St. Clair County State's Attorney Brendan Kelly says that a shadow mortgage recording system developed by several large participants in the mortgage industry deprives the public of accurate information on property ownership.
In a suit filed Monday against big and small home loan banks, Kelly claims that the Mortgage Electronic Recording System (MERS) recording system undermines hundreds of years of property law. The MERS system effectively eliminates the ability to track the purchase and sale of properties through the traditional public records system, he says. Instead, this information is stored in a private database maintained by MERS, but which is unreliable and inaccurate.
"We have been hearing from deputy recorders that kept having questions raised by individual home owners doing title searches," he said. "With MERS it is very difficult to ascertain who owns what with any given piece of property."
"It turns out that the replacement system is very inaccurate with very little oversight," he said.
He said Illinois law is "clear and strong" regarding recording laws, but that MERS is in violation of various statutes including unjust enrichment, consumer fraud and deceptive trade practices.
The St. Clair County Recorder's office estimates that tens of thousands of transfers of title occurred without proper documentation.
The suit states that data retrieved from the Recorder's online software contractor shows that between Jan. 1, 2000 and May 6, 2012, the phrase "MERS" in conjunction with the filing of a "Mortgage" occurred on 49,951 occasions in St. Clair County. However, the phrase "MERS" in conjunction with the filing of an "Assignment of Mortgage" occurred only 3,831 times during the same time period.
A mortgage between a lender and private home owner typically costs $30 to record.
The lawsuit states that rules of MERS membership "specifically prohibit the filing of any assignment of mortgage other than when a note is transferred from a MERS member to a non-member."
Kelly said his office has been contemplating for months a lawsuit that seeks unpaid mortgage recording fees, compensatory damages, interest, costs and private attorney fees.
He appointed St. Louis attorney Paul Slocomb of Hoffman & Slocomb as a special assistant state's attorney to pursue the action on behalf of the county. Kelly said it was necessary to hire a private attorney because of the unique circumstances involving complex financial matters.
This was not a "typical homicide" investigation, he said.
Slocomb will be paid a nominal fee - $100 per month - but will also be allowed to seek fees for the cost of discovery, Kelly said.
The civil action in St. Clair County could have far-reaching effects if pursued by other mortgage recording agencies, statewide or across the country,
A spokesperson for Madison County State's Attorney Tom Gibbons said there have been preliminary discussions about the subject between Gibbons and Madison County Recorder of Deeds Matt Rice, but that no decisions have been made whether to pursue a similar action.
"He (Gibbons) has not seen the lawsuit yet," said assistant State's Attorney Stephanee Smith.
Defendants named in the St. Clair County suit include: Bank of America, CCO Mortgage Corp., CITI Mortgage, Corinthian Mortgage Corp., Everhome Mortgage Co., GMAC Residential Funding Corp., Guaranty Bank, HSBC Finance Corp., Suntrust Mortgage, Wells Fargo Bank, WMC Mortgage Corp., Bank of O'Fallon, Compass Mortgage, First Collinsville Bank, FirstCo Mortgage Corp., First County Bank, Mid America Mortgage Services of Illinois, Mortgage Services III, Midland States Bank, Peoples National Bank, Commerce Bank, Regions Bank and UMB Bank.
MERS has been targeted elsewhere on claims of fraudulent foreclosure filings involving its registry system.
Five of the nation's largest banks agreed in March to pay the state of New York $25 million to settle claims over their use of MERS.
New York Attorney General Eric Schneideman had alleged that employees and agents of Bank of America, JPMorgan and Wells Fargo, acting as "MERS certifying officers," repeatedly submitted court documents containing "false and misleading information" that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have.