Foreclosure protestOn Dec. 2, the House Judiciary Committee held a hearing on the mortgage mess. Perhaps the most disturbing testimony was the written submission from Christopher Petersen, associate dean for academic affairs and law professor at the University of Utah. Petersen detailed how the banks, Fannie Mae, Freddie Mac and Ginnie Mae destroyed America's land-record system, a method of tracking property sales that's existed since colonial times. Instead, they put in place a system called "MERS" (for Mortgage Electronic Registration Systems) that's legally shaky, makes tracking mortgage-note ownership extremely hard and may be clouding the title of millions of properties.

But the MERS situation could be even worse than Petersen described to Congress: Millions of documents, including millions of foreclosure documents, may have been signed in MERS's name by people without the power to do so. A lack of authority would call into question the validity of all those documents. While the ramifications are uncertain, the bottom line is, as Petersen told me: "This issue injects yet another level of uncertainty into the already murky swamp of foreclosure nonsense."

At a minimum, the deposition of William Hultman, MERS corporate secretary and treasurer, and related documents that expose the issue reveal yet another example of the mortgage and foreclosure industry's carelessness with the rule of law.

A Shortcut System for Tracking Mortgages

MERS has one purpose: to hold and track mortgages. It's basically an incorporated database financed and maintained by its members, who represent most of the mortgage industry. The MERS database simplifies securitization and makes it much cheaper by bypassing the requirement that every change in ownership of a mortgage be recorded in the county where the mortgaged property is located.

Instead, the mortgage is recorded once, in the name of MERS, and all the other transfers are tracked on the MERS system only, or even not tracked at all. Entering data into the MERS database is optional for members: MERS Chief Executive R.K. Arnold told Congress recently that "Members tend to register only loans they plan to sell."

The loss of county recording fees can be significant. One irate Massachusetts register of deeds estimates that bypassing his county might have cost the state hundreds of thousands of dollars. MERS itself boasts of saving the "industry up to $200 million annually by creating an electronic clearinghouse for mortgage ownership rights and information."

20,000 "Certifying Officers"

MERS has no employees, so how does it do this? Basically, it doesn't. MERS's members upload and manage their own data, and whenever a MERS member wants MERS to do something for it, the member just tells a MERS "certifying officer" -- of which there are some 20,000 -- to do what the member wants it to do.

These certifying officers, who usually have a traditional corporate title like vice president or assistant secretary but specific and limited powers, don't report to anyone at MERS, much less get paid by it. Indeed, their only link to the company is a corporate resolution signed by MERS Secretary Hultman appointing them as officers of MERS.

As Arnold explained to Congress: "From inception, the concept of certifying officers has always been fundamental to the operations of MERS." Given the centrality of the concept, it's surprising how badly MERS seems to have pulled it off.

An Outdated Resolution?

The validity of Hultman appointing certifying officers comes under attack from a few different directions. First, the April 9, 1998, corporate resolution that Hultman points to as giving him the power to approve certifying officers appears to say that only member employees can be certifying officers. Indeed, MERS CEO Arnold told Congress two weeks ago that "MERS relies on specially designated employees of its members, called certifying officers."

Regardless of that apparent limitation, however, Hultman has made many attorneys at firms doing foreclosures for MERS banks, and possibly other non-MERS member employees, certifying officers.

Second, the resolution that empowers Hultman to approve certifying officers was originally adopted by an earlier corporate incarnation of MERS, and it may not have been ratified by the current one. Unless the current MERS ratified the authorizing resolution or replaced it with another, whatever power Hultman had ended no later than Jan. 1, 1999, when the current MERS came into being. An awful lot of certifying officers have been appointed since then, so it's possible the ratification did occur.

Murky Corporate Bylaws

Nonetheless, when Hultman was deposed, he said he didn't know if the current MERS ratified his appointing power. Of course, as corporate secretary he's perhaps in the best position of anyone at MERS to know. Although Hultman turned over a number of documents relating to the April 9, 1998, resolution both before and after his deposition last April, to date Hultman has not turned over evidence that the current MERS has ratified his power, according to Mark Malone, the former New Jersey assistant U.S. attorney and former New Jersey deputy attorney general who took Hultman's deposition. (After a number of years in private practice, mostly helping corporations with internal investigations, Malone now volunteers for New Jersey Legal Services' antipredatory lending project.)

A third problem with Hultman's power to appoint certifying officers is rooted in MERS's bylaws, which give only the board of directors the power to choose officers, regardless of title. Boards can't pass resolutions that violate their companies' bylaws, so even if April 9, 1998, resolution giving Hultman the power to choose certifying officers was ratified by MERS, it might be invalid anyway.

The bylaws may explain why Hultman's appointing documents each claim to be a "true copy of a Resolution duly adopted by the Board of Directors" rather than a more straightforward "by the power vested in me, I Hultman appoint..." During his deposition, Hultman conceded that despite the "true copy" language, what he's signing is the original. The board never separately passed the resolution.

So What Are the Consequences?

Malone was blunt: "What Hultman says in the resolutions he signs is false. He's not saying by the power delegated to me by the board. He's saying the board met and adopted a resolution, and what he's signing is a 'true copy' of that resolution. Which is just false -- there's no original resolution that it's a true copy of." Which, of course, raises the question: Why write the resolution the way he does, if his "power" to appoint the certifying officers complied with the bylaws?

Given that MERS had some 66 million mortgages in its system at one point, and currently has some 31 million mortgages, the number of wrongly executed documents is hard to fathom. How many foreclosures were achieved using documents these "officers" had no right to sign? How many pending foreclosures are based on fraudulent documents? The only answer is: Many.

Still, despite the scale of the issue, it may turn out to be a relatively minor problem in overall scheme of foreclosure document problems. That's because the doctrine of apparent authority might protect all the completed foreclosures. The idea behind this doctrine is essentially that the court was entitled to rely on the unchallenged representation that the person signing really was a MERS officer. After all, MERS isn't denying the signer's authority.

Nonetheless, pending foreclosures might be jeopardized as homeowners challenge the MERS-signed documents, as some are already trying to do. At this point, I'm starting to look for documents the banks and their allies actually get right.

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My parents have recently taken out a reverse mortgage-At first I thought it was a horrible idea since we have had the home in our family now for many generations but after speaking to my lender they explained that my parents home be mine as long as I can pay off anything that the borrow.

July 19 2013 at 3:51 PM Report abuse rate up rate down Reply

You can Blame whoever you want___But in reality__The mortgage mess would not exist___IF people made their mortgage payments as they agreed to do when they went to the banks and said__Please lend me money for mortgage loan. So no matter how you want to slice the cake___the borrowers are the problem---Not the banks. All the banks are guilty of is being kind enough to make loans to people who asked to borrow the banks money.

December 08 2010 at 4:08 AM Report abuse rate up rate down Reply

I worked n the CBC in 2006, and of course, MERS is involved, in this mortgage mess. Really?????????????? some are slow!!!!!!!

December 07 2010 at 11:07 PM Report abuse rate up rate down Reply

Am I the only one still paying PMI. I was told I have to pay for this insurance in case I defaulted on the mortgage. What did the banks do with all the mortgage insurance money they have collected for decades?

December 07 2010 at 8:32 PM Report abuse +2 rate up rate down Reply

Here is one you all might what to hear. It was all most a year ago I got to talk with an attorney who had the privilage to sit in the closed door meetings that were held in Chicago and Phoenix, which included Obama's Task Force on the Mortgage Investigation. After I told him my story and showed him a copy of my Deed of Trust he told me to forget about it, either walk away or stay until they forclose on you. He then went on to tell me that the Bank has more money then I do to fight this. Meaning Bank of America. He again went on to tell me that he drew up a class action lawsuit and presented it to a very large Legal Firm and they read the entire package he presented and they told him this was very very good but .... they could not handle it for fear that Bank of America would either drain them dry or make it last long enough in the courts till everyone in the firm was dead of old age. Now he might have been BSing me, however he was convincing. I chose to stay in my home, not pay Bank of America and it has been now going on 2 years. I know what is going on, I know the Government knows more and most of what is being said here in these blogs have been said a thousand time over. So why are we not doing anything about this ... Maybe the attorney was right Bank of America has too much money.

December 07 2010 at 7:34 PM Report abuse +1 rate up rate down Reply
1 reply to Wayne's comment

Why on earth would you just quit paying your mortgage? You bought the property, agreed to pay the note, and now you just want to stay for free? Go figure.

December 07 2010 at 9:32 PM Report abuse rate up rate down Reply

The one Big Question I have after reading the article and all these statements (and I mean all), Why is it I hear nothing of this on the New Channels like CNN or MSN or even FOX. Have they been squelched to report on any of this??/?/ Sorry for the obvious question, but I personally would like to know.

December 07 2010 at 7:15 PM Report abuse +3 rate up rate down Reply

Ahhh Abigail: You have out done yourself this time. Your article has brought out some of the most intellegent statements I have read in a long time. My hat off to you dear and please Keep us "We the People" informed. Thank you

December 07 2010 at 7:12 PM Report abuse +3 rate up rate down Reply
Big Daddy

I saw no mention of the titles that can't even be found, these mortgages have changed hands so many times with no records nobody even knows who the holder is, it's part of some derivative package containing thousands of mortgages. In the mean time counties like mine , small and rural, lost thousands in transfer fees, and documentation of ownership. How many times do we have to listen to these horror stories brought on by industries writing their own rules and regulations? Oh I forgot, "government is the problem" and deregulation is the only answer to a flourishing economy.

December 07 2010 at 6:42 PM Report abuse +2 rate up rate down Reply

Enough is enough! The whole system is rigged. Liquidate the big banks and all of Wall Street and start over from scratch. Strip the bankers of all of their personal assets, line them up and shoot them. Put their families out on the street. The system is broken, they broke it and now it's time for them to pay.

December 07 2010 at 6:27 PM Report abuse +7 rate up rate down Reply

Not to be missed - key members of Congress who enabled looser regulation of mortgage loans and the forced involvement of Fannie Mae and Freddie Mac. These two men led Financial Committees which greased the wheels of fraud. Former Senator Chris Dodd (D - Connecticut)) and Rep. Barney Frank (D - Massachusetts). They were in a position to stop the landslide; but, instead, encouraged it. Both political parties share the blame; and they seem not to care they did it.

December 07 2010 at 6:14 PM Report abuse +6 rate up rate down Reply