Saturday, March 12, 2011

Does the MERS Corporation Own Your Home?

The signs have been piling-up for more than a year now. Mortgage foreclosures have careened out-of-control.

The chief question in courts of law is: who owns the subject property, and can they prove it by producing a mortgage note? Increasingly, the respective answers are: “Don’t know” and “No.”

In 2010, the Arkansas Supreme Court ruled that MERS (Mortgage Electronic Registration Systems) Corporation was prohibited from filing foreclosures in that state.

A federal bankruptcy judge in Long Island ruled just last week that MERS could not act as the “agent” of the mortgage note owner. Judge Robert Grossman acknowledged in a case called In re: Agard, that MERS may be involved with up to 50% of all home foreclosures nationwide, and that his decision may negatively affect the mortgage industry (i.e. accelerate its demise), but his decision required that the process comply with federal and state bankruptcy laws.

Many MERS-held "notes" will either not materialize, or will not pass muster relative to the many networks of applicable legal standards.

The Iowa Attorney General recently announced progress, along with other state attorneys general, in conjunction with the newly established Consumer Financial Protection Bureau, to overhaul the process of how the nation’s largest banks conduct the foreclosure process.  The group essentially is a nation-wide focus group of state law enforcement officers and bureaucrats tasked to generate a list of best-practices they can mold into national standards.

In Florida, attorney and foreclosure-giant, David Stern, under investigation by the Florida Attorney General, just announced that his law firm is suspending foreclosure operations.

In Utah last month, a local judge made national headlines by allowing a judgment debtor to rip-up his mortgage note in open court and literally walk away from his home, debt-free, because the lender could not prove ownership by producing a mortgage note.

All this has the board of directors of the Virginia-based MERS Corporation very nervous. MERS is a private mortgage registry database that has essentially replaced our nation’s tradition of publicly stored land ownership records. MERS’ CEO, R.K. Arnold, among the founders of the corporation, jumped ship in January.

As the foreclosure meltdown has unfolded over the past 24-months, many mortgage lenders’ practices of cutting corners in the lending process, and making some rather huge mistakes, have come to light. This has had the effect of making it difficult, and in some cases impossible, to actually prove who owns a particular home.

The early challenges from county officials in the 1990s to the MERS system of high-speed and cheap securitization went unnoticed in favor of the mortgage lending industry. As the MERS system of speed collateralization took off, it developed a process of instant deputization, where thousands of loan officers received “certifying resolutions” in minutes via the Internet.  These financial deputies or, in some cases "agents", were authorized to process mortgage transfers and foreclosures on behalf of MERS.

All good things usually come to an end; sometimes a bitter end. Now, the judges in all the various courts are tipped off; and bankruptcy judge Grossman's decision may go federally viral.

Where will this all lead? Will the state attorneys general, through a new layer of bureaucracy, be able to arrest the process and introduce effective reform? Or will judges, case-by-case, reluctantly pull the threads that will undo our nation’s mortgage lending system?

Only time will tell, so stay tuned on this one.

In the meantime, if you are experiencing mortgage payment difficulties in Oakland County, the Oakland County Treasurer has partnered with GreenPath Debt Solutions, the United Way and others to establish the Oakland County Foreclosure Prevention Initiative.   Simply click on this link or call (888) 350-0900 for assistance with the eviction process or to speak with a certified housing counselor.

Wednesday, March 2, 2011

State Bar Task Force Recommends Streamlining Courts System

Barry Howard (left) and Edward Pappas.
The lawyers saw it coming long ago.  With waves of deep budget cuts crashing down upon the public sector, how could the judiciary keep-up with the ever higher demand for its high-quality service we have come to expect?  Judicial reform.

At the direction of the Michigan Supreme Court, the State Bar of Michigan selected a task force of attorneys and judges from across the state back in early-2009.  The task force met for a full-day each month from September 2009 through last May, gathering ideas, discussing problems and suggested solutions, and debating various cost-cutting strategies.

Last week, the task force announced its findings and recommendations.  The following are the more significant findings and recommendations of the task force:
  • Our state courts have a mixed-funding structure rather than a state-funded system, with municipalities and court-generated revenues contributing heavily to each county court's operational costs.  This patch-work is having a disparate impact on various courts throughout the state, with some areas getting hit much harder than others; 
  • Our 83 counties are served by 585 full-time trial court judges at the district, circuit and probate levels.  The number of judgeships should be reduced according to up-to-date demographic data and historic caseload data; 
  • The recommended reduction in judgeships must only take place upon the retirement of currently sitting judges in order to maintain judicial independence; 
  • Judicial services should be coordinated and consolidated by region after the "best practices" are identified;
  • Increased flexibility among court administrators in the reassignment of workload must occur once the recommended judicial downsizing and service coordination begins;
  • Full and effective use of available technology to assist in the delivery of judicial services will reduce costs in the long-run; and 
  • Continued use of innovative community-based programs in the trial court setting that address mental health and substance abuse problems will continue to yield significant cost savings.
Basically, the courts will have to do more with less resources.  A familiar song among the state workers and teachers spread throughout the counties and across the nation.

The good news for attorneys practicing in Oakland County is that we have already have most of the docket converted to an e-file system.  There are still some dockets -criminal and some family law cases- that do not currently accommodate electronic filings.

Another innovation to take hold in some of the county circuit courts in Southeast Michigan is electronic file retrieval or Internet-based databases that are searchable by members of the public. A good example of this system is Oakland County's Court Explorer where you can search the docket entries in a case and, for a very nominal fee, order a copy of any document filed in the case.  Usually, in a few hours, the document show-up in your email.

Another (even better) example of electronic access is the Wayne County Probate Court where the documents are imaged and available for viewing electronically with the click of your mouse.  As for the Wayne Circuit Court, however, not so much...

Roster attorneys for the Michigan Appellate Assigned Counsel System (MAACS), for example, physically have to be present on the 9th floor of the Frank Murphy Hall of Justice in order to access our client's register of actions in Wayne County.  This amounts to difficult "access to justice" when, on an appeal, you are simply trying to piece together the procedural history of your client's case.

Electronic docket access differs widely from county to county.  In Genesee, the docket entries of a case is displayed in fragmented screen images.  If you print-out the register of actions in the case, you get several pages of chopped-up, difficult-to-read DOS-style text.  A waste of paper, and definitely not user-friendly.

While the idea behind the task force was to identify some of the "best practices" at the county level and implement them state-wide, this blog wonders whether this will be possible at the political level.

Our law firm's attorneys and paralegals access county court records everyday across the State of Michigan.  From our perspective, standardization of electronic access would greatly improve our efficiencies in the delivery of legal services.