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MERS Standing: Its Impact on Title Insurance

BY Marvin N. Bagwell
August 30, 2011

As long as most title underwriters ' the individuals, not the companies ' can remember, mortgages have always been assigned and the assignments were always recorded in the Office of the Clerk or City Register for the county in which the real property is located. With the advent of the Mortgage Registration System (MERS), this procedure changed. Instead of recording mortgage assignments in the local land records, lenders started recording assignments within the MERS computer system, thus eliminating the need for paper assignments with signatures and notaries, a public assignment chain and most of all, recording costs. Within a few years, MERS became a huge success with lenders. Currently, millions of mortgages and their assignments are in the MERS system. Title underwriters (the companies this time) went along and continued, albeit reluctantly, to insure transactions where the mortgage assignment chain was within MERS and not on the public record.

When the Bubble Burst

Then came the bursting of the real estate bubble of the mid 2000s. During the bubble, mortgages were assigned, packaged and securitized so quickly that lenders had no time to pay attention to the paperwork. The assignment process became haphazard and secondary to moving the mortgages out of the door. Then the foreclosures started, thousands of them. It soon became apparent to the courts that lenders were coming before them to foreclose loans with no proof that they owned the mortgages or the notes being foreclosed. Courts, nationally and in New York, resurrected the concept of standing; in order to be able to foreclose a mortgage the lender had to have proof that it held title to the actual mortgage and note. If a lender was unable to meet its burden of proof, the courts then began to dismiss the lender's foreclosure action, usually without prejudice, until it came back with proof of ownership of the mortgage and note.

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