Attorney General Andy Beshear announced a multimillion dollar settlement with a national mortgage recording company that will provide Kentucky homeowners with some of the best protections in the country.
The settlement resolves claims against MERSCORP Holdings Inc. and its wholly owned subsidiary Mortgage Electronic Registration Systems Inc., or MERS, over allegations the company named itself as the mortgagee in public land records, thereby hiding the identity of the big banks who were the actual owners of the mortgages, while also failing to monitor the conduct of those banks.
In addition to new protections for Kentucky homeowners, the settlement will result in Beshear returning $2.8 million to the state’s General Fund. Beshear is recommending lawmakers use the $2.8 million to support affordable housing, legal aid foreclosure work and to help the budgets of local county clerks.
MERS was created in 1995 to enable the mortgage industry to evade state recording fees, allow for the rapid sale and securitization of mortgages, and shorten the time it takes to pursue foreclosure actions. The company’s corporate shareholders included, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac and the Mortgage Bankers Association.
In mid-2016, Intercontinental Exchange (ICE), a finance company that owns exchanges and clearinghouses for financial and commodity markets including the New York Stock Exchange, acquired a majority stake in MERSCORP Holdings.
“The mortgages of hundreds of thousands of Kentuckians are registered on the MERS database,” Beshear said. “This settlement brings a measure of much-needed transparency and accountability to a private mortgage registry that too often operates behind closed doors. Kentuckians will now have among the best protections in this process as this settlement imposes certain requirements on MERS to ensure that its information is accessible and accurate.”
While several state attorneys general have sued MERS and/or its member banks for their conduct related to their use of the MERS System, Kentucky’s settlement represents the largest state attorney general recovery against MERS itself, Beshear said.
MERS came under heavy scrutiny for its role in the national housing market crisis and entered into a Consent Decree with federal regulators in 2011 to address its conduct. The Commonwealth alleged that MERS violated the Kentucky Consumer Protection Act by obscuring and not monitoring the practices of its member banks.
Actions included foreclosing in the name of MERS instead of the actual owner or servicer of the mortgage; assigning the mortgage after foreclosure proceedings had already started; using employees of its member banks as signing officers to act in MERS’ name; and failing to ensure that the data on the MERS system was accurate.
Beshear said the settlement puts in place penalties that will be levied against MERS if it violates its obligations to Kentucky homeowners.
• If MERS files a foreclosure in its own name in Kentucky, the company will pay the Commonwealth $10,000.
• Each time MERS assigns a mortgage out of if its name to a foreclosing bank after the foreclosure has been filed in court, the company must pay $1,000 to the Commonwealth. This relief penalizes MERS when its members rush foreclosure proceedings without assigning the mortgage to its proper owner beforehand.
• MERS, for a period of 5 years, will conduct document reviews of at least 100 Kentucky mortgages annually to confirm that only properly appointed signing officers are taking action on behalf of MERS.
• MERS will provide auditing and data reconciliation reports to Beshear’s office for 5 years, allowing his office to determine whether the company is accurately tracking the transactions of its members.
While the settlement does not preclude banks from using the MERS System, Beshear will partner with county clerks to provide Kentuckians information on how the online database works.
“Similar to my recommendation that funds from the OxyContin settlement go to support drug treatment centers across the state, I’m asking lawmakers to use money from this settlement to assist Kentuckians with affordable housing and legal aid, along with supporting the budgets of our local county clerks who were affected financially by the actions of MERS,” Beshear said.
From Attorney General’s Office Communications