Kentucky Attorney General Launches Lawsuit Against MERS

The Attorney General of Kentucky filed a lawsuit on January 23 against Mortgage Electronic Registration Systems, or MERS.  AG Jack Conway says MERS is an electronic “ghost” used by mortgage firms to transfer ownership of mortgages among themselves in order to avoid paying state transfer fees.  Conway alleges this practice robs states of tax revenue, and leaves homeowners without a clear understanding of who actually owns their mortgage.

MERS was established in 1995 by several of the country’s biggest banks and mortgage firms, such as Fannie Mae and Freddie Mac.  Conway alleges these financial institutions would use MERS to transfer mortgage ownership between themselves without informing local counties of the change, leaving no trace of which firm owns the loan or where they are located.  The record is only identified as MERS, and Conway says this was a shrewd maneuver by Wall Street for investors to profit from the complexity.
“Wall Street got creative, and the banks got creative about how they could take mortgages, put them in a trust, divvy them up, resell them and make a bunch of money.  In the process of doing that, they really messed up the integrity of our public land records.”
Conway says there were approximately 300,000 Kentucky based mortgages that were put through MERS.  Each one of these transfers should have included a $12 tax on the firms, which should have provided the state with $3.6 million in revenue.  However, MERS allows big lenders to evade the system without paying the taxes – as a result, Conway’s lawsuit is demanding a $2,000 fine for each transfer that evaded taxation.
Conway claims in the lawsuit that MERS members do an inept job tracking how they transfer mortgages amongst themselves.  He cites examples from the Franklin Circuit Court in which MERS was the account holder for 43 foreclosure cases.  The court found there were errors in at least 19 of those cases due to the inaccurate information within the MERS database.
Conway says the lawsuit is in the defense of Kentucky homeowners who deserve to understand how their mortgages are managed.