Electronic mortgage system under fire; Miami homeowners facing foreclosure should seek legal help

January 6, 2011

As our Dade County real estate attorneys reported earlier this week on our Miami Foreclosure Lawyer Blog, the nation's electronic mortgage tracking system was invented in the early 1990s to save hundreds of millions of dollars associated with tracking, storing and maintaining paper mortgage documents.

Billions more were made by packaging the new electronic mortgages and selling them as securities. But for those looking to stop foreclosure in Miami, precisely who owns your mortgage could be in serious question as a result of stripped down safeguards, shoddy business practices, greed and the questionable ethics of banks, mortgage companies and their attorneys. Those who stand up for their rights have a significant chance of negotiating a settlement or mortgage modification and may even be able to fight for monetary damages or the return of their property.
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The Washington Post reports that the original electronic system was the brain child of Angelo Mozilo, the founder of Countrywide, which would become the poster child for the abuses of the mortgage industry as the real estate market imploded in 2007. In part as a result of the savings associated with electronic mortgage tracking, and the profits of selling mortgages as investments, Countrywide's profits increased more than 40 fold, from $60.2 million in 1992 to $2.67 billion in 2006.

Today the Virginia-based Mortgage Electronic Registration Systems (MERS) has more than 67 million electronic mortgages on file. The Reston-based company employs just 45 people, despite tracking more than 60 percent of the nation's mortgages.

Not content with profits, banks stripped down the new system and cut corners. The first thing to go was the vault for keeping documents. Instead, the system became a giant card catalogue and banks were told to keep the mortgages and promissory notes. Today, many of those notes are missing and banks or their attorneys routinely file lost note claims when filing a foreclosure action.

The new system lacked transparency. Many mortgages are often sold multiple times and the servicer can also change -- the servicer is typically the bank responsible for collecting payments. The new system allowed MERS to be listed as the mortgage holder in local land records offices. The new owner or servicer would file electronically with MERS but not with local land offices.

The system leaves critical information with MERS and makes it that much more difficult for a homeowner to track who owns the mortgages and the servicing rights.

When the market imploded, MERS found itself listed on millions of mortgages in county land offices. Since the mortgage holder is often required to take foreclosure action -- and MERS employed 45 people, mostly computer techs -- it authorized more than 22,000 agents throughout the country to identify themselves as MERS employees. Many believe that is where the real shenanigans began as law firms and other mortgage servicing companies cranked up robosigning operations to churn out affidavits, false documentation and other paperwork in support of a bank's right to take foreclosure action.

At least three states -- Missouri, Kansas and Oregon -- have issued court rulings limiting or negating the rights of MERS in foreclosure cases. And Congress is looking at forbidding Fannie Mae from buying mortgages listed in the MERS system.

If you need help with foreclosure issues in Miami or the surrounding areas, including short sales, deficiency judgments, strategic defaults or other help for Miami homeowners, contact Bruce Jacobs & Associates for a confidential appointment to discuss your rights. Call (305) 358-7991.

First the electronic mortgage superhighway Then the pileup .pdf