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DEED CONFUSION: A for sale sign is seen in front of a home in Miami, Fla., in this file photo. The Mortgage Electronic Registration Systems Inc. (MERS), a computerized system established to hold and track mortgages, has caused confusion in tracing the chain of title for U.S. properties. (Joe Raedle/Getty Images)
Homeownership is fraught with many problems, especially during a recessionary period. A major problem can arise when the property is still encumbered with a fixed-rate mortgage (FRM), an adjustable-rate mortgage (ARM), or any other mortgage variation under FRM or ARM, including balloon mortgages and mortgage loans guaranteed by, for example, the Federal Housing Administration.
What is not public knowledge is that a title or a deed to a property, which should de facto decree full ownership, may not in fact do so, thus requiring costly litigation.
A title to a house should be fraught with the least problems, because one hires a local title company—which is generally a requirement when applying for a loan—and the title company provides a clear title. Then, one also procures title insurance that protects against challenges against one’s ownership.
For proof of ownership, counties throughout the United States, for a reasonable fee, record all those involved when properties change hands, including lenders.
“County real property records are the oldest and hitherto most stable metric tracking the ‘American dream’ of family homeownership,” testified Christopher L. Peterson, professor at the University of Utah, before the U.S. House of Representatives Committee of the Judiciary.
Circumventing Time-Honored Property Recording
“To avoid paying county recording fees, mortgage bankers formed a plan to create one shell company that would pretend to own all the mortgages in the country—that way, the mortgage bankers would never have to record assignments, since the same company would always ‘own’ all the mortgages,” testified Peterson.
Mortgage lenders formed the Mortgage Electronic Registration Systems Inc. (MERS), maintained by MERSCORP Inc. MERS is a computerized system established to hold and track mortgages. It holds around 60 percent of home mortgages in the United States.
The majority of firms in the mortgage industry are members of and investors in MERS. The fee paid to MERS is a smidgen compared to what they would have to pay in property fees. Therefore, MERS allows bankers to bypass county government fees and reduces administrative burden of collecting monthly loan payments.
Peterson testified that lenders are not required to provide information about ownership or transfer of mortgage packages to MERS, as “they believe there are no legal penalties for neglecting to make this information available.”
As a result, records of landownership are diluted, and one may or may not own the property clear of any encumbrance.
“For the first time in the nation’s history, there is no longer an authoritative, public record of who owns land in each county,” testified Peterson.
Next … conundrum for courts
