Mortgage Industry May Be Reshaped By Courts

Mortgage Industry May Be Reshaped By Courts

6/23/2011

 

Last week, a New York appellate court ruled that a Reston-based company, which tracks and transfers electronically millions of mortgages, did not have the right to foreclose on a property or assign the mortgage it does not actually own. The decision came only days after a California appeals court took a different view on the matter, ruling that the firm indeed has the authority to act on behalf of the lenders.

Like dozens of similar suits already decided or being debated in courtrooms all across America, the two cases highlight a long-drawn-out legal battle that reshape the mortgage market in the years to come.

The cases also emphasize the ambiguity that continue to surround the Mortgage Electronic Registration Systems, more commonly known as MERS, which has allowed the financial sector to transfer and reassign cheaply and quickly millions of mortgages since the 1990s. The firm also has acted as the proxy for banks in myriads of foreclosure proceedings.

The business model of the MER has increasingly come under heavy criticism since last fall’s revelations of widespread problems in foreclosure filings all across the country. These included forged documents, as well as lingering questions about who really owns the homes being foreclosed. Borrowers and their lawyers continue to legally challenge the legitimacy of MERS, which does not actually own any of the 65 million loans in its huge registry.

So far, these legal challenges have had limited success. However, as the cases are reviewed by appellate courts, the rulings could call into question hundreds of thousands of foreclosures that have taken place since the housing debacle. More significantly, if judges eventually deem the MERS model invalid, then it could usher in massive lawsuits against banks that inappropriately bundled and sold mortgages to investors and could obstruct the private securitization market.

WRITTEN BY:

blakeh@wellsdrew.com