Chain of Title by David Dayen Page A

The need for standardizedproperty laws intensified during the Crusades, when landowners would travel to fight and leave their properties in the care of trusted colleagues. Often, when the landowners returned, the colleagues proved to not be so trustworthy, as they would refuse to give the properties back.
    The Statute of Frauds, passed in England in 1677, required that all agreements related to land, from leases to conveyances of transfer, had to be recorded in writing, signed and dated by all parties involved in the transaction. Later, notarizations, the ultimate assurance that the proper person signed a document on a specific date and in a particular place, were added. Contracts without written evidence would be unenforceable. The purpose of the Statute of Frauds, laid out in its preamble, was “For prevention of many fraudulent Practices which are commonly endeavoured to be upheld by Perjury and Subornation of Perjury.” It allowed courts to fairly adjudicate disputes over property, and it gave land a specific value, turning it into a tradable and insurable instrument. If anyone could claim property without consequence, nobody would have confidence to buy or sell real estate. In The Mystery of Capital , Peruvian economist Hernando de Soto identifies accurate property records as what separates undeveloped countries from developed ones.“What creates capital,” de Soto writes, “is an implicit process buried in the intricacies of its formal property systems. The formal property system is capital’s hydroelectric plant. This is where capital is born.”
    Without a landed gentry in America, colonists frequently bought and sold property, prompting the need for a system to codify transfers in law.The Massachusetts Plymouth Bay Colony established a recording law in 1636, mandating public acknowledgment to the governor for all home and land sales. Other colonies followed, legalizing the recording statutes used today.They created land registration offices, typically at the county level, to track property transfers and hold evidence of legal title. These offices designated what instruments needed to be recorded and preserved, along with penalties for failure to record. The information was indexed and available to the public, so mortgage lenders could confirm ownership before they issued loans, tracking the chain of title back to the original owner and ensuring the lack of defects in that chain. All transfers included a nominal fee to the public recording office to cover administrative costs. Like any pen-and-papersystem subject to human error, it wasn’t without its occasional rough spots. But it worked pretty well for three hundred years.
    When banks started securitizing mortgages on a wide scale in the 1980s, they viewed recording offices as a problem to be overcome. The nominal recording fee, typically between $25 and $50, barely registered on a mortgage costing several hundred thousand dollars. But to create the bankruptcy-remote trusts used in mortgage-backed securities, banks needed to transfer mortgages multiple times. Under the old system, that would trigger a recording fee and document creation at every step. With millions of mortgages expected to enter securitization, suddenly recording fees represented a drain on profits.
    In October 1993, at the Mortgage Bankers Association annual convention, a white paper suggested the creation of a private electronic database to track mortgage transfers. A subsequent accounting study by Ernst & Young identified hundreds of millions of dollars in savings by avoiding recording fees, leading to the incorporation in 1995 ofthe Mortgage Electronic Registration Systems (MERS), backed by funding from several major financial institutions, Fannie Mae, and Freddie Mac. By the end of the 1990s, practically all GSE and private-label mortgage securities involved MERS. Despite the lack of public debate or legislative approval, this database commandeered the land