on November 09, 2012 at 4:47 PM, updated November 09, 2012 at 7:10 PM
In an action that has implications for tens of thousands of area homeowners, Multnomah County is taking on a mortgage-industry giant in hopes of recouping potentially millions of dollars in recording fees the county says have been avoided illegally.
County commissioners on Thursday will vote to make Multnomah the first county in Oregon to file a lawsuit against the Mortgage Electronic Registration Systems, a Virginia-based conglomerate created by large national banks to bundle and sell loans without having to record each new transaction.
“What MERS does is take the property recording system we have in Multnomah County and make it worthless,” said Jeff Cogen, commission chairman. “Anyone who buys, sells or owns a home in this county is affected.”
As a result of MERS’ practices, few people know who actually owns their mortgage, he said. Consequently, a public-records search alone on thousands of properties in Multnomah County may be utterly insufficient in identifying a clear title-holder.
Before the rise of MERS’ electronic registry in 1997, anyone buying a house would record the deed with the county. Those recording fees, in turn, provided the public service of making clear who owned which piece of property.
Cogen and others say the outcome of the lawsuit is far from certain. Nationally, MERS has won more suits than it has lost by arguing that it can legally be listed as a “beneficiary” on home-mortgage papers.
“It’s not a sure thing,” said Jenny Morf, Multnomah County counsel. “But we wouldn’t be here if we didn’t think we could succeed.”
The county’s lawsuit will allege that MERS has hopelessly muddied mortgage records by allowing the mortgages to be bought and sold numerous times without a recording fee being paid each time. That process shorts the county what it is due in fees, according to the county’s complaint, in addition to confusing title records.
“Maintaining these records is core to the county’s mission,” Cogen said. “We believe the banks, acting through MERS, have corrupted our public records and deprived the county of money it is entitled to.”
The county, if successful, could collect damages of anywhere from $3 million to $24 million, he said. The actual amount would depend on how many unpaid “conveyances” — selling and re-selling of mortgages among various banking interests — are determined to be involved.
If the county prevails and wins damages, Cogen said, he and other board members would use the proceeds to help county homeowners who have “suffered at the hands of MERS” through non-judicial foreclosures.
Many of the foreclosures that have hit Multnomah County homeowners since the housing meltdown that started in 2007 are a result of MERS being able to stand in as the “beneficiary” on recording documents, Cogen said. Lacking that ability, the housing giant would not have been able to proceed with the raft of non-judicial foreclosures that have left many people on the street.
Jason Lobo, MERS’ corporation communications director, declined to comment on the prospect of the county’s lawsuit.
“As a matter of regular course, we don’t comment on cases outstanding or not yet filed,” he said. “We don’t want to litigate this in the media.”
He did, however, provide information on several cases nationally that have been decided in MERS’ favor. Those include lawsuits filed in Arkansas, Florida, Kentucky and Iowa.
Attorneys advising the county say more recent outcomes have broken in favor of public and private parties suing MERS.
An Oregon Court of Appeals ruling handed down in July, for instance, found that MERS’ controversial document-registry system could not be used to get around state recording law in non-judicial foreclosures.
The Oregon Supreme Court is expected to resolve that lawsuit, filed by Rhododendron real estate agent Rebecca Niday.
A key factor in persuading county commissioners to proceed at this time is the relative lack of risk involved.
Its legal team — a Lake Oswego law firm partnering with an Alabama-based firm that has filed other anti-MERS suits nationally — is working on a contingency basis. Those firms will split one-third of any monetary award, while the county will owe nothing if the case falters.
“The county is only on the hook for a maximum of $20,000 in filing fees and associated court costs,” Cogen said. “In reality, we think the figure will be much less than that.”
Commissioner Deborah Kafoury said it makes sense for the county to take the lead on the issue since it’s county-backed homeless shelters that are now absorbing many who have lost their homes in non-judicial foreclosures over the past few years.
“The system is broken,” she said. “This is one way to start repairing it.”