According to Bloomberg, the federal judge in Texas (Dallas) has rescinded the bid filed by Bank of America Corporation (BAC) and Mortgage Electronic Registration Systems Inc. (MERS). The bid was related to the dismissal of claims under a lawsuit against both of these companies. The lawsuit, filed by Texas counties accused MERS of misrepresenting the documents of property records.
U.S. District Judge Reed O’Connor ordered the counties to pursue further proceedings over their claims. Moreover, he has restricted MERS from filing bids in future. The allegation which states that MERS had filed false liens was dismissed. Otherwise, it would have made the company pay $10,000 as the statutory penalty for each filing.
Virginia-based MERS was formed by major financial institutions, like JPMorgan Chase & Co. (JPM) and BofA, as a commercial and easy means to trade mortgage debt. Previously, mortgages were registered at county clerks’ offices and a fee was charged against these. However, MERS replaced the system and introduced one-time online registration.
MERS used to record servicing rights and ownership interests in mortgage loans on registration, enabling banks to buy and sell loans without recording transfers with counties. Though MERS saved mortgage lenders’ money, but it was a flaw for counties and homeowners. Counties were deprived of the revenue from transaction fees. Moreover, erroneous property records became an issue for homeowners.
Background
Last year, Dallas County alleged MERS for deceiving millions of its wealth in mortgage-related fees. Moreover, along with MERS, the county sued BofA to get back the unpaid recording fees. The case filed sued the defendants for failing to keep records of consequent assignments of mortgage loans and recording payment of the filing fees.
Additionally, MERS, which provides database for mortgage servicers, has been accused of sloppy record keeping, hiding identities of the holders of mortgage debt from borrowers and evading fees.
Further, the lawsuit was revised by Dallas County in October 2011. The modified lawsuit represented all other Texas counties in which a deed of trust has been filed recognizing MERS as a beneficiary. In March 2012, Harris and Brazoria counties also joined the lawsuit in U.S. District Court in Dallas and demanded up to $10 billion in support of all the counties in Texas.
Responses from the Defendants
The officials of BofA and MERS opposed the allegations. They commented that under the Texas law, recording of assignments or maintaining other related documents is not mandatory. The Texas Property Code, containing a range of statutes, does not demand such recording of documents related to the mortgage filing fees.
The primary motive behind the lawsuit is to get proper accountability of the mortgage-related documents in lawful and legal procedures. Additionally, the lawsuit aims to provide relief to the counties, which were deprived of their fees and homeowners, whose property had been wrongly foreclosed by the misconducts of the mortgage servicers.
Shares of BofA currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the stock.
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