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Counties Sue Mortgage Recording Company

loansafe.orgApr 30, 2012

By Kenneth Hart

ASHLAND (Source: Kenneth Hart The Daily Independent, Ashland, Ky. (MCT) — Several area counties are among the plaintiffs in a federal lawsuit alleging a company that alleges a company that operates a private mortgage recording registry and was formed to facilitate the trading of mortgage-backed securities deprived Kentucky counties of millions in unpaid fees for mortgage assignments.

Boyd, Carter, Greenup, Johnson and Magoffin counties are among the representative plaintiffs in the suit against Mortgage Electronic Registration Systems Inc.. The complaint was filed earlier this month in U.S. District Court in Ashland.

Also listed as defendants are 25 major banks and financial institutions, all of which the complaint states are shareholders in MERS.

Class-action status is being sought by the plaintiffs, and, if Senior Judge Henry R. Wilhoit Jr. certifies the class, all 120 counties in Kentucky could eventually collect damages if the suit is decided in favor of the plaintiffs, said Sandra Spurgeon of Lexington, the lead attorney for the counties.

According to Spurgeon, Kentucky joins about a half-dozen other states with similar litigation against MERS.

The 25-page complaint alleges the defendants “have failed to record mortgage assignments, in contravention of Kentucky law, depriving Kentucky counties of millions of dollars” in unpaid fees. The suit also accuses the defendants of engaging in “a scheme utilizing material misstatements of interests in mortgages filed in Kentucky.”

Recording fees paid by mortgage assignees are collected by county clerks and, under state law, used to fund counties’ land records services and also provide funding for Kentucky’s Affordable Housing Trust Fund, which was established to address homelessness and inadequate housing issues, while surplus fees go to local county governments to help fund other services. A typical recording fee is $12 for a document three pages long or less, with half of that designated to go to the Affordable Housing Trust Fund.

The Kentucky General Assembly passed a law in 2006 requiring lenders to record mortgage assignments, even though most lenders typically did so before that protect their interests in the properties they were financing.

Beginning in the late 1990s, the securitization of mortgages, where mortgage lenders would originate as many loans as possible for sale to banks and financial institutions, became a common practice. Those institutions would, in turn trade the mortgages amongst themselves and pool them into trusts for eventual sale to investors as mortgage-backed securities. The practice has been cited as a major factor in the collapse of the housing market, which plunged the nation into recession.

According to the lawsuit, securitizing of a Kentucky mortgage requires at least assignments, all of which should have been recorded.

MERS, the suit alleges was established in the mid-1990s “to act as an electronic clearinghouse for the transfer of mortgage interests among its members expressly to avoid recording mortgage assignments with local recording systems and to avoid paying requisite recording fees.” A statement on the company’s website, which has since been taken down, acknowledges as much, Spurgeon said.

The formation of MERS?was designed to make it easier for financial institutions to securitize mortgages and to trade mortgage-backed securities, the complaint states.

The suit state that upon “information and belief,” MERS is, or has been, listed as the “assignee,” “nominee” or “beneficiary” on hundreds of thousands of mortgages recorded in Kentucky, and the defendants have failed to pay fees multiple times on each mortgage. The plaintiffs believe MERS?committed “millions” of violations of the law since it went into effect in 2006, Spurgeon said.

“Although the exact calculations are not yet known, it is our belief that our counties owed significant damages,” she said.

At the same time MERS avoid paying recording fees, it used Kentucky’s land-recording systems to protect its property interests in the commonwealth, the suit alleges.

Claims made in civl lawsuits state only one side of an issue.


Back to April 2012 Archive

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