Attorney General sues company for failing to record mortgages with county clerks

01/23/2013 04:13 PM

UPDATED 9:30 p.m. — In filing a lawsuit on Wednesday in Franklin Circuit Court, Attorney General Jack Conway said a national mortgage company deliberately violated Kentucky law by not recording mortgages with county clerks.

Conway said MERSCORP Holdings, Inc. and its subsidiary Mortgage Electronic Registration Systems, Inc., chronically failed to file the mortgages when they were sold or transferred thereby avoiding a $12 clerks fee each time.

MERS has denied any wrongdoing (see statement below).

Conway said “MERS directly violated the law by creating this system that provides absolutely no public record of sales or transactions.”

Conway says that MERS handles nearly 60 percent of all mortgages in Kentucky and the company’s actions have created problems with transparency of the loans.

Under Kentucky law, MERS could be fined up to $2,000 for every violation.

“The process undermines the integrity of Kentucky’s public land records,” Conway said.

Conway accused MERS of creating a “ghost facade” in which it was impossible for anyone to tell who was holding the bank notes for the mortgages.

“Without prior authorization, the banks in this country privatized the public recording system and they messed up,” said Conway.

Other states that have filed similar lawsuits against MERS include Delaware, Massachusetts and New York.

MERS released the following statement in response to Conway’s complaint:

“There is no merit to the allegations leveled at MERS by Kentucky Attorney General Jack Conway in today’s news conference. All MERS mortgages are registered in the local land records and all recording fees are properly paid. The MERS System’s role in the mortgage industry has reduced chain of title issues, provided efficiencies through e-commerce, and resulted in lower mortgage borrowing costs. Our business model is straightforward and transparent, and MERS role is completely spelled out in the contract between the borrower and the lender. MERS system data is not used by servicers to make loan modification, refinance or foreclosure decisions.

In Kentucky, all foreclosures are judicial foreclosures and as such are processed by the court system. MERS’ standing as a mortgagee has been upheld in -In re Jessup, No. 09-5229 (Bankr. E.D. KY 2010). MERS and CitiMortgage’s Motion for Summary Judgement was granted and the court held that “the language in the Lender’s own instrument is sufficient to identify MERS as (the mortgagee).”


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