The Minnesota Supreme Court today ruled against five Hennepin County homeowners who said an electronic mortgage registration system made it virtually impossible to defend themselves against home foreclosures.
The system, called Mortgage Electronic Registration Systems, or MERS, is a registry involved in 40 percent of all foreclosures in the Twin Cities.
MERS was created by the nation's largest mortgage lenders, such as Chase, Citigroup, and Countrywide, to streamline the foreclosure process after the 1993 savings and loan crisis. MERS essentially privatized part of the mortgage recording system.
But some legal aid lawyers argued the process kept homeowners in the dark about which institutions actually held their mortgages.
The Hennepin County homeowners in the case contended that state law required MERS to identify which institutions held the mortgages, and list them in a published foreclosure notice.
They wanted to know details of the mortgage sales -- including who held promissory notes to the property and who held legal title.
Writing for the 6-1 Supreme Court majority, Justice Paul Anderson wrote that Minnesota law requires MERS to record who's assigned legal title, but not who's assigned the promissory notes.
He also made a reference to the movie "It's a Wonderful Life," writing that it's not hard to have nostalgia for earlier times, but that in many mortgage transactions, "a George Bailey no longer sits in the corner office of the Building and Loan Association in Bedford Falls."
Anderson said the mortgage banking industry has changed, and with it certain problems have become evident. But he said to remedy those shortcomings goes beyond the court's authority.
Legal Aid attorney Amber Hawkins, who brought the case, says the decision is disappointing for homeowners facing foreclosure and makes it harder to avoid the same problems again.
"The public will never know the chain of ownership in these bad loans," said Hawkins. "We will never be able to go back and figure out who were the players. Who had interest in these loans? Who benefitted from these foreclosures?"
William Hultman, a senior vice president at MERS, would not answer questions but did release a short statement.
"We are pleased with the justices' decision in this case. Now that the ruling has been issued, we are moving forward and continuing to focus on meeting the needs of the homeowners by lowering the cost of purchasing a home."
Justice Alan Page was the lone dissenter in the court's decision. He said the Legislature could not have been more clear in requiring that all assignments of a mortgage be recorded before a mortgage can be foreclosed upon.
He said by allowing the identities of promissory note-holders to remain hidden, the court essentially eliminates a homeowner's ability to assert a wide range of defenses to foreclosure. And as a result, neither borrowers nor lenders will ever be able to hold anyone accountable in the chain of transfers.