US: Class action alleges lender is jumping the repossession gun

As the economy continues to suffer from fall-out from subprime mortgage foreclosures, Mortgage Electronic Registration Systems, Inc. (MERS) is accused of skipping legally required steps to remove people from their homes in Minnesota. A group of Hennepin County homeowners with subprime mortgages filed a class action lawsuit to stop illegal foreclosures by MERS, a Virginia-based company.

In Minnesota, lenders have an alternative that is often called 'foreclosure by advertisement' because it allows a party to foreclose after publishing a notice of foreclosure in the newspaper. For lenders, it is faster, easier, and less expensive than going to court. However, the law requires the foreclosing party to meet certain basic requirements before forcing homeowners out of the home.

"Foreclosure by advertisement is a privilege, not a right," said Amber Hawkins, an attorney for the Legal Aid Society of Minneapolis, one of the law firms representing the plaintiffs. "If a mortgage lender wants to use a quick and easy process to take someone's house, at the very least they should have to follow the steps that Minnesota law requires."

The central issue is whether MERS routinely initiates foreclosures without listing all loan "assignments" - that is, all changes in ownership that occur with the mortgage in question, since mortgages often go through a chain of "assignees." A basic requirement on Minnesota's books is that mortgage assignments must be recorded with the county if the mortgage is no longer held by the original lender. Additionally, assignments must also be listed in the Notice of Mortgage Foreclosure Sale, published in the newspaper. and delivered to the homeowner prior to the sale.

The lawsuit alleges that MERS systematically ignores these requirements and routinely forecloses upon mortgages that have been assigned without recording those assignments or listing them in the published foreclosure notice. Ironically, MERS was established for the very purpose of tracking loan assignments privately, rather than recording them with government officials.

In the midst of the subprime foreclosure crisis, this case highlights the lack of accountability among subprime lenders, who often aggressively marketed subprime loans without properly underwriting them, then avoided assuming any risk by selling the loan to investors. The result is that homeowners can be left homeless, but all too often it is difficult to even ascertain who is responsible for the mortgage. Among the families MERS seeks to remove without taking proper steps include single mothers and a man who is caring for a family member with terminal cancer.

According to Eric Halperin, director of the Washington office of the Centre for Responsible Lending, "When lenders or other foreclosing parties neglect to identify the entities that support bad loans, the public is deprived of critical information about who the real players are in this foreclosure mess.

Source: press release.