State Supreme Court to rule on legality of mortgage recording system

State Supreme Court to rule on legality of mortgage recording system
For the first time, a local homeowner's fight to keep a house is headed to the state Supreme Court.

What happens there will affect thousands of people who've taken out mortgage loans in the past 10 years. If you own property, you need to know about a system known as MERS.

MERS stands for Mortgage Electronic Registration Systems. It was created by the real estate finance industry to simplify the process of transferring mortgage loans.

But struggling homeowners complain MERS also conceals the true note holder when your mortgage is sold to investors.

Kristen Bain's comfortable condo in Tukwila is tied up in the MERS debate. First, she had to sue her mortgage broker and the lender for predatory lending and failure to provide proper documentation as required by law.

"At the time when this all came up, I was 24 or 25," said Bain.

Bain hired Seattle attorney Melissa Huelsman to handle the predatory lending complaint. It was during that lawsuit that Bain lost her job, missed mortgage payments and was sent to foreclosure.

"You couldn't imagine the things that were running through my mind," Bain recalled.

That's when Huelsman ran into the MERS factor. In a nutshell, mortgage lenders and servicers routinely use MERS as a central tracking system to register mortgage loans when the loans are sold from investor to investor. MERS essentially serves as the representative of the person or persons who really own the loan. Instead of a lender's name on the court filings, the name MERS will often appear as loan beneficiary. But Huelsman maintains that by law in this state, only the actual loan holder, the true beneficiary, can initiate foreclosure, not MERS, as in Bain's case.

In order to halt foreclosure and try for loan modification, Huelsman says it was necessary to first contact the actual holder of Bain's loan. The original loan holder, INDYMAC, went bankrupt during the financial crisis. FDIC, which took over the note from INDYMAC, no longer has it. Huelsman says she filed lawsuit, after lawsuit, after lawsuit, only to learn she had not named the actual holder of Bain's loan.

"We're contending that MERS made a choice along with the banks, to engage in a practice of hiding the identity of the true owner of the loan, in violation of Washington state laws, " Huelsman explained.

But the lenders, servicers and investors who belong to MERS disagree. And the District Court judge who heard the case says this one belongs in the State Supreme Court.

"Its a very big deal," said Huelsman.

Such a big deal, that Bain -- and thousands of other homeowners with MERS on their mortgages -- could ultimately feel the effects of the high court decision. Justices are scheduled to hear oral arguments in Olympia on Thursday. A decision will likely take months.