RealEstateEconomyWatch.com

A Reno law firm is preparing a class action lawsuit on behalf of Nevada homeowners who face foreclosure by a surrogate company that represents thousands of mortgage owners but doesn’t actually own the loans themselves.  If they succeed, the fallout could halt foreclosures

 The company, known as Mortgage Electronic Registration Systems (MERS), was created by the mortgage industry years to keep track of the ownership of mortgages that are packaged inside of mortgage pools and often subject to  in a series of transactions. This based in Reston, Virginia company didn’t own the mortgages it registered, but it was listed in public records either as a nominee for the actual owner of the note or as the original mortgage holder. Some 60 million loans are registered in the name of MERS.

Last month the Kansas Supreme Court ruled that MERS had “no right to the underlying debt repayment secured by the mortgage.”  The court also said that even though MERS was named as mortgagee in the case at hand, it didn’t have an interest in the underlying property.  Even though the Kansas decision directly affects only cases in that state, it raises questions about MERS’ legal right to participate in foreclosure filings elsewhere. 

Homeowners in Nevada, which ranked number one in foreclosure filings in August with nearly 18,000 in that month, moved swiftly to determine how the Kansas affects their situation.  Foreclosure filings in Kansas, which ranked 35^th among all states, were only about 1000 in August.

Nevada is a nonjudicial foreclosure state, meaning foreclosure doesn’t require a judge’s approval.  However, when a delinquent homeowner facing foreclosure files for bankruptcy protection, a lender - or, in this case, MERS - that wants to protect its assets must get permission from the federal bankruptcy judge to foreclose.

Federal Bankruptcy Judge Linda Riegle ruled earlier this year in Las Vegas that MERS had no standing because the company is not the real party in interest - it doesn’t actually own the loan. In other words, in the course of bankruptcy proceedings, MERS had no claim to the house.

The Reno law firm Hager & Hearne is preparing a class action lawsuit that will seek to invalidate the right of MERS to trigger foreclosure in light of the Kansas decision.  If successful, it might force the legal ownership of the nearly one million Nevada mortgages on the MERS system to be transferred to the names of their actual owners and slow or halt foreclosures around the country,

Meanwhile, a spokeswoman for MERS, told the Las Vegas Sun  the company will appeal the Kansas ruling.

“The ruling is confusing and goes against long-standing precedent,” she said.