Mortgage database's murky legal status adds another wrinkle to foreclosure mess

Local and state governments are looking at Mortgage Electronic Registration System (MERS) to recoup revenue since this system avoided recordning fees.

One suit, filed by a whistleblower on behalf of California communities, struck at a key reason for MERS acting as the owner — to avoid filing fees for recording documents at counties nationwide.

The lawsuit, filed in Lassen County, accused MERS of costing California's counties $60 billion to $120 billion in property recording fees since it began operations.

"What we see is a systematic, industrywide fraudulent scheme in which the true owners of the loan do not participate in the foreclosure," said Robert Hager, a Reno lawyer for borrowers.

The system, not the bank filed for foreclosure and however, courts are ruling that MERS is not the true legal owner of the note on the property.

But recent court rulings have thrown a wrench into that foreclosure process by finding that MERS had no right to take any action. State supreme courts in Arkansas, Kansas and Maine have ruled that MERS is not the owner of record because it only maintains the database.

"It's not like this is some minor loophole or technicality," said Christopher Peterson, a law professor at the University of Utah who has studied MERS and has consulted on some lawsuits against the company.

And the status of some of the foreclosure filings.

But Max Gardner, a North Carolina consumer bankruptcy lawyer and expert on foreclosures, disagreed.

"It's not a simple … we-can-fix-it-in-two-weeks issue," Gardner said. "This is a structural problem with the legal model that the industry decided to use."

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