Often times on a title search report a reference to MERS appears in the mortgage section. But what does it mean and what is it referring to? MERS, the Mortgage Electronic Registration System, is a collection of recordings that was establish in the 1990s by the largest mortgage lenders of that time. Essentially, it was created to decrease the legal costs incurred by these lenders when transferring mortgages between themselves. They had begun doing such a large volume in mortgage exchanges and assignments that it was costing them millions of dollars. Thus, they created this electronic registration system which allowed them to keep the original mortgage recorded in MERS and then, within the system, identify who was the lender responsible for collecting payments, who owned the mortgage, etc. However, the question of whether or not it was constituted as a valid mortgage or valid assignee arose when the foreclosure crisis began in the mid-2000s. Even so, in most court cases, it has been established that as long as the underlying lender has the proper documentation then they have the authority to foreclose under MERS.
If you have a title search that shows MERS as the lender then, in theory, it is the lender of record but in all reality there is an actual bank behind it. However, the bank lender is not something that is reported in an official real estate property title search. For this reason, having a title representative do an extended search to look up the lender of record specifically within MERS so there is no doubt or question as to the actual beneficiary or lender is recommended.
Today, there are many ongoing cases of homeowners battling legal issues involved with the process of their property being foreclosed and questioning MERS as a beneficiary. However, MERS seems to be coming out on top. The court has been recognizing “assignment of mortgages through MERS and its equivalents as valid and enforceable, and that MERS may assign a deed of trust just as any other hold or beneficiary.” For example, this was the case in the ruling of Citing Martins v. BAC Home Loans Servicing, according to RealEstateRama. In a similar case, Opraseuth v. HSBC Bank USA, “the borrowers filed a suit against defendants alleging, among other claims, that the assignment from MERS was invalid because MERS did not specify it was acting as a subsequent lender’s nominee,” as described in the article Northern District of Georgia Dismiss Borrower’s Challenge to Validity of MERS Assignment. This ruling found that, “the plaintiffs lack standing to challenge the assignment in this case because they were not parties to the assignment contract.” For an additional example, read Lexology’s Sixth Circuit Upholds Dismissal of Borrower’s Challenges to Foreclose on Their Property, in regards to the Dauenhauer v. Bank of New York Mellon case.