Michigan Mortgage

MERS Lawsuit Fouls up Foreclosures

by Evan Vanderwey on 09/06/11 at 8:27 am

Some foreclosures in Ingham County may have just gotten a lot more complicated. Last month the Michigan Court of Appeals ruled that Mortgage Electronic Registration Systems (MERS), a private company, did not have the right to use the state’s “Foreclosure by Advertisement” law to initiate foreclosures.

MERS is an electronic registry that tracks servicing rights and ownership interests in mortgage loans. Their service allows banks to buy and sell loans without registering the transfer with a county, a big enticement to banks looking to speed foreclosures. Unfortunately for MERS and the banks, the process violates Michigan law which requires a foreclosing party to own the legal title to the debt. MERS owns no interest in the debt and only acts on behalf of the banks that do.

MERS initiated foreclosures on 469 properties here in Ingham County, and many of those have gone to new buyers. This means the previous owner may have been foreclosed upon illegally, and the new buyer may hold uninsurable title to their new home–a potentially sticky situation for all parties.

According to Curtis Hertel, Ingham County Register of Deeds, “MERS ended up acting like a bank and so they foreclosed on citizens in lieu of the bank being involved.” So where’s the foul when the home would have been foreclosed anyway as MERS only acts on behalf of the bank that hired them? The foul lies in the short cut the banks thought they were taking: “People were robbed,” said Hertel, “of due process and time. It would have taken more money and more time to foreclose on the citizens and that’s what [banks] avoided by using MERS.”

The class action suit, brought by two parties who are seeking to represent all Michigan homeowners affected by MERS, asks for $100 million in actual damages and $300 million in punitive damages. It could be years before a settlement is reached, and until then the group most impacted by the suit may be completely unaware: If the new buyer of one of these homes goes to sell, the title may prove uninsurable. Said Ingham County’s Hertel, “We have victims on all different levels.”

MERS has since issued an official statement saying they will not be pursuing foreclosures in their own name. The suit is Depauw  v. Mortgage Electronic Registration Systems Inc., 2:11-cv-12032, U.S. District Court, Eastern District of Michigan (Detroit).

If in the previous two years you’ve purchased a foreclosed property in Michigian (but especially in Ingham County), you can contact your realtor (buyers agent) to see if it was a MERS initiated foreclosure.

No related posts.