In a recent article (
http://www.americanbar.org/publications/probate_property_magazine_2012/2012/july_august_2012/bailey_treiman_moving_beyond_the_mistakes_of_mers_to_a_secure_and_profitable_national_title_system.html
) about MERS, the Mortgage Electronic Registration System, the authors,
Adam Leitman Bailey and Dov Treiman make a set of assumptions that the current
system of real estate title registration used throughout the US is broken or
outdated and offer some suggestions for fixing it. Their premise is based on
the recent failures that became apparent during the foreclosure process. I
challenge their assumption that the current system is broken and that their
suggestions are warranted.
In the 1990's MERS was started as a
short cut and a cost savings alternative for lenders and investors to the long
accepted County Register of Deeds (ROD) systems that are set up all over the
United States.
The authors state that
the creators of MERS “intended it to simplify and centralize the tracking of
rights regarding each mortgage-like instrument”. They fail to include that the
system was also intended to avoid paying the filing fees required by public
recording in the county ROD, which would, in turn, allow for cheaper and faster
turnover of the securitized mortgages.
The county systems are based on an
open and public record of who owns "an interest" in real estate
situated within that particular county. Those county systems are also uniquely
keyed to the laws, especially those for foreclosure, of the State within which
they reside. The authors admit that this local county system has been used
since the 1600's. While this system is not without its faults, it has worked
admirably for millions of documents for over 400 years. The system currently in
place for centuries has been secure. Those who hold an interest in real estate
who choose to avail themselves of the proper recording process are then
afforded the protections of the State Law that comes along with it.
The contention that this system is "hopelessly
behind the needs....of the 21st century" is a complete overstatement.
Indeed, lenders and investors who make this argument come to it with unclean
hands since the financial industry created the alleged need for instantaneous
recording on such a massive scale through its securitization of mortgages. The
loose lending of the early and mid- 2000's, predatory revolving refinancing, and
lack of mortgage origination oversight contributed heavily to the increase in
recordings at county offices and thus the reason counties fell behind in
recording documents that were presented. Shockingly enough, the authors
state that in order "to sustain the kind of vibrant mortgage market seen
during the housing boom, classical recording methods have to speed up...."
I am not sure why, or if, we would want
to do that. We are all learning that the "vibrant mortgage market"
that the authors extol was and is in reality a mortgage and real estate bubble based
mostly on smoke and mirrors.
Even after creating MERS “to
simplify and centralize the tracking of rights” many users did not bother to update
transfers and assignments within the MERS system which has led to more
confusion of who owns what interests in real estate. The authors point out that
MERS is a private system that does not share information publicly. They even
contend that as a result of these errors and failings within MERS “the
homeowner has no way of determining who actually has the superior right without
resorting to the court system”, if a mortgage is simultaneously assigned to more
than one financial institution. I see a problem here with a burden and expense shifted
onto homeowners that they did not have to previously bear and should not have
to bear now. The ROD recording systems were originally designed to further
public policy that real estate interests be available and open to the general
public to put people on notice of an interest in the property and who holds
that interest. MERS is not a better replacement for this public policy need,
but an obfuscation of it.
Recognizing a need to have the public records available online
and with the introduction of digital scanning, county ROD offices have not only
been scanning and indexing new, incoming documents, but also scanning and
indexing previously recorded documents going back decades. This is not an easy
or instantaneous process. Time and money are needed to complete the process and
money for County projects has been scarce in this economic downturn. The need
to record deeds and mortgages is only one aspect of the slow recording problem
for the authors' purposes. They seem to focus more heavily on the need to
increase the speed of recording of mortgage assignments. To me, this need for
speed appears to serve only the financial industry and those who securitize
mortgages and is not a need of the general public. ROD offices are designed to
and should serve the needs and interests of the general public.
The authors state that there is a need for ease and efficiency
in performing computer searches remotely. I agree. Local RODs are working on
their systems to update records and bring them online. However, the authors
touch on the possibility that increased access to digitized records would make
forgery and fraud of public documents more prevalent. As a former member of a
Deed Fraud and Mortgage Fraud Unit, I can say that scanning documents and
making them available for the general public does not lead to an increase in
fraud or forgery. Making the system national or private will not make it more
secure either.
States traditionally have had the
purview of family law and real property law. The authors put forth that there
should be National uniform systems for real property title registration and
foreclosure processes. They concede that a National System would be over the horizon.
But, each state has unique laws based on their own sovereignty that govern all
real property rights within their jurisdictions that may be infringed by a
National System. Many states would not like to make this drastic a change.
Furthermore, the authors suggest that foreclosure laws should be streamline
for ease of global financial institutions to protect their rights. They claim
it is difficult for financial institutions to keep track of 50 separate sets of
state laws and procedures. They also claim that this difficulty would create
more of a cost to customers if not changed. I do not agree. Lenders and
Investors have always had to contend with 50 sets of state laws for mortgages
and for other consumer debts. I have not heard a cry for a national consumer
debt collection procedure from the financial industry.
Besides, the states have created
laws and procedures to protect the rights of all parties with an interest in
real estate. The laws and procedures create a balance based on public policy
between the owner and the lender. The owner is afforded protections, such as
notice and a hearing and a timeframe to move out before losing possession and
control of a home. The lender is afforded protections, such as an ability to
gain possession and control of the property and possibly recoup any losses on
the loan. Both are expected to follow the law and procedures to get the benefit
and protection of the law and procedures. The recent “problems” with
foreclosure laws appear to be self-inflicted by an industry that has tried to
avoid the proper procedure. The proper party filing the proper paperwork in the
proper timeframe at the proper place is the hallmark of a secured transaction.
Without this, the party should not be allowed to avail itself if the benefits
of the law and procedure nor should it be allowed to cry for changes in the
rules.
In conclusion, the state systems of foreclosure and
document recording may need updating to accommodate new technology, but they do
not need to be overhauled for a particular industry user. The original purpose
of registration of title for real property is to protect the rights of those
persons with "an interest" in the property. It is not to be
"profitable". Nor is it the responsibility of the ROD to create a
less expensive system for those who have overused, abused, ignored, or
overloaded the current system.
