County debating lawsuit vs. mortgage registry company

October 25, 2011 10:56:54 AM PDT
Harris County has decided to hold off for now on a lawsuit against a mortgage registry company which may have cheated the county out of millions of dollars in fees. The company in question has major ties to some of the big banks blamed for the foreclosure crisis.

If you have a home and a mortgage, you're going to care about this. At this point, the county is considering a lawsuit against the Mortgage Electronic Registration System, or MERS, which was formed in 1995 and is based in Virginia. Basically it tracks servicing rights and ownership interests on mortgage loans on a registry. The idea was, according to its website, to streamline the mortgage process, and MERS has the power to initiate foreclosures.

Now Harris County, along with counties across the state and country, are saying the way MERS tracks mortgages may violate the law. That's because MERS allows its shareholders -- like Bank of America, Chase, Fannie Mae, and Freddie Mac -- to circumvent paying county fees for transferring loans.

For instance, if your bank gives you a loan, it can buy or sell that loan allowing it to make new loans. Typically that process is recorded with the county clerk. MERS says that process doesn't have to be recorded, because it is the lender, no matter how many times the loan is sold.

But what's at stake here for these counties, including Harris County, is a lot of money. Harris County could've lost out on at least $10 million in unpaid property recording fees and possibly as much as $100 million with penalties.

Harris Co. Judge Ed Emmett says there are a lot of questions to answer before the county moves forward with a lawsuit of this magnitude.

"I said if this is something that affects county governments all over the state, then why isn't the Attorney General of Texas involved in it, representing the arms of the state, namely the county governments," said Judge Emmett. "I think that they are going to go talk to the Attorney General; there are just a lot of facts that need to be gathered before we enter into this type of a lawsuit."

In Kentucky and Pennsylvania, counties have banded to bring class action suits against MERS. But MERS has won recent suits, so we'll have to wait two weeks to see what happens next. By that time, the whole state could be involved.

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