Delaware Attorney General Beau Biden today filed suit against Merscorp, Inc., overseer of a national mortgage database used by banks when buying and selling loans. According to a statement from Biden’s office, MERS allegedly engaged in “deceptive trade practices,” knowingly obscuring information from borrowers and providing them “frequently inaccurate” information.
Created by large banks, Fannie Mae and Freddie Mac, and others in the mortgage lending industry, the MERS registry allows institutions to exchange loan ownership without recording transfers with county Recorders of Deeds offices. In cases where a MERS member owns the note promising repayment, MERS acts as the lender’s nominee and remains the mortgagee of record, BusinessWeek explains.
Biden’s office alleges that the database makes it difficult for consumers to recognize or challenge inaccuracies, and “hampers the ability of borrowers to seek out the owner of their loan to pursue loan modifications or other loss mitigation relief.”
Biden’s office also alleges that the system’s unreliability and frequent inaccuracy often results in MERS being unaware of the identity of its proper principal. “Where the name of the owner of the mortgage loan recorded in the MERS System does not reflect the true owner, any action MERS takes on behalf of the purported owner is without authority,” according to the AG’s statement.
[Featured Tool: Get your free Credit Report Card from Credit.com]
Merscorp responded with a statement from Janis Smith, Vice President for Corporate Communications. The company describes its business model as “straightforward and transparent” and argues that there is “no merit” to the Delaware AG’s deceptive practices claims. Likewise, “we refute claims that use of the MERS System caused confusion to borrowers or any other participants in the mortgage finance system,” according to the statement.
The company adds that borrowers’ customer relationships lie with loan servicers, and that its system provides homeowners with free access to their loan servicer at all times.
According to Dow Jones Newswires, previous lawsuits have resulted in some legal victories for MERS and some for its critics. The Delaware AG seeks a civil penalty of $10,000 and restitution for every willful violation of state deceptive-trade-practices act. Additionally, it “seeks to stop MERS from initiating foreclosure actions in the state or taking any actions on Delaware-registered mortgages until it has audited them for accuracy and it has improved transparency,” Dow Jones Newswires reports.
[Featured Product: Shopping for secured credit cards?]
Image: anna_t, via Flickr.com