MERS (Mortgage Electronic Registration System) is an innovation of the mortgage/banking industry which facilitated the prolific bundling, buying and selling of mortgages during the now-burst “real estate bubble.” The MERS (itself a corporation) tracking system allowed the changes of ownership in mortgages/deeds of trust to be registered in one place – the MERS database – rather than recorded (per state law!) in various county recorders’ offices across the United States….
The centralized national database both avoided the logistical nightmare of physically recording changes of ownership in the loan instruments, and craftily avoided the fees paid to county recorders upon the filing of changes – by which device industry actors were widely reported to have saved (ie, pocketed) over $1 billion in recording fees since MERS went online.

The MERS edifice is apparently beginning to unravel. At least five court decisions, including opinions by the Kansas and Arkansas Supreme Courts, a Federal Bankruptcy Court in Nevada, a California trial court, and an Indiana Appellate Court, have found against MERS claims related to collection of loans following foreclosure sales, often leaving a second mortgage holder out tens of thousands of dollars. The problem is the presence of the MERS name on mortgage documents as a nominee or representative of the mortgagee, and the legal failure of MERS itself to retain any interest in the proceedings in its function as a mere database. Also the fact that transfer of ownership of the mortgage or DoT was not legally recorded as most states’ laws require.

If you are involved in realm of foreclosure, lending, etc, in any capacity, please be aware of this growing meltdown. More information can be found at the following links:

Information on NYT article and Indiana Appellate case: http://indianalawblog.com/archives/2009/09/courts_in_kansa.html 

Supreme Court of Kansas decision: http://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090828/98489.htm

Discussion of Kansas decision: http://foreclosurebuzz.org/2009/09/15/kansas-supreme-court-mers-is-a-straw-man-with-no-enforceable-rights/

Detailed discussion of MERS legal problems: http://iamfacingforeclosure.com/blog/2009/09/24/the-trouble-with-mers/

Supreme Court of Arkansas decision: http://courts.arkansas.gov/court_opinions/sc/2009a/20090319/published/08-1299.pdf

Notes on the MERS legal situation: http://solari.com/blog/wp-content/uploads/2009/09/rp_kraft.pdf

Excellent discussion of the issues and developments: http://rismedia.com/2009-09-28/op-ed-60-million-mortgages-may-have-fatal-flaws/

More good discussion: http://seekingalpha.com/article/162768-has-a-mershole-opened-up

Thanks to Sam for aggregating this information.

B