What is MERS? Mortgage Electronic Registration System

Are you looking at what is above the waterline or below the waterline?

I have spent 12 years investigating mortgage chains of title. In that time I have seen the same documentation defects thousands of times. This article is the first in a series on Mortgage Electronic Registration Systems, Inc., known here as MERS. We are going to strip away the layers of misinformation that have been built on years of presumptions and assumptions. Let us start at the beginning.

In 1993, a White Paper was created. Its purpose was to find a faster, more profitable way to handle the paperwork required for filing public records pertaining to real property. The goal was not accuracy. The goal was speed and cost savings.

The Original Players

The parties that fabricated this collusion were an interesting cartel. At the helm was Angelo Mozilo. At that time he was the President of the Mortgage Bankers Association and also the President and CEO of Countrywide Funding Corporation. Below him was the Inter-Agency Technology Task Force, comprised of Phyllis Slesinger and Daniel McLaughlin, both affiliated with the Mortgage Bankers Association.

The Steering Committee was comprised of the following people:

• William Kelvie, Executive Vice President and Chief Information Officer for Fannie Mae
• Paul Peterson, Senior Vice President Servicing for Freddie Mac
• Kenneth Tucker, Deputy Director of the FHA (Federal Housing Authority), Representative of FHA
• Michael Daly, GNMA (Ginnie Mae) Specialist Assistant
• Warren Laski, Mortgage Bankers Association Executive Vice President

These were people authorized to make changes which would affect the RMBS market forever. The brief description of business filed with the SEC alleges that MERS is a National Mortgage Rights Registry. Read that carefully. It does not state that it is a recorder of records. It is exclusively a registry.

The Problem Being Addressed

The issue was simple. The time required to properly fulfill the statutory requirements for perfecting a secured lien on real property was costing the banks money. Counties had to get paid. People had to do the work. The banks wanted to cut those costs.

The Rise of Securitization

Securitization did not just suddenly appear on the horizon. It was started decades ago and was made popular in the 1970s with the Salomon Brothers, a Wall Street investment bank. By the 1990s this machine we call securitization had started to grow and gain momentum. The first properties did not enter into MERS until 1997. Understanding whether your loan was properly securitized is critical to determining whether the foreclosing party has standing.

The National Registry was originally intended to satisfy the requirements of UETA and ESIGN. Nevertheless, 15 U.S.C. 7003(3) states that Article 3 and Article 9 do not apply to UETA and ESIGN. We are talking about real property, not personal property. MERS operates in the intangible world of e-Mortgages and e-Notes, not paper notes and paper security instruments. Attempting to provide functionality for paper note tracking would greatly complicate what MERS was designed to do.

Registration vs. Recording

Compare the basics and you can discern the difference between registration and recording. MERS is not a system of legal record. MERS is not a replacement for public land records. MERS is solely a tracking system. No loan interests are transferred using MERS. They are only tracked.

Transferable records are personal property, not real property. They fall within the general revised scope of the Uniform Commercial Code Revised Article 9 and Revised Article 109(a).

However, Chapter 9 of the Uniform Commercial Code does not apply to the creation or transfer of interest in or lien on real property.

Sec. 9.109. SCOPE

(d) This chapter does not apply to:

(2) a lien, other than an agricultural lien, given by statute or other rule of law for services or materials, but Section 9.333 applies with respect to priority of the lien;

The Iceberg Below the Waterline

Look closely at the transferable records and you understand something important. A Transferable Record is NOT an “instrument.” Under Revised Article 9, a transferable record secured by real property is a “payment intangible.” This distinction matters. In my investigations I have found that courts, trustees, and even attorneys routinely confuse what MERS tracks with what is legally recorded. A MERS audit examines these electronic records to determine what MERS actually tracks versus what is legally required.

This is why I compare MERS to an iceberg floating in the ocean. You are only looking at what is above the water line. You are not seeing the 90 percent below the surface.

In Part 2 we will go below the water line of MERS and look at what is being claimed.

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Joseph Esquivel, Mortgage Compliance Investigators. Copyrighted, all rights reserved.