Court Rules MERS Can’t Foreclose on Homes in Washington State

Justices with the Washington Supreme Court have ruled that the Mortgage Registration Systems (or MERS) can’t legally foreclose on homes there because it doesn’t hold the note the homeowner signed with the lender. darkwindow.jpg

What this comes down to is that banks and other noteholders will now be the only parties who can initiate foreclosures in Washington State.

Although we have no similar pending action here in Florida, Miami foreclosure lawyers are applauding the decision as setting a precedent with regard to potential future cases, as well as given some wrongly-foreclosed homeowners another means to fight back.

MERS was created back in the late 1990s as a way of electronically buying and selling mortgages, much in the same way that Wall Street buys and sells stocks electronically. Before the invention of MERS, if one investor sold a mortgage loan to another, there were documents that had to be filed in the county where the property was. What MERS essentially did was allow the mortgage companies to bypass millions of dollars in recording fees that they would have otherwise had to pay to counties across the country.

Of course, this has led to numerous problems with regard to accuracy – usually at the expense of the homeowner. The problem with MERS, a Virginia-based company, is that while it does keep a huge database of mortgage information, it doesn’t have the actual paper copies of these documents. This is part of what led to the whole robo-signing scandal, which involved widespread wrongful foreclosures due to the fact that paperwork was automatically rubber-stamped, with no real proof of ownership.

This particular decision stemmed from two cases involving Washington State homeowners. The first was a woman who purchased a home in 2007. She fell behind on payments for that home – like so many others – and MERS requested that a trustee initiate a foreclosure proceeding on behalf of its bank client. The woman hired an attorney to stop the auction. The other case involved a similar scenario. Both were later transferred to federal court, which then bounced a question of state law back to the state’s supreme court.

Justices there found that the entire MERS system caused a great amount of concern regarding the potential for foreclosure errors, fraud and misrepresentation.

Indeed, the whole system allows mortgages to be sold, resold and then sold again – without homeowners ever knowing it. When homeowners fall behind on their payments, they are often given the runaround about who they are even dealing with to work out a loan modification.

The state court didn’t determine specifically whether these two homeowners will be foreclosed upon – that will still be decided at the federal level. Instead, the court determined that MERS, without being able to identify the actual noteholders, would not be allowed to represent the banks.

The ruling further suggests that if a foreclosure is brought by a bank and it’s later determined that bank doesn’t actually have the note, the bank could then later be sued by the homeowner for damages against Washington State’s law regarding consumer protection.

The hope is that this will promote honesty and transparency throughout the entire foreclosure process – something that has been sorely lacking in recent years, to the detriment of millions of homeowners across the country.

Other state high courts, such as California, have conversely backed MERS and its practices. It’s not clear whether the issue will remain a decision for the states, or whether the U.S. Supreme Court at some point will review it.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991.

Additional Resources:
A Question of Authority and Accountability, By Nina Shapiro, Seattle Weekly

More Blog Entries:
Inaction Against Banks’ Florida Foreclosure Lawyers Draws Upset, Aug. 8, 2012, Miami Foreclosure Lawyer Blog