FAQ: What is MERS?

Question:  What is “MERS”?  I heard they hold my mortgage.  Can they foreclose me?

Answer:  MERS stands for “Mortgage Electronic Registration  Systems, Inc.”  MERS is a national company that functions as an electronic database for mortgages.  In recent years, as mortgage loans are increasingly sold on the secondary market, the role of MERS has grown significantly; today, it is estimated that MERS holds title to 60 million loans.   

 
How does MERS hold a mortgage?  When a home is purchased, a homeowner typically gives a mortgage to the lender.  If MERS is involve, the mortgage is granted to MERS, on behalf of the lender.  MERS serves as an agent for the lender and, most importantly, its “successors and assigns.”  In other words, MERS hold the mortgage on behalf of whoever is the owner of the loan.  Because it is typical for loans to be sold numerous times after the loan’s origination, MERS is designed to hold the mortgage on behalf of the present owner.

Why was MERS created?  As it became more and more common for loans to be sold after origination, lenders realized that they would need to spend time and money on recording fees for the mortgage assignments.  MERS was created to eliminate the need for these numerous assignments.  Instead, lenders would merely need to grant the mortgage to MERS, who would hold it on behalf of the loan’s present owner.

In Culhane v. Aurora Loans, a seminal Massachusetts decision on mortgage assignments, the First Circuit upheld the role of MERS in the mortgage industry.  As such, arguments that MERS has no authority to assign mortgages are largely meritless.  However, MERS’ internal rules prohibit it from foreclosing in its own name. As such, when a lender is ready to foreclose, MERS generally assigns the mortgage back to the lender.MERS is often criticized for its secrecy; because of MERS, it can be difficult to determine who is the present owner of a mortgage loan.  However, despite these concerns, MERS’ authority to hold and assign mortgages is established.