Financial Services Law Developments: FYI: NY AG Settles Penalties in MERS-Related Litigation for $25M

Wednesday, March 14, 2012

FYI: NY AG Settles Penalties in MERS-Related Litigation for $25M

New York Attorney General Eric T. Schneiderman settled MERS-related allegations against several of the nation's largest banks for $25 Million, in addition to amounts to be paid by the same entities in connection with the national mortgage settlement.

The lawsuit was filed as People of the State of New York v. JPMorgan Chase & Co. 2768-2012, New York State Supreme Court (Brooklyn). A copy of the complaint is available at:
http://www.oag.state.ny.us/sites/default/files/press-releases/2012/FINAL-SUMMONS-AND-COMPLAINT.pdf

The NY AG alleged that the use of MERS supposedly "resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process."

More specifically, the NY AG alleged that:

- The MERS system is a "bizarre and complex end-around of the traditional public recording system," allowing its members to avoid paying "more than $2 billion in recording fees."

- Numerous New York foreclosure actions listed MERS as plaintiff, when MERS supposedly lacked the legal authority to foreclose and did not own or hold the promissory note, allegedly despite saying otherwise in court filings.

- Assignments of New York mortgages signed by MERS certifying officers were often "automatically generated and 'robosigned' by individuals who did not review the underlying property ownership records, confirm the documents' accuracy, or even read the documents." The NY AG claimed that the assignments were "false and defective," because they often "masked gaps in the chain of title and the foreclosing party's inability to establish its authority to foreclose, and as a result have misled homeowners and the courts."

- The use of non-employee MERS "certifying officers" to execute legal documents "confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose," and "without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel." In addition, the NY AG asserted that "individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan."

- MERS and its members supposedly "deceived and misled borrowers" by failing to identify the real party in interest pursuing the foreclosures, and often indicating that MERS was acting as nominee for a lender that was no longer in existence at the time of filing.

- The MERS System is "riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information." In addition, the NY AG asserted that as a result of these inaccuracies, mortgage satisfactions were often supposedly recorded against the wrong property.

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

This MERS-related settlement reportedly precludes New York from seeking penalties of $5,000 for each alleged violation. However, the state will continue to pursue damages allegedly incurred by New York homeowners as a result of the banks' use of the MERS system, and will seek court-ordered changes to the MERS system.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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The Editor's Bio

Ralph T. Wutscher
Maurice Wutscher LLP
20 N. Clark Street, 33rd Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
RWutscher@MauriceWutscher.com
https://www.MauriceWutscher.com/

Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.