Michelle Conlin reports for Reuters about a Washington State Court ruling that MERS (Mortgage Electronic Registration Systems) did/does not have the legal authority to foreclose on a home.  The article can be found here.

The crux of the decision is summarized in this:

The Washington Supreme Court held that MERS’ business practices had the “capacity to deceive” a substantial portion of the public because MERS claimed it was the beneficiary of the mortgage when it was not.

This finding means that in actions where a bank used MERS to foreclose, the consumer can sue it for fraud. If the foreclosure can be challenged, MERS’ involvement would make repossession more complicated.

On top of that, virtually any foreclosed homeowner in the state in the past 15 years who feels they have been harmed in some way could file a consumer fraud suit.

For those of you not so familiar with MERS, Conlin summarizes nicely:

The company’s history dates back to the 1990s, when banks began aggressively bundling home loans into mortgage-backed securities. The banks formed MERS to speed up the handling of all the paperwork associated with recording the filing of a deed and the subsequent inclusion of a mortgage in an entity that issues a mortgage-backed security.

MERS allowed the banks to save time and money because it permitted lenders to bypass the process of filing paperwork with the local recorder of deeds every time a mortgage was sold.

Instead, banks put MERS’ name on the deed. And when they bought and sold mortgages, they just recorded the transfer of ownership of the note in the MERS system.