Attorney General Jack Conway has announced that a Franklin Circuit Court judge has ruled that the Office of the Attorney General properly alleged violations of Kentucky's Consumer Protection Act against MERSCORP Holdings, Inc., and its wholly-owned subsidiary Mortgage Electronic Registration Systems, Inc. (MERS).
"I appreciate the court's careful consideration on this matter, and I am pleased with the result," General Conway said. "This ruling paves the way to allow my office to hold MERS accountable for its deceptive conduct, and we look forward to continuing our fight for Kentucky consumers."
MERS was created in 1995 to enable the mortgage industry to avoid paying state recording fees, to facilitate the rapid sale and securitization of mortgages, and to shorten the time it takes to pursue foreclosure actions. Its corporate shareholders include, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac, and the Mortgage Bankers Association. Currently, more than 6,500 MERS members pay for access to the private system. More than 70 million mortgages have been registered on the system.
In January, as a result of General Conway's investigation of mortgage foreclosure issues in Kentucky, the Attorney General's office filed a lawsuit in Franklin Circuit Court alleging that MERS had violated Kentucky's Consumer Protection Act by committing unfair or deceptive trade practices. The lawsuit alleged that since MERS' creation in 1995, members have avoided paying more than $2 billion in recording fees nationwide. Hundreds of thousands of Kentucky loans are registered in the MERS system.
Additionally, the lawsuit alleged that MERS violated Kentucky's statute requiring mandatory recording of mortgage assignments, and that MERS had generally committed fraud and unjustly enriched itself at the expense of consumers and the Commonwealth of Kentucky. MERS had moved to dismiss all of the claims on various grounds.
On Dec. 3, the court determined that Attorney General Conway had properly alleged violations of the Consumer Protection Act, as MERS engages in trade or commerce, and that the Attorney General had sufficiently alleged unfair, misleading, or deceptive practices. The court also found that the Attorney General had sufficiently alleged its claims that MERS had committed fraud and had unjustly enriched itself at the expense of the public. The only claim dismissed by the court was the Commonwealth's allegation that MERS violated the statute requiring recording of mortgage assignments. The court did not determine whether or not MERS had violated the recording statute; the court simply found that the recording statute itself lacks an enforcement mechanism. In all, eight of the nine causes of action brought against MERS by General Conway survived MERS' motion to dismiss.
Other states have filed similar lawsuits against MERS, including Massachusetts, Delaware and New York. The Kentucky Office of the Attorney General is the first state Attorney General's office to move past the motion to dismiss stage against MERS.
The Franklin Circuit Court found that the Attorney General had sufficiently stated legal causes of action. It has not yet taken any evidence or ruled on whether MERS committed the alleged violations.
MORTGAGE FORECLOSURE SETTLEMENT
In addition to the MERS lawsuit, General Conway joined 48 other state Attorneys General in negotiating the historic $25 billion national mortgage foreclosure settlement. The Attorneys General uncovered that the nation's five largest banks had been committing fraud during some foreclosures by filing "robo-signed" documents with the courts.
Kentucky's share of the settlement totals more than $63.7 million. Thirty-eight million dollars is being allocated by the settlement administrator to consumers who qualify for refinancing, loan write downs, debt restructuring and/or cash payments of up to $2,000. To date, the banks report providing relief to 1,833 Kentucky homeowners. The average borrower received an average of $34,771 in assistance.
Kentucky also received $19.2 million in hard dollars from the banks. The money went to agencies that create affordable housing, provide relief or legal assistance to homeowners facing foreclosure, redevelop foreclosed properties and reduce blight created by vacant properties.
To learn more about the mortgage foreclosure settlement, visit http://ag.ky.gov/mortgagesettlement .