Legal Case Delaying Home Sales in Jackson

American Title and Liberty Title said “There is a lot of stuff in limbo right now.” and having MERS in the chain of title “is a fatal defect.”


American Title said that if banks want title companies to insure home sales that have connections to MERS, they will have to find a way to show they have proper title. “Somebody’s going to pay for this … This isn’t just going to go away. Somebody’s going to pay money.”

Legal case delaying home sales in Jackson
Published: Saturday, July 02, 2011, 9:49 PM Updated: Saturday, July 02, 2011, 9:57 PM
By Chris Gautz | Jackson Citizen Patriot

A family was expecting to close on a house on a Friday. On Thursday night, the sale had to be scuttled.
Fifteen to 20 pending home sales fell apart that one Jackson title company was preparing to handle. Banks started pulling homes for sale off the market.
First, Jackson County’s real estate market suffered from the foreclosure crisis. Lately, it has been going through another convulsion due to a little-known company that has its name all over mortgage documents in Jackson and around the state.
Hundreds of foreclosures that involved the Mortgage Electronic Registration System, or MERS, now are holding up home sales in Jackson and around the state. A legal case over the company that originated in Jackson County may be headed to the state Supreme Court.
“I think it’s just going to be a stalemate for anyone who has MERS in their title,” said Laura Schlecte, broker and owner of Prudential Premier Properties, 761 W. Michigan Ave.
Illegal foreclosures?
MERS, based in Virginia, was created in 1993 by the lending and title insurance industries as a way for banks to quickly buy and sell mortgages without having to physically record the transfers with local register of deeds offices.
In the last decade banks commonly packaged mortages as securities and sold them back and forth. Handling the paperwork electronically sped up the process.
When Summit Township resident Corey Messner defaulted on the mortgage on his home on E. Walmont Road in 2008, MERS acted on behalf of the bank that held the mortgage and began foreclosure.
But when the eviction proceedings began, Messner filed his lawsuit, saying MERS did not have the authority to foreclose because it did not hold the note on his mortgage.
Michigan law states that whoever forecloses on a property must own the debt, and MERS did not. It was simply acting on behalf of the bank that did.
Efforts to reach Messner through his attorney, retired District Court Judge Lysle Hall, now with Jackson Legal, 300 W. Washington Ave., were unsuccessful. A representative at Jackson Legal said Messner did not want to speak publicly.
Jackson’s district and circuit courts ruled against Messner. The case in Jackson was combined with a similar one in Kent County and then taken up by the state Court of Appeals.
In April, the appeals court ruled for the homeowners, finding that MERS did not in fact have the authority under law to execute the foreclosure proceeding.
‘A screeching halt’
Almost immediately after the court’s ruling, nearly every home for sale that had been foreclosed on by MERS became toxic in the eyes of the title insurance industry.
“We’re not insuring any of those,” said Paul Anast, president of Midstate Title Co., 100 S. Jackson St. “We wouldn’t touch one of those with a 10-foot pole.”
In a statement after the appeals ruling, MERS wrote, “Title companies should not have any concerns about closing loans with MERS as the mortgagee.”
But no title company in this area sees it that way.
“I don’t think anyone is going to agree with them on that,” Anast said. “It’s really caused a lot of that stuff to come to a screeching halt. Everyone is taking the ultra-conservative road.”
Thomas Richardson, owner and general counsel of Liberty Title, 110 First St., said having MERS in the chain of title “is a fatal defect.”
He said his office saw 15 to 20 deals fall apart after the appeals ruling, and it will take time before those homes can be sold. “It’s going to gum up the real estate market,” he said.
In the weeks that followed, banks began pulling all of their properties off the market they were attempting to sell that had been foreclosed on by MERS.
“There’s a lot of stuff in limbo right now,” said Ron Ellison, president of American Title Co., 280 W. Cortland St.
Karmela Lejarde, spokeswoman for MERS, said most of the banks her company works with no longer have MERS foreclose for them, and they are in the midst of a rule change at the company to not allow the practice anymore.
While there likely won’t be any new MERS foreclosures, many potential homebuyers and homeowners looking to sell have had their deals stalled.
Jackson County Register of Deeds Mindy Reilly said MERS initiated 744 foreclosure proceedings in the past five years, including 91 last year.
It is not clear how many of those homes have been or still are on the market. Some may have been redeemed by the owner.
What’s next
Ellison said that if banks want title companies to insure home sales that have connections to MERS, they will have to find a way to show they have proper title.
“We don’t want to buy lawsuits,” Ellison said.
The lender will have to either go back and do a new foreclosure, which can take about seven months, or track down the people who were evicted from their homes and get them to sign over their interest in the property.
The latter can be quite difficult because many of those people have left the area.
No one expects those who were evicted after a MERS-initiated foreclosure would get their home back, especially if a new family is living in it after buying it from the bank.
“You can’t undo all these foreclosure sales that went to qualified purchasers,” Ellison said.
Any resolution will be about financial damages, he said.
“Somebody’s going to pay for this,” Ellison said. “This isn’t just going to go away. Somebody’s going to pay money.”