Texas County's Lawyers to Ask Permission to File MERS Suit

Attorneys for the Texas county that includes Houston will seek permission Oct. 11 to hire outside lawyers to sue Mortgage Electronic Registration Systems Inc. over $100 million or more in unpaid mortgage-filing fees.

The proposal was posted today on the agenda for the Harris County Commissioners Court, the governing body for the county. County attorneys will hire the same law firm, Malouf & Nockels, that handled a similar lawsuit filed by Dallas last month, County Attorney Vince Ryan said in an interview today.

The Dallas County district attorney's lawsuit claimed Merscorp Inc.'s MERS, which runs an electronic registry of mortgages, cheated the county out of tens of millions of dollars in uncollected filing fees. MERS tracks servicing rights and ownership interests in mortgage loans on its registry, allowing banks to buy and sell loans without recording transfers with counties.

"Our preliminary estimate, based on very superficial knowledge, is we're looking at a minimum of $11 million and it could be much, much more depending on the number of times the real estate was used as collateral and should've generated a filing fee," said Ryan, the Harris County attorney.

The county may be seeking more than $100 million in unpaid fees, he said. Janis Smith, a spokeswoman for Reston, Virginia- based Merscorp, declined to comment on the county's plan.


'Huge'

"Our cause is mirrored by every other county in Texas that can tag onto this," Ryan said. "This thing is huge." Ryan declined to name a bank that Harris County might sue or to say whether the county will sue a bank for using MERS.

The Commissioners Court must approve hiring of outside attorneys to pursue the suit before it can be filed, Ryan said.

The lawsuit could be filed next week or the following week, John Odam, assistant county attorney for special projects in Harris County, said in an interview today.

Dallas County District Attorney Craig Watkins, who also sued Bank of America Corp. (BAC) last month, claimed that his county could be owed as much as $100 million in filing fees. The clerks of Kentucky's Christian and Washington counties sued MERS, Chase Home Mortgage Corp., CitiMortgage, Wells Fargo & Co. (WFC), Bank of America and others in federal court in Louisville in April over unpaid fees, seeking to represent all 120 counties in the state.

Pennsylvania Suit

Washington County, Pennsylvania, sued U.S. Bank N.A. in state court over fees last week, contending that MERS was set up "for the express purpose of circumventing the payment of assignment of mortgage fees to county governments." The suit, brought on behalf of all counties in the state, doesn't name MERS as a defendant.

"Because the matter is in litigation, we cannot comment," said Thomas Joyce, a spokesman for Minneapolis-based U.S. Bank.

Branch County, Michigan, sued MERS, Chase and others in state court in August, alleging they improperly failed to pay real estate transfer taxes.

"I don't think there's any question this is growing," said Christopher Peterson, associate dean and professor at the University of Utah S.J. Quinney College of Law. He said he has had discussions with officials in Utah considering a similar claim. He declined to identify the county.

MERS says on its website that it aims to place every mortgage in the country on an electronic, rather than a paper, system that allows members to buy and sell mortgages.


Buy and Sell

MERS acts as the lender's nominee and remains the mortgagee of record as long as the note promising repayment is owned by a MERS member. Dallas County claims this allows banks to buy and sell loans without properly recording transfers with counties and paying the fee.

"We're looking at that suit as a parallel for ours," said Ryan, the Harris County attorney.

"Ours is very similar."

Odam said $11 million was a conservative estimate based on only one transfer per property.

"The evidence will show that there were at least two transfers, with history showing there have been multiple transfers with foreclosures and all that's occurred in the real estate market in the last few years," Odam said. Each of these transactions should have generated a filing fee for the county, he said.

The cases against MERS include: Dallas County v. Merscorp Inc., CC-11-06571-E, County Court at Law, Dallas County, Texas; and Christian County Clerk v. Mortgage Electronic Registration Systems Inc., 5:11-cv-00072, U.S. District Court, Western District of Kentucky (Louisville).

By Margaret Cronin Fisk, mcfisk@bloomberg.net and Laurel Brubaker Calkins, laurel@calkins.us.com

Source: Bloomberg