• Maryland Considering Legislation Related to Mortgage Electronic Registration System (MERS)
  • March 30, 2011 | Author: Noel S. Manalo
  • Law Firm: Miles & Stockbridge P.C. - Frederick Office
  • In 1993, members of the real estate mortgage industry formed Mortgage Electronic Registration Systems, Inc. (MERS) to facilitate the transfer of mortgage loans.  MERS records mortgage ownership and servicing rights in an electronic database, obstensibly eliminating the need to record certain instruments in county courthouses and pay the attendant fees.  MERS acts as the nominee and mortgagee for its members’ successors and assigns, thereby remaining a nominal mortgagee of record no matter how many times the loan servicing or the mortgage itself is transferred.

    Maryland’s legislature is now considering companion bills that clarify that MERS is simply a database, not a nominal mortgagee.  The impetus for the passage of these bills, Senate Bill 206 and House Bill 691, arise from issues and disputes accompanying the recent wave of residential foreclosures.

    Stepping into the legislative void, several courts in other states have already considered whether MERS enjoys the status of a nominal mortgagee in a foreclosure action.  The three state Supreme Courts that have earlier addressed the issue, Maine, Kansas and Arkansas, have each ruled that MERS does not qualify legally as a mortgagee.  In the only Maryland decision addressing MERS, the Court of Special Appeals in, Anderson v. Burson, 196 Md. App. 457 (2009), considered the standing of a substitute trustee to pursue a foreclosure on a Deed of Trust transferred via MERS, but the court did not directly examine the standing of MERS as a nominal mortgagee in the chain of title.

    The fate of the proposed Maryland legislation and similar efforts in other jurisdictions, including Virginia, may impact the role of MERS in residential loans and the costs associated with transferring and securitizing residential loans.  In short, if Maryland ultimately passes this proposed legislation, lending institutions may face additional transaction costs and recordation taxes that have thus far been avoided by virtue of MERS.