Community Blight and the Mortgage Crisis: Should MERS Help Clean Up the Mess?
Peter Tilley*
Abstract: This article addresses the controversial issue of foreclosed homes that are never maintained and fall into ruin. Mortgage Electronic Registration Systems, Inc. (MERS) handles around 60 percent of mortgages in the United States. It registers mortgage titles in its database so that when rights to a payment are sold or traded, investors do not need to register the mortgage over again. When a homeowner defaults, MERS can foreclose on the home or reassign the mortgage to the investor so the investor may foreclose. However, after the homeowners are kicked out, no one maintains the home. Because mortgage-backed securities were bundled into pools of mortgages, entire communities are depressed by homes in disrepair. Banks, investors, servicers, and MERS try to deny responsibility for the homes. The conclusion is that MERS cannot foreclose on a home and then waive responsibility for maintaining it throughout that process; however, if MERS limits itself to keeping records and leaves foreclosure to other parties in the process, it likely has no fiduciary duty to maintain homes.
What is MERS?
Mortgage Electronic Registration Systems, Inc. (MERS) is wholly owned by the private corporation MERSCORP Holdings, Inc., and serves as a mortgagee in public land records.[1] Established in 1998 by the mortgage banking industry,[2] MERS assumes the legal title to mortgages, while investors keep the actual promissory note (rights to payments made by homeowners) that is purchased from mortgaging banks or financial institutions. A mortgage is an interest in a house, secured by the title of the house, which is given to the mortgaging bank along with the promissory note. These are part of the same agreement; however, the financial institutions pool their mortgages together and sell the pool to an investor
* Peter Tilley is a 2013 JD (with emphasis on international law) candidate at the University of Kansas School of Law. Peter holds a B.A. in Political Philosophy from Syracuse University and is originally from Marshfield, Massachusetts.
