TOPICAL ISSUES IN TITLE INSURANCE

Courtesy of Chicago Title Company of Oregon

MERS: Some Questions and Answers
Who is MERS? MERS stands for Mortgage Electronic Registration
Systems, Inc. MERS is a member-based association of nearly all (about
3,000) mortgage lenders in the U.S. The members, through MERS,
maintain a publicly accessible database for identifying the servicers and
owners of around 31,000,000 active mortgage loans, or about 50% of all
mortgage loans.
How is MERS connected to mortgage loans? The mortgage
instrument used almost exclusively in Oregon is the trust deed (also
called a deed of trust). By using this instrument, a lender may foreclose
using a non-judicial process. A trust deed trustee administers the
foreclosure. The process requires notices and waiting periods, spelled out
the Trust Deed Act, ORS 86.705 to 86.795. A trust deed is recorded to
create notice in the county records. It secures a particular obligation,
usually a promissory note by which a borrower agrees to repay the
lender. The borrower is the trust deed grantor. The lender is the trust
deed beneficiary. A MERS trust deed names MERS into the position of
beneficiary of record but as the nominee (or agent) of the lender.
Why do lenders use MERS? Since around 1997, growing numbers
of lenders have been designating MERS as nominee for the lender and
beneficiary of record. For trust deeds recorded this way, MERS is
nominee for the original lender and the lender’s successors and assigns.
One reason for the MERS designation is so MERS may stand in as a
placeholder for the owner of the loan, while the underlying indebtedness
– the promissory note – is sold, endorsed and assigned in the stream of
commerce. These transfers occur in accordance with the law of
negotiable instruments. Many loans end up, after intervening transfers,
in a securitized pool of mortgage loans for whom a national financial
institution is trustee. Through these transfers, MERS remains in place as
the record beneficiary, but its database provides an interested party with
information to identify and contact the institution for whom MERS is
nominee.
What is the role of MERS when a loan goes into foreclosure?
When a borrower stops paying, the lender’s usual remedy is foreclosure
through the non-judicial process noted above. When a lender decides to
foreclose, MERS usually assigns its beneficiary position to the then owner
of the note, who thereafter instructs the trust deed trustee to proceed
with a non-judicial foreclosure. In the past, MERS sometimes remained in
place as the beneficiary of record and authorized a foreclosure based on
instructions from the owner of the note; however, MERS recently
discontinued that practice in favor of assigning out to the owner of the
note.
Why is MERS getting attention in Oregon? A promissory note
may change hands with minimal paperwork. A note, for example, may be

Fidelity National Title Group, Inc. – March 30, 2011 – Oregon Operations
 TOPICAL ISSUES IN TITLE INSURANCE
Courtesy of Chicago Title Company of Oregon
endorsed in blank, in which event ownership passes by physical
possession. As a result, the chain of ownership is established by the
endorsements and by possession. The endorsements will not necessarily
reveal a complete history of ownership. The Trust Deed Act, by contrast,
requires that all assignments of a trust deed be recorded before a non-
judicial foreclosure may occur. If the various transferees of a particular
note do not insist on receiving assignments of the companion trust deed
concurrently with their acquisitions of the note, there will be a gap in the
chain of the trust deed’s beneficiaries. MERS provides (or has been
thought to provide) a solution to this difference between the law of
negotiable instruments and the law of trust deeds, because MERS holds
the beneficiary position constant through the various transfers of the
note. Some recent court cases question whether this MERS solution is, in
fact, compatible with the Trust Deed Act, if the Act, as now written,
requires that the complete chain of note ownership be mirrored by a
chain of assignments of the corresponding trust deed. In this regard, the
pertinent provision of the Trust Deed Act was written before MERS
existed, so the courts are confronted with applying the law to
circumstances not envisioned when the law was written.
How do the court cases affect homes that are foreclosed or in
foreclosure? A court case results in a ruling for the parties to the case,
based on facts that are, at least in some ways, unique. Any particular
ruling may or may not be a good guide for another case with somewhat
different facts. So far, Oregon court cases do not find MERS trust deeds
unenforceable; rather, the attention is on whether the lender must seek a
judicial, rather than a non-judicial, foreclosure. At this time, lenders,
foreclosure trustees and title companies (among others) are reviewing
their procedures for handling foreclosures and post-foreclosure sales. To
the extent one can generalize, these parties are reviewing foreclosures
and post-foreclosure sales on a case by case basis.
For help with all your title insurance and escrow needs, contact
your local CHICAGO TITLE representative.

Fidelity National Title Group, Inc. – March 30, 2011 – Oregon Operations