Attorney General Eric T. Schneiderman of New York sued three major banks on Friday, accusing them of fraud in their use of an electronic mortgage database that he said resulted in deceptive and illegal practices, including false documents in foreclosure proceedings.
Mr. Schneiderman, co-chairman of a new mortgage crisis unit under President Obama, filed a lawsuit against Bank of America, Wells Fargo and JPMorgan Chase in New York State Supreme Court in Brooklyn.
The database, called the Mortgage Electronic Registration System or MERS, was created in the mid-1990s for tracking mortgage ownership. It is a collaboration of top mortgage servicers, mortgage insurers and Fannie Mae and Freddie Mac, the government entities that hold many of the country’s mortgages.
“The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” Mr. Schneiderman said.
“By creating this bizarre and complex end-around of the traditional public recording system,” Mr. Schneiderman’s lawsuit asserts, the banks saved $2 billion in recording fees.
More than 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks’ offices, according to the lawsuit.
The lawsuit asserts the database is inaccurate and seeks to stop the banks from filing foreclosure actions through MERS and executing false or defective mortgage assignments in New York foreclosure proceedings.
Mr. Schneiderman also is seeking all profits obtained through fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law.
Patrick Linehan, a JPMorgan spokesman, and Rick Simon, a Bank of America spokesman, declined to comment on the lawsuit. Ancel Martinez, a Wells Fargo spokesman, said the company was reviewing the lawsuit and did not have “anything to add at this time.” Janis L. Smith, a spokeswoman for Merscorp and its subsidiary, MERS, said in a statement that the firms complied with the law and mortgage regulations.
“Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders,” the MERS statement said. “We refute the attorney general’s claims and will defend the case vigorously in court.”
Source: New York Times/Reuters