MERS, or Mortgage Electronic Registration System, is an electronic recording system used by the mortgage industry. MERS allows securitized mortgages to change hands without the necessity of recording each transfer. In May 2010 a California bankruptcy court ruled that MERS nomination may have broken the chain of custody for home mortgages, meaning that (possibly) the homeowners are foreclosure-proof. Subsequently, courts in other states have made similar rulings.
The immediate effect is to give homeowners in foreclosure a possible reason for a temporary restraining order, to delay foreclosure until the issue is finally settled by the court system. In a small number of cases, lower courts have completely cleared homeowners of the responsibility for paying the remaining balances on their mortgages.
In some of these cases, homeowners have gone to court using a “quiet title” strategy, to compel banks to prove that they actually own the title to the real estate. The foreclosure defense is that the title is clouded, with no clear indication of ownership due to the MERS process.
It remains to be seen what higher courts will say, but these rulings could make up to 62 million homeowners “foreclosure-proof.” This outcome, of course, would only occur after a thorough review and appeal by affected banks and mortgage companies. Those pension plans and individuals holding securitized mortgages would be dramatically affected.
Some legal observers say that the BK court’s decision is highly unlikely to be upheld.
Note: This website does not offer qualified legal advice. Consult an attorney concerning your particular situation.