County settles Mortgage Electronic Registration System litigation

January 7, 2016

County Attorney Jenny Madkour addresses the board on Jan. 7.

The Multnomah Board of County Commissioners Thursday voted to settle the lawsuit it filed against a national company that helps mortgage lenders avoid county recording fees.

The Mortgage Electronic Registration System, or MERS, was a membership made up of the biggest banks in the mortgage business, including JPMorgan and Bank of America.

MERS was designed to allow its members to quickly buy and sell bundled mortgages without the time and expense of recording each transfer with county governments across the country. But it also caused confusion for homeowners, who often couldn’t decipher who really owned their loan.

And it cost the county millions in lost recording fees.

Few local governments have been willingly take on a company the size of MERS.

“There are a lot of risks. It’s expensive, and time consuming,” said Multnomah County Attorney Jenny Madkour. “We were able to get here because of a forward-thinking board and an offer from outside counsel willing to take on the litigation.”

The Board of Commissioners in 2012 voted to file the suit, with help from law firms D’Amore Law; Wiggins Childs, Pantazis Fisher & Goldfarb; and Crumpton Law.

“Three years ago when we looked at taking this on, I wasn't optimistic,” Chair Deborah Kafoury, who was the commissioner for District 1 at the time, said Thursday. “Taking on people who have made millions of dollars from the people we represent, who have lost their homes, it seemed like pie in the sky.”

MERS launched nationwide in 1997, based on a business model that required MERS to serve as mortgagee of record in every state; that’s how the banks saved money and MERS would make money.

Unlike many states, Oregon law required that a party listed in the records, be the party that owns loan. But MERS didn’t seek a legal opinion in the state, and instead opened for business.

Soon, homeowners were struggling to identify who really owned their loans. A mortgage might change hands six times. But the county recorder would have a single record on file; and that one listed MERS.

Within a decade, the membership-based company had cost counties across the nation more than $1 billion in recording fees.

In December 2010, MERS executive R.K. Arnold came before the Oregon Senate Interim Committee on Consumer Protection and Public Affairs. The company was involved in the buying and selling of about 50 percent of all mortgages in the country, he explained, facilitating buying and selling through million of “electronic handshakes.”

The next year MERS tried, unsuccessfully, to insert language into a state affordable housing bill that would have changed recording requirements and created a new definition of beneficiary. The language would have retroactively protected MERS and saved the MERS business model in Oregon.

In the fall of 2012 Multnomah County filed a lawsuit against MERS and 16 member banks alleging fraudulent misrepresentation, tampering with public records, making false written statements and “undermining the accuracy and integrity of Multnomah County's document recording system.” It sought damages, a correction of historic filings and accurate and transparency filings in the future.

In 2013, as the case worked its way to federal court, the Oregon Supreme Court took up the question in a separate case, affirming a lower court ruling that MERS cannot be a beneficiary on a deed of trust in Oregon.

Last month the county agreed to settle the case.

“We have set a national precedent,” said Portland attorney Tom D’Amore. “We changed the business practice of these banks in Multnomah County. Recording will be corrected so we have a clear picture of who owns what.”

The agreement stipulates that county employees cannot discuss the terms. But moving forward, MERS will no longer be listed as a beneficiary in county filings.

County Attorney Madkour, during Thursday’s public hearing (watch online here), discussed ways the public can learn more. The settlement agreement, like other filings in the case, are public records under Oregon law.

Those seeking public records can contact:

Multnomah County Attorney’s Office

501 SE Hawthorne Boulevard, Suite 500, Portland, Oregon 97214