The Mortgage Electronic Registration Systems, Inc. is a corporation that provides an electronic registry that is known as the MERS system. The MERS system tracks mortgages and servicing rights that are being transferred. Since loan transfers are occurring electronically, MERS has eliminated the practice of recording assignments with county recorders each time that a loan is sold. MERS simplifies the process of transfer and sometimes gets involved in foreclosures. If you are interested in learning more about the impact of the MERS system on your rights in case of foreclosure or other important events, the Boston real estate attorneys at Pulgini & Norton may be able to help.
MERS SystemA loan transaction is made up of two documents: the mortgage and a promissory note. The mortgage promises that the property will be security for a debt, and the promissory note includes the borrower's promise that they will repay the loan. The entity that holds the mortgage is not always the same as the entity that services the mortgage — the entity that collects the payments and administers the loan.
It is common for mortgages and servicing rights to be sold from one bank to another bank. An assignment is a document usually prepared and recorded in the land records for the county where the property is located. It states that rights are being transferred from one mortgage or lender to another. The assignment will transfer the original lender's interest to a new bank. The lender is a mortgagee. MERS simplifies the tracking of servicing rights and mortgages.
Sometimes a mortgage designates MERS as the mortgagee. MERS can also be assigned a loan at some other later time after the loan closes. MERS gets rid of the need to have separate assignments if a loan is transferred from one bank to another, and again to another bank. When the loan remains in MERS' name, it is not necessary to make a new assignment each time that the loan is transferred to another entity or person. However, MERS does not own the promissory note just because it is listed in the land records.
MERS can affect a foreclosure. Foreclosures are either judicial or non-judicial, depending on the location of the action. In a judicial foreclosure, a lawsuit is filed to obtain a judgment, and in some of these cases, MERS can be named as the lawsuit's plaintiff. When a non-judicial foreclosure occurs, a lender provides notice of the foreclosure, and MERS might be named as the beneficiary. Courts are divided on the issue of whether MERS has legal standing to pursue foreclosure. Some state courts have determined that MERS does not have standing, and in 2011, MERS determined that foreclosures could no longer be commenced by using it as the plaintiff. Before a foreclosure occurs, the loan must be assigned back to the lender, and the lender will file the lawsuit in its own name, or the lender will be named as the beneficiary.
Under Massachusetts law, only a mortgagee or its assigns, successors, administrators, or executors are able to exercise a statutory power of sale or foreclose without getting prior judicial approval. In one Massachusetts case, an appellate court held that transferring a promissory note between members of the system did not affect legal title to the mortgage. It found that MERS was a proper mortgagee under Massachusetts law and that it validly held legal title to a mortgaged property. It had the authority under both common law and the mortgage contract's terms to assign the mortgage in question to a foreclosing entity.
Contact a Boston Attorney for Advice on a Property TransactionSecuring a mortgage or other financing can be quite complicated. If you have questions about the MERS system in connection with a home, you should consult an experienced Boston attorney. Our firm understands all aspects of real estate transactions, including mortgages and foreclosures. Pulgini & Norton also handles real estate transactions in Andover, Newton, and Somerville, among other cities. For a consultation with a mortgage attorney, contact us online or call us at 781-843-2200.