Washington State Supreme Court: MERS Can Be Sued for Foreclosure Fraud

The Washington State Supreme Court has handed down a landmark ruling that could impact Florida foreclosure cases.childrensunset.jpg

Our Miami foreclosure lawyers had been watching the case closely, as it was expected to set a precedent with regard to what recourse homeowners had against the entities that wrongfully removed them from their home.

The justices ruled that consumers may take legal action and further seek damages from the Mortgage Electronic Registration Systems, also known as MERS. This is the company that was established by the country’s major banks to track property records.

However, MERS does not have – and has never had – the authority to foreclose on properties. However, that did not stop it from foreclosing on literally millions of properties throughout the U.S.

Now, they can be sued for fraud.

While the ruling is technically only applicable in Washington State, it sets the tone for similar actions in other states.

Essentially, any consumer whose home foreclosure was facilitated by MERS can sue the company for fraud.

What previously foreclosed homeowners must prove is that they were damaged by a MERS foreclosure. The threshold for this should not be difficult. Consider the following hypothetical: MERS forecloses on a home. The person or family is forced to vacate that home, causing them harm. Because MERS can’t legally foreclose on a home, they can be held responsible for that harm.

Consumer law attorneys have noted that the MERS business model is one that inherently lends itself to this illegal action. As such, it needs to change.

Financial institutions established MERS back in the 1990s as a way to help them fast-track the whole process of packaging loans into bonds that could be transferred from one investor to another.

The problem arose when MERS, which did not hold the actual title of ownership, was used by banks to foreclose properties on its behalf. Instead of recording the transfer of property with the local recorder, it was simply charted in MERS on behalf of the bank. This allowed the bank to save both time and money. But when it came time to foreclose on these properties, it became an issue trying to figure out who owned what. So MERS simply filed on the bank’s behalf. But without the deed in hand, they did not have the right to do so, the court ruled.

This was done more than a million times over in the wake of the housing bubble burst.

What the Washington court essentially ruled was that MERS did not meet the criteria for a beneficiary of those loans. As such, it was not allowed to foreclose on behalf of a lender.

What’s more, the Washington Court found that MERS’s robosigning actions violated the state’s consumer protection act. However, consumers there will have to file individual cases for alleged violations.

A similar case is currently being weighed in Oregon. This past summer, the Oregon Court of Appeals determined that lenders were not allowed to use MERS as a way to get around the state law that requires every single mortgage sale to be recorded in the county office before initiating an out-of-court foreclosure.

Other cases are pending.

A spokeswoman for MERS was quoted by saying that she expects the company to prevail with regard to future legal challenges.

However, this ruling does not make that statement appear promising.

In fact, the Washington case makes any consumer foreclosed upon by MERS in the last 15 years eligible for legal recourse.

We will be closely monitoring how these cases progress.

If you think you may have been a victim of a wrongful foreclosure, we are here to help.

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:
State court ruling deals blow to U.S. bank mortgage system, Sept. 14, 2012, By Michelle Conlin, Reuters
More Blog Entries:
South Florida Foreclosure Watch: Baby Boomers Hit Hard by Recession as Retirement Nears, Sept. 12, 2012, Miami Foreclosure Lawyer Blog