BofA Loses Bid to Dismiss County’s Suit Over MERS

     CORPUS CHRISTI, Texas (CN) – A Texas county can proceed with a lawsuit accusing Bank of America of bungling property records and skirting filing fees by listing an electronic mortgage tracking firm as the grantee on mortgages, a federal judge ruled.
     Nueces County filed a federal lawsuit last year against the bank, Mortgage Electronic Registration Systems Inc. (MERS) and MERSCORP Holdings Inc., demanding that they “clean up the mess” they made with the county’s property records.
     The county claimed that several banks, including Bank of America, created the MERS system to quickly transfer mortgages among members of the banking industry without having to record them with county governments.
     The system is allegedly full of inaccuracies and has deprived the county of millions of dollars in recording fees. And because MERS has no financial stake in whether the loans are repaid, it continues to make fraudulent claims on real estate, according to the lawsuit.
     The banking defendants moved to dismiss but were largely unsuccessful.
     U.S. District Judge Nelva Ramos dismissed the conspiracy claim against them for failure to state a claim but allowed the remaining claims for fraudulent lien, unjust enrichment and fraudulent misrepresentation to stand.
     “There is no dispute that MERS is a mortgagee … with the right to act as an agent or nominee of the grantee, beneficiary, owner, or holder of a security instrument in the case of foreclosure,” Ramos wrote. “MERS does not, however, hold any beneficial interest in the deeds of trust, and it is not a beneficiary of the deeds of trust. It is merely an agent or nominee of the beneficiary. The false assertion of a legal right in property where none exists may constitute a fraudulent lien or claim against real estate.”
     The defendants had argued that there was no financial injury because the county can only collect fees when a document is filed, and MERS members never filed deeds of trust.
     But Ramos said the county need not allege a specific injury under state law for the fraudulent lien claim to survive.
     “If the MERS system did not exist, MERS members would re-file their deeds of trust with the proper county each time the security instruments are transferred in order to remain perfected,” she wrote. “One could reasonably infer from the [complaint] that the MERS system has caused a reduction in filing fees collected by the county and that the county’s property records have been degraded as a result of MERS’ activities.”
     She also allowed the county to pursue its claim that the defendants fraudulently misrepresented that MERS has an interest in real estate when it does not.
     “MERS has no right to enforce the promissory notes or seek judgments against borrowers in default,” Ramos wrote. “MERS is simply the nominee of the beneficiaries of the security instruments with the right to foreclose on behalf of the secured parties under the deeds of trust.”
     She continued: “MERS may be a mortgagee of record for purposes of foreclosure, but not every mortgagee is a beneficiary.”
     She said the court “cannot simply bend the laws of Texas to fit the MERS system, no matter how ubiquitous it has become.”
     “This court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law,” Ramos wrote.
     Although she dismissed the county’s conspiracy claim, she granted it leave to file an amended complaint within 14 days of her ruling.

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