Bank of America, MERS Lose Bid to Dismiss Texas Fee Suit

From: Charles Cox [mailto:charles@bayliving.com]
Sent: Friday, May 25, 2012 7:46 AM
To: Charles Cox
Subject: Bank of America, MERS Lose Bid to Dismiss Texas Fee Suit

Bloomberg News

Bank of America, MERS Lose Bid to Dismiss Texas Fee Suit

By Margaret Cronin Fisk and Tom Korosec on May 24, 2012

Bank of America Corp. (BAC) and Mortgage Electronic Registration Systems Inc. failed to persuade a judge to dismiss a lawsuit claiming they shortchanged Texas counties out of uncollected mortgage filing fees.

“The plaintiffs have brought sufficient evidence to allow the case to go forward,” U.S. District Judge Reed O’Connor in Dallas said. O’Connor threw out several claims in the lawsuit at the end of a court hearing yesterday.

O’Connor allowed the counties to seek damages and an injunction limiting future filings by MERS. He rejected county allegations that MERS was filing false liens, which would have allowed the counties to seek $10,000 for each contested filing.

“The $10,000 per is out,” Thomas Hefferon, attorney for Bank of America, said in an interview after the hearing.

Dallas County filed the initial complaint in September, alleging that Merscorp Inc.’s MERS was established by banks including Charlotte, North Carolina-based Bank of America to avoid paying filing fees, as well as to ease transfers of mortgages. Dallas revised the lawsuit in October, seeking to represent all other Texas counties in which a deed of trust has been filed identifying MERS as a beneficiary.

MERS, which runs an electronic registry of mortgages, said it followed Texas law and didn’t shortchange counties on fees.

‘Perfectly Legal’

“What MERS does and how it does it is perfectly appropriate, perfectly legal,” MERS lawyer Robert Brochin said at yesterday’s hearing. “The designation of MERS as a false lienholder should be categorically denied.”

Most of the case remains following Judge O’Connor’s decision, Stephen Malouf, an attorney for Dallas County, said in an interview after the hearing. The counties will be seeking to enjoin MERS from continuing to operate as it has in the state, he said. “We’d like to see it stopped.”

MERS tracks servicing rights and ownership interests in mortgage loans on its registry, allowing banks to buy and sell loans without recording transfers with counties. MERS acts as the lender’s nominee and remains the mortgagee of record as long as the note promising repayment is owned by a MERS member.

Dallas County claims this allows banks that own stakes in MERS to buy and sell loans without properly recording transfers with counties and paying the fee. Dallas County District Attorney Craig Watkins said last year his county may be owed as much as $100 million.

Other Counties

Counties in other states including Kentucky, Michigan, Ohio and Oklahoma also filed suits claiming the MERS system has cheated them out of filing fees. The Kentucky suit was dismissed in February. Delaware’s attorney general last year filed an unrelated suit, alleging MERS used deceptive practices that hide information from borrowers.

“The MERS system has created massive confusion as to the true owners of the beneficial interests in mortgage loans and mortgages throughout the United States, and the loss of revenues has harmed U.S. counties,” Dallas County lawyers said in court papers last year.

“As of today, the system they are so proud of is a complete and total failure,” Malouf said at the hearing before O’Connor. “It has made the property recording system in the U.S. spaghetti.”

Every County

The Dallas County class-action lawsuit would cover every county in Texas where MERS is identified as beneficiary or where “any record has been filed” that would cause MERS to be identified in deed files as a grantor of interest in a property, unless “MERS itself actually holds in the property the interest that MERS purports to be granting,” county lawyers said in court filings.

Under Texas law, “there is no duty to record assignments, or other documents,” lawyers for MERS and Bank of America said in court papers March 9.

“The Texas Property Code, which contains various statutes concerning recording interests in land, allows parties to record interests in land to protect their interests but does not require that any recording occur,” the defendants said in the filing. “The counties have suffered no injury — and thus lack standing — from nonpayment of recording fees for documents that were never recorded.”

MERS doesn’t create new documents when a deed of trust is assigned to a new lender, Hefferon, the Bank of America lawyer, said at yesterday’s hearing. “There is no obligation to send a document that doesn’t exist,” he said. “There is no injury if you haven’t collected a fee or don’t do the work.”

Jason Lobo, a MERS spokesman, didn’t immediately return a call for comment.

The lawsuit is Dallas County v. Merscorp Inc., 11-cv-02733, U.S. District Court, Northern District of Texas (Dallas).