Ramsey, Hennepin sue mortgage registry over lost fees

Ramsey and Hennepin counties are suing a Virginia-based national home mortgage registry, alleging that they've lost potentially millions because the company failed to record mortgage transfers with the counties as required, they claim, under state law.

Ramsey County Attorney John Choi said that the 69-page civil action, filed Friday in Ramsey County District Court on behalf of all Minnesota counties, sends a clear message that MERS -- Mortgage Electronic Registration Service Inc. -- "can no longer do this at the public's expense."

The joint county lawsuit is just the latest in a series of similar suits filed across the country against MERS, a private entity set up in the 1990s by large national lenders to make it faster and cheaper to buy, sell and transfer mortgage interests.

By skirting the recording process, the counties say, MERS has made a hash of the chain of ownership in property records and cost them significant revenue in recording fees.

Choi could not say just how much revenue the counties have lost. But Prentiss Cox, a University of Minnesota law professor who specializes in consumer protection and has prosecuted mortgage lending cases, said the figure easily could be in the tens of millions of dollars.

Janis Smith, vice president of parent company Merscorp Holdings, said in a statement that there was no merit to the counties' claims and that MERS lists its mortgages in county records and pays required fees.

"MERS complies with Minnesota property recording statutes. ... We will defend against this complaint, as we have with others," she said.

A federal district court in Missouri last month dismissed a suit against MERS filed by Jackson County because, the court said, Missouri law didn't mandate the recording of mortgage assignments.

That's not true in Minnesota, Choi said, where mortgages and assignments always have had to be recorded in the county where the real estate is located. The state has set a $46 fee for a change of ownership filing.

Ramsey County Board Chairman Rafael Ortega said Friday that MERS had made it hard for the county to track property changes, and also cost it revenue used to reinvest in problem properties and put them back on the tax rolls.

"It almost sets up an invisible part of government when we don't have the information to know what's going on," Ortega said.

The Legislature amended state law in 2004 to allow MERS to be listed legally as the holder of mortgages filed in courthouses, even though it only tracked the loans and didn't own them. In 2009, the Minnesota Supreme Court upheld the law in a suit filed by the Legal Aid Society of Minneapolis.

At the time, a MERS official told Congress that the company had saved lenders $2.4 billion in recording expenses.

Last year, Merscorp settled a lawsuit filed by the state of Delaware that claimed the company had used deceptive practices. Merscorp agreed to set up a database allowing homeowners to find out who owned their mortgages, and to run regular checks of its records.

In a statement, Hennepin County Attorney Mike Freeman said that "the public never consented to a system in which some pay recording fees while others do not, and where some property record information is transparently maintained ... while other data is in a privately run database."

The counties have hired a New York City law firm and former Ramsey County Attorney Tom Foley, now a private St. Paul attorney, to handle the case on a contingency fee basis.

Kevin Duchschere • 651-925-5035