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DA wants millions in Mortgage Fees

Clearinghouse denies it improperly avoided paying transfer levies

By Jennifer Emily, Staff Writer, Dallas Morning News, August 9, 2011

Dallas County District Attorney Craig Watkins said Monday evening that he is exploring possible legal action against the Mortgage Electronic Registration System for tens of millions in fees not paid to the county for more than a decade.

Watkins said that MERS -- founded by Fannie Mae, Freddie Mac and several large U.S. banks in 1995 -- acted as a clearing house for the buying and selling of mortgages by lenders and sidestepped the county by not recording transfers by those lenders when the mortgages changed hands.

"These banks and corporations have gotten around paying the necessary fees that goes directly to how counties operate," Watkins said in an interview. "This is not 100 percent. This is going to be a fight. We're going up against Wall Street.

"It looks like this is going to be a fight worth going after."

The DA's office is scheduled to brief county commissioners Tuesday about how the county is not being paid the fees. Watkins said he hopes that in coming weeks, commissioners will approve exploring legal action against MERS.

But a vice president for MERS' owner, MERSCORP, said appropriate fees are already paid to the county when MERS records and reports a mortgage transfer. Janis Smith said that when "servicing changes from one lender to the other, there is no servicing recorded" because MERS retains the mortgage and only the lender has changed. "It's not required by law," Smith said. Smith said the MERS remains the holder of the mortgage when it is transferred from "one MERS member to another."

When MERS transfer the mortgage to a non-MERS member, she said, the transaction is recorded with the county and fees are paid.

Smith said MERS' business model is legal in every state.

"This is a nonissue -- counties aren't entitled to fees for work they didn't do or that the law didn't even require them to do," Smith said. "MERS has been recording and tracking mortgages since the late 1990s, but these arguments weren't raised until recently."

Watkins said that all mortgage transactions should be recorded and that any related fees should be paid according to state law. Watkins said recording every mortgage transaction -- even within MERS -- is the only way to prove who has ownership of a property.

Experts in real estate law say there is no requirement for companies to record a transaction with the county when a mortgage is sold.

Patrick A. Randolph, a real estate law specialist, said that if MERS had been required to record the mortgage every time it changed hands, the clearinghouse wouldn't have worked. The mortgages changed hands too fast to constantly update the counties about changes.

Randolph said that had recording been required within MERS when changing lenders, mortgages could not change owners so many times because the process would be too expensive.

"If recording was required, they couldn't have done it at the speed they were," said Randolph, a law professor at the University of Missouri-Kansas City School of Law. "Some might argue that would have been a good thing."

Several states have announced inquiries into MERS' foreclosure practices, but Watkins did not suggest that his office is looking at those. "But it relates," he said.

The DA's office estimates that MERS "attempted to track" more the 60 million mortgages in the country, and 250,000 in Dallas County, since it began operation.

The Dallas County clerk lists real estate fees from $26 to $41. There are smaller additional fees associated with the filings.

Typically, mortgages change hands multiple times and those changes are typically recorded with the county, real estate law expert said. But MERS changed the way business was done by creating a clearinghouse to efficiently speed up the exchange of mortgages among lenders who are MERS members.

Watkins said that if Dallas County were successful in recouping money, other jurisdictions would probably follow with their own efforts to seek compensation.


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