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Wednesday, July 17, 2024 | Back issues
Courthouse News Service Courthouse News Service

Big Banks Face Mortgage Fraud Claims in N.Y.

BROOKLYN, N.Y. (CN) - Several megabanks disguised massive mortgage fraud while dodging more than $2 billion in fees, New York Attorney General Eric Schneiderman claims in Kings County Court.

The 47-page complaint says the banks created a shell company that served as a "bizarre and complex end-around of the traditional public recording system."

JPMorgan Chase Bank, Bank of America, Wells Fargo, EMC Mortgage Corp. and BAC Home Loans Servicing are named as the perpetrators.

They joined dozens of institutions in creating the Virginia-based Merscorp, and its subsidiary Mortgage Electronic Registration Systems, in 1995.

"The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers, facilitate the rapid sale and securitization of mortgages en mass," the complaint states. "Under the MERS contract, MERS members purportedly log all of their mortgage transfers in a private electronic registry, instead of publicly recording the transfer in the local county clerk's office."

MERS has "few or no employees" to reduce costs, Schneiderman says.

"The MERS System effectively eliminated homeowners' and the public's ability to track the purchase and sale of properties through the traditional public records system," the complaint states. "Instead, this information is now stored in a private database maintained by MERS. However, the MERS database is unreliable and inaccurate."

MERS has been named as the plaintiff in more than 13,000 foreclosures against New York homeowners, and more than 70 million loans nationally have been registered with MERS. About 30 million of those are currently active.

"MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel," Schneiderman said in a statement. "The signature line just indicates that the individual is an 'Assistant Secretary,' 'Vice President,' or other officer of MERS. Indeed, these documents often purport to assign the mortgage to the certifying officer's own employer."

MERS has tapped more than 20,000 "certifying officers" to act on its behalf, without transparency, Schneiderman added.

"MERS certifying officers, including employees and agents of JPMorgan Chase, Bank of America, and Wells Fargo, have repeatedly executed and submitted in court legal documents purporting to assign the mortgage and/or note to the foreclosing party," the press release states. "These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid. These assignments were often automatically generated and "robosigned" by individuals who did not review the underlying property ownership records, confirm the documents' accuracy, or even read the documents."

The complaint details nationwide efforts to ban foreclosures in MERS' name. Fannie Mae prohibited the practice in 2005.

MERS ordered its members to stop foreclosures listing it as a plaintiff in Florida in 2005, before expanding the ban nationwide in 2011.

"Despite this ban, many foreclosure actions filed in MERS' name against New York homeowners are still pending in New York courts," the complaint states. "To the extent that foreclosure proceedings were filed in MERS' name and MERS lacked standing, the foreclosures and any resulting foreclosure judgment and sale may be invalid, creating a cloud on title for properties throughout the State of New York."

Schneiderman wants an injunction stopping foreclosures in MERS' name and forcing MERS to turn over records about its system. It would also have to disgorge all profits obtained by the alleged fraud.

The attorney general is represented by Jeffrey Powell, the deputy bureau chief of the Bureau of Consumer Frauds & Protection.

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