaders don't know what the actual dollar amount could be. But Commissioner Tammy Baney said the possibility of lost fees is a real concern.
The Multnomah County Commission voted 5-0 last month to file a lawsuit against MERS. The commissioners said MERS' practice of selling mortgages without recording transfers in the county clerk's office deprived the county of $3 million to $24 million in recording fees, a portion of which could have been used to fund other programs.
Multnomah County's lawsuit is expected to be formally filed in the coming weeks.
County leaders across the state are watching that case closely, including officials in Deschutes County.
“I have asked our interim county administrator to put together a work session discussion soon so that we could discuss any next steps for Deschutes County,” Baney wrote in an email to The Bulletin.
Bend's single-family housing market was one of the hottest in the country from 2002-07, as more than 11,000 home sales caused median home prices to nearly double, according to Oregon Association of Realtors data.
The MERS name was rubber-stamped on thousands of mortgage documents filed over that time, listing themselves as the beneficiary of loans being transferred from one title company to another, Deschutes County deeds records show. The legality of those documents is unquestioned.
The real issue is whether or not MERS was overseeing additional transfers, out of the public eye.
Oregon law requires that each transfer of a property's title be recorded in the county in which it is located. If every transfer is recorded, the chain of title for a property is considered complete.
If not, attempts to foreclose on a property can be challenged in court.
Currently, the typical fee for filing a mortgage document in Deschutes County is $48 for one page, plus $5 for each additional page. Those fees are collected when mortgages are transferred from one trustee to another, as well as when the mortgage is originated and when the loan is paid in full.
But it's uncertain whether, or how many, Deschutes County mortgage transfers took place only within MERS' private database, without being recorded in county records. That's the essence of the Multnomah County lawsuit.
Asked by The Bulletin about possibly following Multnomah County's footsteps by taking MERS to court, Deschutes County commissioners Baney, Alan Unger and Tony DeBone said they were not prepared to talk about specific proposals. But none of the commissioners ruled out action against MERS.
“It's an issue I'm going to be looking into,” DeBone said.
Two Lane County commissioners also said they want to examine the MERS issue, concerned over potential lost recording fees in the Eugene area during the housing boom years.
But one of those commissioners, Rob Handy, said the board isn't likely to take action in the immediate future. Handy and Commissioner Pete Sorenson want a work session to discuss MERS, but the other three Lane County commissioners voted against examining the issue further, according to Handy.
Handy estimates Lane County has lost about $10 million in recording fees since the late 1990s.
“And those are conservative numbers,” Handy said. “I know of a number of constituents here in (Lane) County who are focused on this issue and have done a lot of research on it.”
The county has faced roughly $10 million annual budget shortfalls over the past several years, he said, and is facing a $3 million to $5 million deficit for the upcoming fiscal year.
Going after lost recording fees could help plug some of the county's budget holes, Handy said. Most notable would be extra revenue for public safety, where cuts forced sheriff's staff to release 32 inmates all at once on Nov. 29.
In Deschutes County, the MERS problem runs deeper than lost recording fees, noted Commissioner Unger.
It has thrown a wrench into Oregon's foreclosure process. Other lawsuits involving MERS, combined with a new state law requiring mediation sessions for homeowners going through foreclosure, have prompted lenders to nearly abandon the nonjudicial foreclosure track and take their cases to circuit courts — a longer, costlier process.
In July, the Oregon Court of Appeals ruled in favor of a Clackamas County resident who argued that MERS could not act as beneficiary because it had no financial interest in the resident's home. MERS has appealed the case to the Oregon Supreme Court.
Between Jan. 1 and Sept. 30, parties filed 323 foreclosure cases in Deschutes County Circuit Court, according to the trial court administrator. Nearly half of them were filed after the ruling by the Oregon Court of Appeals.
“The courts are challenged with how full their dockets are now, especially with cases that are pending,” Unger said.
The Appeals Court ruling, and similar rulings across the country, cast doubt on the validity of MERS-backed foreclosures, said Phil Querin, a Portland real estate attorney who specializes in foreclosure issues.
The question, Querin said, boils down to who owns a mortgage note: Is it MERS, which purports to be the beneficiary of 27 million active mortgages across the country, but has never collected a dime in mortgage payments?
A month after the Oregon Court of Appeals ruling, the Washington State Supreme Court issued a similar ruling against MERS.
The mounting lawsuits show the perils of giving a company with just 80 employees — or one for every 337,500 loans — power over such a massive mortgage volume, Querin said.
Lawsuits similar to the Oregon case have been filed in Idaho, Arizona, Nevada, New York, Kansas, Texas, Michigan, Tennessee and other states.
Attorneys general in Louisiana, Delaware and Ohio have sued MERS over lost recording fees. The district attorney of Dallas County, Texas, filed a lawsuit, as have county district attorneys in Iowa, Illinois, Kentucky and Alabama.
Few challenged the validity of the MERS model before the housing market crash. The company was founded by Bank of America, JPMorgan Chase, Fannie Mae, Freddie Mac and other lending giants.
“They just got together and said, 'We're going to have an off-the-record registration.' They got all the big boys in lockstep and got the title companies to buy into it financially, as well as conceptually,” Querin said. “Talk about hubris, and a recipe for disaster.”
MERS officials declined to answer questions sent by email from The Bulletin. The company has contested each of the lawsuits filed against it by homeowners, counties and states. Company officials noted in past interviews that MERS has won more of those cases than it has lost, though many of the cases are in the appeals process.
Deschutes County Clerk Nancy Blankenship said she's focused more on day-to-day operations than on possible lost revenue. She's aware that if some documents that should have been recorded were not, the office may have lost out on revenue.
“There have been conversations about it,” she said, “but how do you know what you haven't got?”
Help with foreclosure
For information about foreclosure prevention programs administered by the state of Oregon, visit http://oregonhomeowner support.gov