Clearinghouse denies it
improperly avoided paying transfer levies
By Jennifer Emily, Staff Writer, Dallas Morning News, August 9,
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
"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
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.