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County Governments Sue MERS To Recover Recording Fees

Mortgage Electronic Registration Systems may not be a household name, but perhaps it should be. If you've bought a house or refinanced in the last decade, there's a good chance you signed a document at closing that designates MERS as your new lender. It's a setup that's the subject of much controversy. Now, several local governments across the country argue in lawsuits that MERS has enabled the mortgage industry to skip out on paying millions of dollars in recording fees. In a simpler time, here's what happened after you bought a house with help from a bank. The mortgage or deed of trust would be filed at the county courthouse. So would all future transactions on that mortgage - if another bank bought the loan, for example. A fee was paid each time those transactions were documented at the courthouse. And part of the money went to local governments to help them pay for local services. But that was before the big banks created MERS about 15 years ago, says Craig Watkins, the district attorney of Dallas County, Texas. "MERS was created, basically, to avoid going through that cumbersome process of making a filing within the local county records so they can quickly sell these mortgage-backed securities to the different entities," Watkins says. These days, most of those transactions are tracked in a private MERS database instead of courthouses. Watkins estimates his county has lost up to $100 million in recording fees. He filed a class-action lawsuit against MERS and hopes to represent every other Texas county. Similar lawsuits have also been filed in Florida, Delaware, Kentucky, Pennsylvania, Ohio and Oklahoma. "It's been the proverbial thorn in our side," says Janis Smith, a spokeswoman for MERS. Yes, the system has saved recording fees, she says, but only because MERS has eliminated the need to document every single transaction. "So because MERS is the mortgagee and the lien remains in MERS' name, there's no need for an assignment, so there's no need to record." All this might surprise you -- even if you bought a house or refinanced recently. You probably never heard of MERS. But almost two-thirds of all U.S. mortgages are registered with the private company. Remember that never-ending stack of papers at closing that you sign, date and initial? "There's standard language on page one, paragraph 1 that designates MERS as the mortgagee," Smith says. And that has led to a mess of the country's land records, says Christopher Peterson. He's a law professor at the University of Utah and also a consultant in foreclosure cases against MERS. "Now the public record doesn't reveal who owns the loan. Instead, it just says that MERS is the owner. They're recording documents that just say MERS over and over again," Peterson says. That's certainly the case at the register of deeds in Cabarrus County. There are lots of big, heavy books that index property transactions dating back to 1792, but one volume easily stands out for its massive size. "It's just page after page," says Register of Deeds Linda McAbee flips through the index for every transaction MERS has filed at the courthouse over a 5-year period. She has no way of knowing who bought and sold these loans, because MERS doesn't update the public record. And McAbee says her county is losing money as a result. "For sure, we did lose recording fees," she says. When the economy was strong, McAbee says her office received about $5 million in recording fees each year. Now, that's down to about $2 million. As the housing market continues to sputter, McAbee expects more local governments to take MERS to court to replace some of that lost money.