MERS, The Foreclosure Documentation Mess and The Elephant in the Room!

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Unless you are Rip Van Winkle, it’s hard to not know about the latest foreclosure mess hovering over the housing market.  This mess has to do with the manner in which lenders handled and processed the paperwork needed to proceed through various courts to obtain a foreclosure. 

As you know, most lenders were taking drastic short cuts in the review process and they got caught!  And in typical fashion they all scrambled to fix the issue, review the paperwork and declare they won’t let this happen again.

So… I guess we can all move along as there is nothing more to see regarding this latest mess.  Right?

Well… perhaps this mess is fixed… if you are willing to overlook the ELEPHANT in the room.

What elephant you might ask?

Mortgage Electronic Registration Systems – better known as MERS

If you haven’t heard of MERS a quick Google search will bring you up to date quickly.  In essence, MERS is a company unilaterally established by the large lenders to track the purchase and sale of mortgages between lenders while allowing them to avoid recording fees and transfer taxes when a loan is sold.  One expert puts it this way… “MERS is nothing more then a gigantic Excel spreadsheet used to track specific data for over 60 million mortgages.”  And, if you check most loan documentation MERS is defined as the entity (nominee) who is also listed on the deed.  In other words MERS is at the center of just about every mortgage and deed in existence.  Yet, it doesn’t manage anything.  How could it, it has less then 70 employees!

Because the action to establish MERS was unilateral, without the benefit of any law or regulation, its very existence is now challenging over 800 years of well established and settled property ownership laws.

And that is the Elephant in the room!

Without getting into the boring aspects of ownership law… a simple fact remains… our system of property ownership works because established laws have defined how the chain of title is to be modified and maintained.  Simply put, if lien holders expect to have rights regarding a property in which they have a financial stake, then they must show up on the deed… and to make that happen requires recording fees and sometimes transfer taxes to be paid. 

The lenders who created MERS hoped to be able to get around these laws and avoid having to pay the various fees and taxes every time a mortgage was bought or sold.  Think about it… if you have a mortgage that was sold you would expect to see the new “servicer” to take a position on the deed.  That has not been happening.  Instead MERS is listed on the deed with the lenders hoping no one would notice.  And most people have not… At least not until a couple of smart lawyers and a couple of concerned judges stuck their nose under this tent.

To date, where a foreclosure has been challenged when MERS is the foreclosing entity, MERS has lost.  I am sure you will agree, that is not a very good track record. 

The Million dollar question(s) is this… what impact will this have on the housing market specifically or the economy in general?

Well, as with most elephants, when they start roaming around they mess things up.  Lets explore the impacts.

  1. Assuming MERS continues to lose in court (a good assumption) the lender(s) who should have been recorded on the deed will most likely have to placed on the deed to have legal “status” to foreclosure.  This is going to cost a lot of money!
  2. Many foreclosures will get tied up in the sure to materialize legal mess as homeowners and lenders using MERS duke it out in court… further delaying hitting a true housing bottom and moving towards a housing recovery.
  3. Of course if I wanted to put on my doomsday hat, this one situation could take every lender to its knees as they realize that they have no legal standing to foreclose on a property and instead of what was thought to be a mortgage now becomes an unsecured debt.  Just like a credit card.  While this would look like a free gift to many homeowners, the real impact would felt further down the financial line by all of those entities that purchased mortgage backed securities… to only now find out they have nothing but a bunch of unsecured paper.  OUCH! and DOUBLE OUCH!

I have only just covered the surface of this latest debacle.  And to be totally honest, no one that I can find has any real sense how to fix this problem.  It is just ugly no matter how you look at it.

So… what’s my bottom line?

Keep you eye on this, it is unpredictable and the consequences of it being in our presence could be very unfortunate . . and I will provide periodic updates as this starts to sort itself out.

Photo: Brian Snelson

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.


  1. Excellent well written article that really brings this issue to light. I look forward to hearing more on the subject as the story continues to unfold. Thanks for the insight!

  2. Pete,

    It’s quite the scary scenario. I don’t think many people realize the shear costs involved to even come close to rectifying the situation. Magnify that with the fact that many states and counties are broke and will go after all that lost revenue as soon as the first drops of blood hit the water. The “greedy” lenders make an easy target for any official looking to make a name for themselves. This could become quite interesting.


  3. R.Scott Susman on

    The unspoken nightmare scenario here, is the pending legal position of the purchasers of these “bundled” mortgage portfolio’s, whom now may well find themselves without legal title to real estate securities after writing multi-billion dollar checks for these Wall Street offerings, ugly… decades of legal wranglings!

  4. Good stuff ……I do not think the MERS issue will have much effect on the big picture.
    The 2 things that matter:

    1) I know the number of persons behind on paymetns continues to grow in the Washington DC metro area, and, until this changes, the market will remain VERY low
    2) Until Uncle Sam (actually OUR TAX DOLLARS) helps out with the “shadow inventory” (homes foreclosed on and taken back by the Investors that have NOT yet hit the market), we will not see a solid bottom.

    Just my 2 cents……

    • Ben,

      I think I will have to disagree regarding MERS affection the big picture… as it is too early to know for sure.

      The best that we can hope for is that it slows the entire foreclosure process down…

      The worst will be that localities will demand and receive payments for the multiple transfers which have occured to date and the courts will strip the lenders of the real estate collateral for loans under MERS.

      I don’t think the worst will occur… but it is too early to determine the real outcome.


  5. Your article is a good considering the many other MERS articles. The reason I am commenting is this…. WHAT IS THE OPPORTUNITY FOR INVESTORS? I have been around the block with Attorneys and titles companies about this MERS issue.
    Like you I believe an elephant is in the room, this elephant could “destroy civil society” through civil unrest (another subject). I am confident the government will use media magic tricks and its “power” to make the elephant disperse but before “hell on earth happens”… but my question is still not answered… opportunity for investors?

    I welcome suggestions?

    • Justin,

      No double that this entire scenario could destroy civil society…

      Your question regarding the opportunities for investions is a great question.

      I am still struggling to understand the opportunities as they most certainly will be developing. As I see them materialize I will be sure to write about them.

      In the mean time, I hope others will add their thoughts regarding potential opportunities.


  6. Hi Peter –

    Thanks for giving this issue some daylight. It is not being covered very well in the mainstream press in my opinion. I’ve blogged about this issue in the past myself. I’m wondering if you have heard of any specific court cases where a homeowner was successful against MERS in court and if so, could you share them with us? If you know the outcome of those cases, that would be great info to share as well. For example, do you know of anyone that has been successful with getting their mortgage “erased” because of this issue? What are judges ruling in most of these cases?

    I have several clients that are considering lawsuits against MERS for various reasons. The primary reason they are arguing is that they should not be foreclosed upon because the bank is not the true holder of the mortgage. From my understanding of this issue, it seems like a simple argument that should easily be won by most consumers who challenge the banks in court.

    While I agree that this issue only stands to delay the foreclosure nightmare we are all in the middle of, I’m going to side with the consumers on this one! As far as I’m concerned, the banks who participated in the creation of MERS were asking for this disaster.

    Any info you could provide would be helpful. Thanks!

    Chad Hanson

    • Im in Tucson az. I do know someone and seen the court papers. He did fight and won and got his house back free and clear so tell your friends to fight it to the end these lenders have cometed froud and for the froud act you have every rite to get your house back free and clear.

      • Mike, can you provide as a reference the county and document book/page? I for one would like to look this up. Chad, I am wondering the same thing. I am looking and have found no cases in my area.

    • Chad,

      There are a couple strong cases. One was out of Nebraska and the other in Maine. If you google MERS and each state you should find both.

      I have read the appalette court finding in Maine. The bottom line was MERS has no standing in Maine and the court remanded the case back to the lower court.

      If MERS is the entity filing the foreclosure your clients might have a chance to delay the process… the next step of course would demand proof through actual documentation by whomever is filing the foreclosure…

      Just clarifying point… I believe that whenever two parties enter into legally binding agreements… their duty is to fulfill their obligations to that contract. In the case of the lenders vs. struggling homeowners… I am hard pressed to see where the lenders are playing by the rules… and they need to held accountable and forced to follow the laws as a private citizen would be.


  7. Richard Dale-Mesaros on

    MERS is also one of the lenders that tend NOT to take discounts at auction, here in NH – if we see that MERS is the mortgage holder, we don’t bother going, unless there’s a ton of equity….

    Here’s to fettling out the profit centers in this debacle!

    Richard 🙂

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