Who is MERS? MERS stands for Mortgage Electronic Registration Systems, Inc. MERS is a member-based association of nearly all (about 3,000) mortgage lenders in the U.S. The members, through MERS, maintain a publicly accessible database for identifying the servicers and owners of around 31,000,000 active residential mortgage loans, 50% or more of all residential mortgage loans.
How is MERS connected to mortgage loans? The mortgage instrument used almost exclusively in Oregon is the trust deed (also
called a deed of trust). Under a trust deed, a lender may elect to foreclose using a non-judicial process known as a trustee’s sale in accordance with ORS 86.705 to 86.795 (“the Trust Deed Act”) http://www.leg.state.or.us/ors/086.html A trust deed is recorded in the county records and secures a particular obligation, usually a promissory note, by which the borrower agrees to repay the lender. In a trust deed, the borrower is the grantor, and the lender is the beneficiary.
Why do lenders use MERS? Around 1997, lenders began designating MERS as the trust deed beneficiary as nominee (agent) for the original lender and the lender’s successors and assigns. As the designated beneficiary in the trust deed, MERS stands as a placeholder for the owner of the loan, while the promissory note is sold, endorsed and assigned in the stream of commerce. Many loans end up, after intervening transfers, in a securitized pool of mortgage loans for whom a national bank or financial institution is trustee. MERS remains in place as the record beneficiary under the trust deed, and the MERS database provides an interested party with information to identify and contact the institution for whom MERS is nominee. https://www.mers-servicerid.org/sis/
What is the role of MERS when a loan goes into foreclosure? When a borrower stops paying, the lender’s usual remedy is foreclosure through the trustee’s sale process. When a lender decides to foreclose, MERS usually assigns its beneficiary position to the then owner of the note, who thereafter instructs the trust deed trustee to proceed with foreclosure by trustee’s sale. In the past, MERS sometimes remained in place as the beneficiary of record and authorized a foreclosure based on instructions from the owner of the note; however, MERS recently discontinued that practice in favor of assigning the beneficiary interest to the owner of the note.
Why is MERS getting attention in Oregon? A promissory note may change hands with minimal paperwork. The note transfers occur in accordance with the law of negotiable instruments. For example, a note may be endorsed in blank, and ownership passes by physical possession. As a result, the chain of ownership of the note is established by the endorsements and by possession. The endorsements will not necessarily reveal a complete history of ownership. The Trust Deed Act, by contrast, requires that all assignments of a trust deed be recorded before a non-judicial foreclosure may occur. If the various transferees of a particular note do not receive and record assignments of the companion trust deed, there will be a gap in the recorded chain of the trust deed’s beneficiaries. MERS has been thought to provide a solution to this difference between the law of negotiable instruments and the law of trust deeds. MERS holds the beneficiary position constant throughout the various note transfers. Some recent court cases question whether this MERS solution is compatible with the Trust Deed Act, if the Act requires that the complete chain of note ownership be mirrored by a chain of recorded assignments of the trust deed. This provision of the Trust Deed Act became law long before MERS existed. As a result, the courts are confronted with applying the law to circumstances not envisioned when the statute was written.
How do the MERS court cases affect Oregon foreclosures? So far, Oregon court cases have involved borrowers’ challenges to trustee’s sales where the trustee’s sales have not yet occurred, or where the lender has completed the trustee’s sale and has not resold the property to a new homeowner. So far, Oregon court cases do not find MERS trust deeds unenforceable; rather, the attention is on whether the lender must seek a judicial foreclosure, rather than a foreclosure by trustee’s sale. These cases resulted in rulings for the parties to the case, based on facts that are unique, and any particular ruling may or may not be a good guide for another case.
Fidelity National Title has established procedures for thorough case by case review of non-judicial foreclosures. As a new
homeowner, when a buyer of lender-owned property receives an owner’s policy from Fidelity, the buyer has title insurance backed bythe largest title insurance company in the nation.