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Bexar County Files Suit Over Fees On Loans

Bexar County has accused Merscorp Inc., Mortgage Electronic Registration Systems Inc. and Bank of America of shortchanging the county by tens of millions of dollars with their mortgage-tracking system.

The county filed suit in federal court Thursday, accusing the companies of violating state law by failing to properly record transactions and to pay county filing fees as mortgage loans were packaged and resold to investors through the secondary market.

The lawsuit seeks unspecified damages and asks for class action status on behalf of Texas' other 253 counties.
Officials estimate that the county has missed out on as much as $30 million in filing fees on hundreds of thousands of property transactions since the 1990s, when the mortgage industry created MERS as a way to track mortgage loan ownership and servicing.
On its website, MERS says it "eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans."

Because MERS is named in all the property records, "any loan is inoculated against future assignments because MERS remains the mortgagee no matter how many times servicing is traded."

But the lawsuit accuses Delaware-based Merscorp, its subsidiary Mortgage Electronic Registration System and Bank of America, National Association of violating Texas law by designating MERS as the beneficiary on deeds of trust or as the lender in release or assignments filed in deed records. The lawsuit also alleges that they violated state law when they failed to properly record releases, transfers and assignments to deeds of trust in which MERS was identified as the beneficiary.

Spokesmen with both Bank of America and MERS said they could not comment on pending litigation.
Until MERS was created by the mortgage industry in the mid-'90s, assignments would be filed each time the servicers or note holders changed for a loan.
The lawsuit says, "This basic model has been followed through the United States for over 300 years to provide the public with notice of ownership of, and liens encumbering, real property throughout the United States. Defendants and others similarly situated have changed all of this and destroyed the accuracy and reliability of the public deed recordation system throughout Texas and the United States."

Attorney Tom Rhodes , part of a team of attorneys hired to represent Bexar County in the lawsuit, said MERS "destroys the integrity of the recordation system" because it's impossible to tell who owns a mortgage loan as it is sold and resold on the secondary market.

"MERS is really a fiction created by these large banks," Rhodes said. "MERS is nothing but an alter ego. It's a fictional thing created to avoid filing fees."

County Clerk Gerry Rickoff estimates the losses in filing fees as high as $30 million. "It's not good government. It's not good transparency," he said. "The public is denied knowing who owns the property that way. The person who pays the mortgage has no idea who owns the loan."

This year, Bexar County filed suit in state district court against a Boerne mortgage banker, JPC Financial Resources Inc., accusing the company of circumventing the county's recording system to avoid paying filing fees.

Rhodes and Ed Schweninger, chief of the civil division of the Bexar County district attorney's office, said the status of that case is unclear now that the county is pursuing the lawsuit against MERS and Bank of America.

Dallas County, too, filed suit late last year seeking lost revenue. It also has asked that the lawsuit be certified as a class action.

Some Texas court cases that deal with individuals in foreclosure have upheld the general concept of MERS. But a federal judge this spring denied a request by Bank of America and MERS to dismiss the Dallas County case. Bank of America and MERS also have tried unsuccessfully to get that case moved from the U.S. District Court for the Northern District of Texas to Arizona.

Rhodes said that if Dallas County were to get class action status before Bexar County does, Bexar would have to decide whether to join the class action or go it alone.

"We believe it's in the county's best interest to process here in the Western District," he said. "We feel like it's a better venue."

Article by Jennifer Hiller, San Antonio-Express News

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