Chain of Title by David Dayen Page B

recording system for a substantial majority of mortgages in the United States.
    Instead of filing with county recording offices each time a mortgage transferred—and paying that fee—banks instead listedMERS as the “mortgagee of record” in the initial mortgage assignment. Then, for subsequent transfers, the parties would go to the MERS database and list trades on an electronic spreadsheet. Banks could make unlimited transactions inside MERS; the county recorder only knew about the original assignment.
    Though frequently listed as legal title holder on borrowers’ deeds, and though named on the assignment in the public records, MERS has no financial interest in the mortgage, does not receive payments from any borrower, and does not receive proceeds from any foreclosure sale. They make their money on the front end from mortgage originators, who pay to use the MERS database. MERSCORP, the parent company, owned a headquarters in Reston, Virginia, and a data center in Texas. They employed aroundsixty workers. MERS, Inc., the name on all the mortgage documents, was a shell company with no actual employees. Yet at the height of the housing bubble, most of the existing mortgages in the United States, more than sixty million, listed MERS Inc. as the “mortgagee of record.”
    Law professors such as Christopher Peterson of the University of Utah identified a couple of major problems with MERS. First of all, it operated like a tax evasion scheme, depriving local governments of recording fees by transferring mortgages internally. The far bigger problem was that the MERS database served as the repository of all knowledge about the various transfers from originator to trustee. Thousands of people could access the MERS database, which proved far more susceptible to human error than the recording office. Banks failed to record transfers within MERS in a timely fashion, if at all. Nobody took responsibility for flushing out errors or double-checking transfers. With millions of loans, that project could hardly be managed by a large team of operatives, let alone the few employees at the MERS data center.Law professor Alan White of Valparaiso University surveyed a sample of MERS loans and found that only 30 percent matched the ownership record in the public domain. MERS didn’t so much track mortgage transfers as it pretended to track them.
    If the borrower missed payments and the servicer decided to foreclose, MERS acted in one of two ways. In some cases they carried out the foreclosure process in their own name, as the mortgagee of record, despite the fact that they had no material interest in the loan itself. Alternatively, like in Lisa’s case, they quickly made an after-the-fact assignment to the trustee, which under the pooling and servicing agreement is supposed to hold legal title on the loan. The difference depended on state laws surrounding foreclosures, whether the note was specifically endorsed to some other entity or not, and whether local courts had caught up to the fast-moving scheme.
    Either way, MERS operated under questionable legal foundations. In depositions, MERS claimed to be merely acting as “nominee” for the lender while also claiming to hold legal title on the mortgage. They would argue their role as mortgage holder whenever possible but deny liability when pressed. In a March 2009 bankruptcy case in Nevada called In re Hawkins , MERS brought foreclosure action in its own name and as a nominee for others simultaneously. On page 9 of their brief in the Hawkins case, MERS asserted the “right to enforce the note as the note’s holder”; on page 8 of thesame brief, they asserted “authority to act for the current beneficial owner of the loan or its servicer.” MERS didn’t even seem to know what MERS did. (They lost that case, incidentally.) As Peterson wrote in a law review paper,“To grant MERS standing based on legal title held by someone else is