MERS is an acronym for "Mortgage Electronic Registration Systems, Inc." MERS is a clearinghouse that the lending industry created to register and track assignments of mortgages and servicing rights and avoid the costs associated with having to record each transfer of a mortgage loan.
Basically, MERS' function is to serve as a nominee (a stand-in) for the lender or current owner of the loan in the land records.
What Is the Difference Between Lenders, Servicers, and Investors?
To fully understand MERS, you must understand the primary parties involved in residential mortgage servicing.
Originator. An "originator" is the bank or mortgage company that gave you the loan (the lender). Often, the originator (the original loan owner) will sell the loan to a new owner (called an “investor”).
Loan servicer. A "servicer" is the company that handles your loan account. In some cases, the loan owner is also the servicer. Other times, the owner sells the right to service the loan to another company.
Loan owner. The loan owner has the right to foreclose if the mortgage loan goes into default. But the servicer will handle the foreclosure process.
How Does MERS Work?
Mortgage Electronic Registration Systems isn't a lender, servicer, or investor. MERS is a company that manages an electronic registration system (also called "MERS") to track mortgage ownership and servicing rights.
Mortgage lenders, servicers, and investors pay a fee to become members of MERS. Member lenders, servicers, and investors can then register their mortgage loans with MERS. Around two-thirds of new mortgages in the U.S. are part of the Mortgage Electronic Registration Systems registry.
Once a loan is registered with MERS, the company acts as the “mortgagee [lender] of record” for each successive loan owner. (MERS acts as a nominee for the loan owner. But MERS has no beneficial interest in the mortgage itself.) MERS then electronically tracks the loan's ownership and servicing rights transfers in its system.
Lenders and Investors Use MERS to Avoid Recording Assignments
Lenders and investors often buy and sell mortgages in the secondary market. Without the MERS system, each of these transactions would require a separate, recorded assignment of mortgage in the land records.
What Is an Assignment of Mortgage?
An "assignment of mortgage" is a legal document executed to evidence a transfer in ownership of the loan. This document is recorded in the public records (for a fee) and used in a foreclosure lawsuit as one way to prove loan ownership.
Why Servicers and Loan Owners Want to Avoid Preparing and Recording Assignments
Preparing and recording assignments in the land records can be costly and time-consuming. But when a loan is in MERS’ name (as a nominee) in the records, an assignment isn't needed each time the loan changes hands.
Instead, MERS tracks subsequent transfers of ownership or servicing rights within the MERS system. The MERS database keeps track of the transfers.
Basically, the MERS system provides servicers, originators, and investors with a cheaper and easier way to track and manage mortgage sales.
Mortgage Identification Numbers (MIN Numbers) and Your Loan
Loan numbers can change as mortgages are bought and sold or when servicers change. For this reason, MERS relies on its own 18-digit MIN or “Mortgage Identification Number” in tracking mortgage loans.
If you have a Mortgage Electronic Registration Systems loan, you can use the MIN to find out who owns your loan. MERS provides a free website for this purpose. Go to the website and enter the MIN. (You can find the MIN on the mortgage contract you signed when you took out the loan or on the assignment into MERS. Remember, though, that not all loans are MERS loans.)
Alternatively, you can search by property address or the borrower's name and Social Security number. You might be surprised to find out that the owner of your mortgage loan is an entity like “Bank XYZ as Trustee for Asset-Backed Pass-Through Certificates, Series 2012-AR1” when you always made monthly payments to a different entity, like a well-known bank.
Mortgage Electronic Registration Systems and Foreclosures
In the past, servicers often used to file foreclosure lawsuits (judicial foreclosures) and initiate nonjudicial foreclosures in the name of Mortgage Electronic Registration Systems as a nominee for the lender or the lender's successor. After litigation in multiple states questioned whether MERS as a nominee had standing to start a foreclosure, the company changed its policies in 2011. Now, MERS generally prohibits the initiation of foreclosures in its name.
So, to foreclose, a MERS mortgage usually has to be assigned from Mortgage Electronic Registration Systems to the current owner and holder of the promissory note (the entity that actually owns the debt obligation). Then, when the servicer files the foreclosure lawsuit or starts a nonjudicial foreclosure, it names the current owner of the loan as the plaintiff or beneficiary.
Although foreclosing in the name of MERS (as a nominee) has essentially been phased out of standard practice, a few of these cases remain. And some states still permit foreclosures in the name of Mortgage Electronic Registration Systems.
If MERS is the named plaintiff or beneficiary in your foreclosure, you might want to conduct legal research or contact an attorney for advice on whether this practice is acceptable in your state.
Assignments in a Foreclosure
Generally, the chain of assignments must be complete for a loan owner to legally foreclose. A “chain of assignments” or “chain of title” is a list of all mortgage transfers from the originator up to the entity that currently owns the mortgage.
If the chain begins with MERS as the nominee for the originator, it must then end with the current owner and holder of the note. (In mortgage instruments, the originating lender frequently names MERS as the lender's nominee.)
An improper chain of assignments could render a foreclosure invalid. However, in some places, courts follow the general rule that the mortgage follows the note. This means that when the foreclosing party has the right to enforce the note, a recorded assignment of the mortgage might not be needed.
Getting Help
If you’re facing a foreclosure and you notice that there might be an issue with MERS in your case (like Mortgage Electronic Registration Systems is the named plaintiff or you think that the servicer is using an improper, incorrect, or robosigned assignment in the process), consider talking to a foreclosure attorney.