Mortgage Servicing Fraud
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Partial settlement approved in Texas lawsuit against MERS

Harris County Commissioners Court on Tuesday (June 25) agreed to a landmark settlement in a lawsuit that will result in greater accuracy of county real property records.

Harris, along with Brazoria and Dallas Counties, has reached a partial agreement with Mortgage Electronic Registration Systems, Inc. (MERS) that will ensure that county records accurately reflect MERS’s relationship to transactions involving real property.

Under Texas law, mortgage transfers, payoffs, and other important matters relating to the ownership of real property are recorded in the county property records. Title companies, lenders, and potential purchasers rely on county records to determine ownership of property.

MERS is a national electronic database used by most members of the mortgage banking industry to track transfers and payoffs of mortgage loans. Transfers from one member of MERS to another are not recorded in the county records.

Under the partial settlement of the lawsuit, MERS has agreed to file in the counties’ real property records a disclosure statement that will describe MERS’s role in the mortgages in which MERS appears—that MERS is acting on behalf of the lender and the lender’s successors and that MERS is not the lender, payee, owner or holder of the loan.

The litigation in Dallas County involved claims by the three counties that members of the mortgage banking industry had misused the counties’ real property records through their use of the MERS System by either failing to file with the counties all required documents related to transfers of mortgages or by filing instruments which contained inaccurate statements about MERS’s involvement in the mortgages. The counties alleged that the conduct of Bank of America, MERSCORP, the corporation that owns and manages the MERS system, and MERS made it difficult for the public to ascertain who owned mortgages and MERS’s role in those mortgages.

The counties can now go to banks and work with them to come up with a form for releases or assignments of mortgage loans tracked on the MERS System that will ensure that MERS is accurately identified in these releases and assignments filed in the county real property records. The result of the settlement and the counties’ efforts to work with the industry to standardize the form language for releases of lien and assignments will mean greater accuracy in the real property records indexes maintained by the counties for the benefit of the public and remove uncertainty about MERS’s capacity in the various instruments in which MERS’s name appears.

The litigation with respect to the counties’ claims that MERS must record assignments between its member companies will continue.

This settlement is the first action of its kind in the United States. Although many lawsuits have been filed in other states, this is the first one to reach this agreement. It was a collaborative effort among the counties, Bank of America, MERSCORP, and MERS that will both ensure increased accuracy in real property records and cooperation with the industry to make money available for homebuyers.

Brazoria County Commissioners have approved the settlement. Dallas County Commissioners will vote next month.

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