Doug Welborn, state district court clerk of Baton Rouge, and Jeff L. Thigpen, register of deeds in Guilford County, North Carolina, are doing what millions of recession-weary Americans wish they could do: they are suing large banks and mortgage companies in court, alleging that their creation in 1995 of the Mortgage Electronic Registrations Systems, Inc., (MERS), to replace local county recording of property transfers, led to billions of dollars of fraud, victimizing not only millions of homeowners but state and local governments across the country. MERS, not coincidentally, was a key factor in the growth of the real estate bubble whose crash precipitated the Great Recession of 2007 to 2009. 

 

Welborn’s action, filed in federal district court in Baton Rouge on behalf of court clerks across Louisiana, alleges that the 17 banks and mortgage companies violated the Racketeer Influenced and Corrupt Organizations (RICO) Act by controlling MERS in a scheme to cheat clerks of court of recording fees.

 

Historically, every time a mortgage was sold from one holder to another, it had to be recorded at the local courthouse. Welborn’s suit alleges that the banks used MERS to avoid recording fees on 10 to 12 mortgage transfers per property, each instance of non-paid fees costing local government. MERS was thus critical to the industry practice of bundling mortgages into securities that eventually were sold to investors. Although the complaint does not state a specific damage amount, attorneys for Welborn estimate statewide losses of $450 million; if proven, they could be trebled under RICO to $1.35 billion.

 

Thigpen’s lawsuit was filed in North Carolina state court, and thus cannot allege RICO violations, which arise under federal law. The allegation are nevertheless similar, focusing on how the banks, through MERS, “effectively privatized the public property recording system and disrupted Guilford County’s responsibility to maintain a reliable public registry of land records, as well as citizens’ fundamental right to determine through public searches who holds interests in property.” The suit contends that use of MERS led to fraudulent foreclosures, and demands that they be required to “clean up the mess” by being “required to file valid mortgage and property documents so that chains of title are not improperly broken or diluted, and so the Register of Deeds and the public can rely upon the land records maintained by the Register of Deeds.” The complaint requests damages, but does not specify them.

 

These lawsuits may be tip of the iceberg. One of attorneys representing Doug Welborn said, “This case in Louisiana is going to be the test case,” noting that additional suits will be filed against the same mortgage lenders and banks in Texas and several other states, beginning in about a month.

-Matt Bewig

 

EBR Court Clerk Sues Lenders in Withholding fees (by Bill Lodge, Baton Rouge Advocate)

How One Local Official in North Carolina Is Trying to Hold Wall Street Giants Accountable for Widespread Fraud (by Joshua Holland, AlterNet)

Doug Welborn v. The Bank of New York Mellon, et al. (pdf)

Audit Reveals 84% of San Francisco Foreclosures Violated Law (by David Wallechinsky and Noel Brinkerhoff, AllGov)