January 13, 2012


At last, some wily citizens in danger of foreclosure on their homes have found a loophole in the mortgage chaos that may teach the bankers an expensive lesson.   Christopher Ketcham explains in his article for “Harper’s” (Jan. 2012) how these bankers thought they were being clever when they created an institution called MERS (Mortgage Electronic Registration Systems).

          “Its stated purpose was to manage a confidential electronic registry for the tracking of the sale of mortgage loans between lenders, which could now place loans under MERS’s name to avoid filing the paperwork normally required whenever mortgage assignments change hands.” (“Stop Payment!” by Christopher Ketcham, “Harpers’” 1/2012)

(courtesy: www.brookegianetti.typepad.com)

The electronic registry had all sorts of benefits for the mortgage industry, including the ability to avoid the transaction fees due to the local county tax assessor. In five years the plan became so popular that two thirds of home loans in the country were processed through MERS.

Unfortunately, these clever financiers forgot the fine print of real estate law, namely that for a bank to foreclose on a homeowner, the bank must show it owns the loan secured by the mortgage. Since so much debt has been bundled and sold elsewhere, the banks, when challenged, have been unable to prove their claims to foreclosure and a few savvy home owners have noted this disconnect. They’ve challenged the banks’ right to take possession of their property and have won in court. Now these institutions are faced with more suits of this nature and massive settlement costs. Having outwitted themselves, the bankers are being left to hang by a strategy of their own creation. As Francois de la Rochefoucauld, a French wit of the 17th century, once observed,

          “No man is clever enough to know all the evil he does.”