Delaware Attorney General Beau Biden has sued the Mortgage Electronic Registration system (MERS) the controversial entity that has been at the heart of the robo-signing flap and perhaps the center of the housing crisis.  The suit, filed yesterday in the Delaware Chancery Court, charges that the parent corporation MERSCORP and MERS have repeatedly violated the state's Deceptive Trade Practices Act. 

MERS was established by Fannie Mae, Freddie Mac and several large mortgage lenders such as Wells Fargo and Bank of America in 1995 with the goal of reducing recording costs and the  inefficiencies of transferring ownership of residential mortgages among mortgage brokers, lenders, Fannie Mae and Freddie Mac, the secondary market system and investors.  The concept was to record the initial loan documents in the name of MERS and retain that record even as paper documents were passed along from originator to subsequent holders of the debt. 

Over the years there was an increasing tendency for loan documents to become separated from the loans themselves and as more banks consolidated, big mortgage companies began to fail, and foreclosures ramped up, more and more loan transfers were not properly recorded on the MERS system and documents were actually lost.  This has led, not only to improper foreclosure procedures but even instances where properties were foreclosed where there was no outstanding mortgage.  MERS is currently the repository for about 65 million mortgages.

Biden's suit charges that MERSCORP/MERS "engaged and continues to engage in deceptive trade practices that sow confusion among homeowners, investors, and other stakeholders in the mortgage finance system, seriously damaging the integrity of the land records that are central to Delaware's real property system and leading to improper foreclosure practices."

Court papers outline three broad categories of deception:

• MERS, through its private mortgage registry knowingly obscures important information or provides inaccurate information to borrowers. The opacity of the registration database makes it difficult for consumers to know of or challenge inaccuracies in the MERS System which harms borrowers when MERS forecloses on borrowers in its own name, thus impairing a borrower's ability to raise defenses and hampering the ability to seek out the owner of the loan to pursue relief.

• MERS often acts as an agent without authority from its proper principal and is often unaware of the proper identity of that principal. Where the name of the owner of the mortgage loan recorded in the MERS system is not accurate, MERS often takes action on behalf of the purported owner without authority.

• MERS is effectively a "front" organization that has created a systemically important mortgage registry which does not properly oversee or enforce its own rules on participating members. Rather than maintaining an adequate staff, it works through a network of over 20,000 deputized non-employee corporate officers who act without meaningful oversight. It is this network that was behind the robo-signing of foreclosure documents.

Appearing on MSNBC last night, Biden said that American has historically had a robust recordation system where people could walk into the proper registry and "see, read, and touch" documents revealing who had a security interest in property.  MERS, he said, in order to save millions in recording fees and facilitate the "slicing and dicing of mortgages" for the secondary market, has taken that public and private recording system and "screwed it up."

Asked by Rachel Maddow if this suit hits at the heart of the mortgage issue or if regulators are still working their way in from the edges, Biden said this suit is central, but there is still much to be done.  Attorneys General Miller (Iowa), Schneiderman (New York) and Coakley (Massachusetts) are actively investigating as are people on the federal level.  These cases, he said, are hard to pursue on a criminal basis because anytime lawyers and accountants have signed off on a process it is hard to go after the people who have employed that process, "but anytime you have all 50 states attorneys general agreeing on something, you know the banks have been up to no good."

-Press Release Announcing the Lawsuit
-Download a MERS Fact Sheet
-Read the Complaint