(Updates with comment from Merscorp in sixth paragraph.)
Sept. 21 (Bloomberg) -- Mortgage Electronic Registration Systems Inc., along with Bank of America Corp., was sued by Dallas County District Attorney Craig Watkins over claims its mortgage-tracking system violates Texas law.
Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, cheated Dallas County out of “tens of millions in uncollected filing fees,” Watkins said in a statement. 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.
Watkins, in a complaint filed yesterday in state court in Dallas, claims MERS was established by banks including Bank of America to avoid paying filing fees, as well as to ease transfers of mortgages. The county asked the court to hold Bank of America liable as a shareholder of MERS and said the bank “knew or should have known” that the system would cause improper filing.
“Texas public policy favors a reliable functioning public recordation system to avoid destructive breaks in title, confusion as to true identity of the holder of a note, fraudulent foreclosures and uncertainty as to title when a home is sold,” Watkins, said in the 48-page complaint. MERS “has all but collapsed this system throughout the U.S,” he said.
Jerry Dubrowski, a spokesman for Charlotte, North Carolina- based Bank of America, didn’t immediately return calls seeking comment.
“The claims made in the lawsuit filed in Dallas County, Texas, yesterday are without legal or factual merit,” Janis Smith, a Merscorp spokeswoman, said in an e-mail today. “The MERS business model and practices are legal and comply with the recording statutes and regulations of Texas.”
The legality of MERS’s practices “has been upheld in numerous cases in Texas courts and countless cases across the country on the state and federal level,” Smith said. “We are confident that this court will agree that MERS’ business practices are perfectly legal.
Dallas County may add other banks to the lawsuit, Watkins, 43, said in an interview. Naming Bank of America first was “a strategic move,” he said. “We expect more banks will be in this before it’s over.”
The Dallas county clerk has estimated that $58 million in fees have not been paid as a result of MERS-related transactions, dating back to 1997, Watkins said. “Our research shows it could be more than $100 million.”
Through the MERS system, notes and mortgages in Texas are being “sold, assigned or transferred” without being recorded in the deed records of the county, Watkins said in the complaint. The defendants “misrepresented the true beneficial owner of notes and related mortgages filed by them in Dallas County, Texas, for the purpose of avoiding the recordation of subsequent transfer and payment of attendant filing fees.”
The case is Dallas County v. Merscorp Inc., CC-11-06571-E, County Court at Law, Dallas County, Texas.
--Editors: Michael Hytha, Fred Strasser
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