New York sues big banks over mortgage database

New York Attorney General Eric Schneiderman is suing Bank of America, Wells Fargo and JPMorgan Chase for using a mortgage database that allegedly led to deceptive and fraudulent foreclosure filings.

In a statement, Schneiderman said the banks created the Mortgage Electronic Registration System “as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law, he said.

The suit, which was brought in the New York State Supreme Court in Brooklyn, charges that agents of the banks, operating as “MERS certifying officers,” repeatedly brought foreclosure actions against New York homeowners even though they lacked the authority to do so and did not hold the notes on the properties. The system also “effectively eliminated homeowners' and the public's ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database — which is plagued with inaccuracies and errors — over which MERS and its financial institution members exercise sole control,” Schneiderman said.

He said MERS was created “to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages.” The suit alleges that the banks avoided $2 billion in recording fees by using MERS.

Merscorp, which runs MERS, said in a response that the company’s activities are in compliance with state and federal laws. Spokeswoman Janis Smith said in a separate e-mail statement that the company will fight the allegations, the New York Times reported.

Yet even as Scheiderman announced the suit, he continued pursuing joining a multistate mortgage settlement, according to the Times. The deadline for the $25 billion deal is Feb. 13, although that will likely be pushed back, reported Reuters.

According to CNN, 40 states have signed on to the agreement, with California, Delaware, New York and Nevada still undecided. All are still in negotiations and may yet sign the deal. The states’ attorneys general have been leery of signing because of worry that the deal might cripple their own investigations, the article noted.

About the Author

Kathleen Hickey is a freelance writer for GCN.

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