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Mortgage Electronic Registration System (MERS): What It Is, How It Works

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

Jose Luis Pelaez Inc / Getty Images

What Is the Mortgage Electronic Registration System?

The Mortgage Electronic Registration System (MERS) is a database created by the mortgage banking industry. A confidential electronic registry of mortgages originated in the United States, it keeps track of transfers of and modifications to servicing rights and ownership of the loans. The real estate finance industry uses it for residential and commercial mortgage loan recording trading.

MERS, which also refers to the privately held company that manages the database, is approved by such government-sponsored enterprises as the Federal National Mortgage Association ( Fannie Mae) , the Federal Home Loan Mortgage Corporation (Freddie Mac) , and the Government National Mortgage Association (Ginnie Mae) , along with such government agencies as the Federal Housing Administration (FHA) and the Department of Veterans Administration (VA) that are involved in housing loans. The California and Utah Housing Finance Agencies and all major Wall Street rating agencies also use it.

Key Takeaways

Mortgage Electronic Registration System (MERS) is a privately owned database created by the mortgage banking industry to simplify the registration and transfer of mortgages.
By tracking mortgage transfers electronically, MERS eliminates the need for a lender to register the transfer with the county recorder every time the loan is sold from one bank to another.
Sometimes, MERS itself is the designee as the mortgage lender (mortgagee).
While MERS can save time and recording costs, it has drawn criticism for making it difficult to see who is the current owner of a mortgage.

How the Mortgage Electronic Registration System Works

Each time a mortgage is sold from one bank to another, an assignment—a document showing that the mortgage has been transferred—is, theoretically, prepared and recorded in the county land records. The assignment transfers the original lender's interest under the mortgage to the new bank.

By tracking loan transfers electronically, MERS eliminates the long-standing practice that the lender must record an assignment with the county recorder every time the loan is sold from one bank to another.

The MERS system is used by mortgage originators, servicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers, investors, county recorders, and consumers. County and regulatory officials and homeowners can access MERS free of charge. Homeowners can look up information on their own mortgages that are registered with the system.

In order to use electronic tracking, the mortgage servicer assigns it a mortgage identification number (MIN) and then registers the loan with the MERS database. Sometimes, MERS itself is designated as the mortgagee, as the original lender is officially called in the mortgage documents; such a loan is known as an original mortgagee (MOM) loan. From there, the seller can originate the mortgage with MERS as a nominee of the lender (also referred to as the beneficiary), and then assign or record the loan assignment to MERS in the county land record. This would make MERS the mortgagee of record.

While MERS can act as a mortgagee in county land records, it doesn't actually own the mortgage loan.

If the lender sells the loan, MERS will update its information regarding the mortgage. The mortgage servicer can have it removed from the MERS database by sending a request to have it deactivated. MERS will, in turn, notify Fannie Mae. If the mortgage lender wants to end their membership with MERS entirely, it must also notify Fannie Mae as soon as possible.

Pros and Cons of the Mortgage Electronic Registration System

As an electronic, one-stop site for mortgage documents—deeds of trust and promissory notes—MERS greatly simplifies the mortgage process. MERS can act as a cost-saving measure to some degree because, by acting as a mortgagee, it cuts the expense of recording the transfer of a mortgage from one lender to another. Having the loan in MERS’ name (as nominee) in the land records saves time and recording costs because multiple assignments aren't necessary each time the loan changes hands.

The database has drawn some criticism, though. During the 2008 housing crisis , the system made it difficult at times to sort out who actually owned mortgages. That created a challenge for homeowners facing foreclosure or relief from their loans, as they needed to know who held their mortgages in order to work out some remedy.

What do mortgage electronic registration systems do?

MERS electronically tracks whenever a mortgage is transferred. The system assigns each mortgage a mortgage identification number and registers the loan with the MERS database. This is designed to streamline the transfers of and modifications to servicing rights and ownership of the loans.

What is the biggest problem with the mortgage electronic registration system?

Although MERS can streamline the loan transfer process, it can make it difficult to see who actually owns the loan.

How do I get access to MERS?

Your mortgage lender should provide the mortgage identification number for your loan, and you can call the Mortgage Electronic Registration System at 1-888-679-MERS (679-6377) for information about your account.

The Mortgage Electronic Registration System was designed to track servicing rights on mortgages, which is supposed to make the mortgage financing system easier for lenders and borrowers. It has proven to be a cost and time-saving system, although critics note that during the subprime mortgage crisis of 2008, MERS made it difficult to see the actual owners of home loans.

MERS. " About Us Frequently Asked Questions ."

MERS. " Quick Facts ," Page 1.

MERS. " Find Your Servicer with MERS® ServicerID ."

MERS. " MERS System Frequently Asked Questions ."

Govinfo.gov. " Problems in Mortgage Servicing From Modification to Foreclosure ."

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The Legally Invalid Assignment Defense to Foreclosure

People who are facing the possibility of a foreclosure on their home may want to investigate the history of their mortgage. If the assignment to the foreclosing party is not valid, this may be a viable defense to a foreclosure. In some states, you can demand that the foreclosing party produce a written assignment of the mortgage. If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

Courts in other states are more lenient in their review of assignments. Since the mortgage is closely associated with the promissory note, the foreclosing party may be allowed to enforce the promissory note even if it cannot produce a valid assignment of the mortgage. You should seek legal guidance in your state to determine whether this defense may be viable.

Homeowners who believe that they may have a defense based on an invalid assignment may wish to consult with a knowledgeable foreclosure lawyer, since this defense can become complicated. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

The Relationship Between Mortgages and Promissory Notes

The mortgage and the promissory note are the two key documents attached to a loan for buying a home. Some purchases involve a deed of trust rather than a mortgage, but they are functionally equivalent in this context. While the promissory note is your guarantee to repay the loan, the mortgage gives the lender the right to foreclose if you do not repay the loan as arranged. The mortgage also identifies the property that will serve as security for the loan. Thus, the two documents work together in establishing the lender’s rights.

The Role of Mortgage Assignments in Loan Transfers

A bank or other lender often will sell a mortgage to another party, which will collect payments and pursue the homeowner if they fail to keep up with the mortgage. To transfer the loan, the original lender will endorse the promissory note to the new owner of the mortgage. This is because collection efforts hinge on owning the promissory note. If the foreclosing party cannot produce the promissory note, the homeowner will have a defense to the foreclosure.

Meanwhile, the new owner will record the assignment of the mortgage. This includes transferring the right to foreclose, as provided by the mortgage, to the new owner. The assignment will provide the amount of the mortgage and the names of the homeowner, the original lender, and the new owner of the mortgage. It also will contain a description of the property attached to the mortgage and the date when the mortgage took effect.

An invalid assignment defense may only be a temporary solution until the new owner records an assignment in their name.

The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note. MERS simply serves as an agent for the current owner of the mortgage and assists in creating a record for transfers of the mortgage. This allows banks to more easily transfer loans among them without creating a new assignment each time. You may have a defense against a foreclosure action if MERS is listed as the owner of the mortgage. However, this likely will be only a temporary solution until the new owner records an assignment in their name.

Last reviewed October 2024

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The Right of Redemption Before and After a Foreclosure Sale Under the Law
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MORTGAGE ELECTRONIC REGISTRATION SYSTEMS (MERS) by Christopher J. Beck, ATG Senior Law Clerk

Introduction

Mortgage Electronic Registration Systems, Inc. (MERS) provides a centralized registry for tracking ownership interests and servicing rights of mortgages. As the number of mortgages registered with MERS grows, MERS increasingly will appear in the chain of title. This article will address the following questions when dealing with transactions in which MERS is in the chain of title:

How should an assignment to MERS appear in the chain of title?
May a mortgage and an assignment to MERS be combined into a single document?
How does one obtain a payoff letter and release for a mortgage assignment to MERS, and how does this appear in the chain of title?

MERS - owned by several companies involved in the mortgage finance industry - began in 1995 as a member-owned, non-stock corporation. It was created to address the problems associated with tracking the beneficial interests and servicing rights of mortgages due to the increased number of transactions in secondary markets. The goal was to make the tracking of the secondary mortgage assignments more similar to the stock market. Thus, an electronic registry was created to track such assignments of rights.

For MERS to be effective, mortgages must be properly registered with the MERS system. Each mortgage is assigned an individual Mortgage Identification Number (MIN) that tracks the mortgage for its life. The MERS system depends on MERS being named as the mortgagee of record in the county public records. This may be done in one of two ways. First, MERS can be identified as the nominee for the lender on the mortgage itself (referred to as "MERS as Original Mortgagee" or MOM). If the mortgage does not name MERS as the original mortgagee, then the mortgage can be assigned to MERS. The mortgage would begin as a typical mortgage, and as such it must be recorded in the county recorder's office. The mortgage would then be assigned to MERS, with the assignment being recorded in the public records. At this point, under either method MERS will be the assignee or mortgagee of record for the life of the mortgage. Assignments are not made outside of the MERS system. At this point, the chain of title will stop with MERS. MERS will internally track all subsequent assignments of interests and rights as long as the mortgage interests remain with a MERS member.

Benefit of MERS

The benefit of MERS is to create efficiency in secondary mortgage markets, thereby reducing costs. MERS relies on the current mortgage recording laws and procedures so that it may perform its goals, and is not meant to in any way replace governmental recording functions. MERS members are expected to update the transfers within the system. MERS has acknowledged that it is critical to its success that they accurately keep track of assignments. Interested parties are putting a considerable amount of trust in the accuracy of the MERS system and in its members diligently updating records.

How Should an Assignment to MERS Appear on the Chain of Title?

Signed mortgage documents are recorded in the county land records to make a public record of the security interest (in the form of a mortgage or a deed of trust). If MERS is not identified as the original mortgagee, an assignment must be recorded naming MERS as the mortgagee when the loan is registered on the MERS system. An assignment to MERS should appear like any other assignment. An assignment naming MERS as the assignee of record is prepared and recorded with the county recorder's office. MERS will be the assignee of record for the life of the loan and the chain of title should end with MERS unless the rights are assigned to a non-MERS member, a foreclosure, etc.

May a Mortgage and an Assignment to MERS Be Combined into a Single Document?

Beginning in 1997, it has been possible to name MERS as the original nominal mortgagee (MOM), eliminating the need for a subsequent assignment to MERS. If MERS is named as the nominee for the lender, there is no need for an assignment to MERS and no further recorded or unrecorded assignments are necessary as long as the loan remains on MERS. After the initial step naming MERS as mortgagee of record, the subsequent treatment of the mortgage is the same whether it was initially created through an assignment or through MOM. MERS prefers to be named as the original mortgagee because it eliminates the need for a subsequent assignment.

How Does One Obtain a Payoff Letter and Release for a Mortgage Assignment to MERS, and How Does This Appear in the Chain of Title?

Obtaining a payoff or release should be a simplified process for mortgages registered with MERS. It is the obligation of the MERS member currently servicing a loan to de-activate the loan on the MERS system and to prepare and send a lien release to the county recorder's office. To find out the name of the servicer, non-MERS members will have to call the MERS Voice Response Unit (VRU) and obtain the servicer's name, address, contact person, and phone number. It will be necessary to contact the servicer because the MERS system will not give out payoff information. It is the responsibility of the servicer to give out all payoff information.

The loan servicer will send a lien release to the county recorder's office. The release should contain the MIN and the telephone number to access the MERS VRU, which is the number the general public may call to obtain information about the MERS servicer. The number for the VRU is 1-888-679-MERS (679-6377). To access this service, callers will have to know either the MIN or the social security number of the borrower. If an inquirer lacks this information, he or she will still be able to access this information by calling the MERS Help Desk at 1-888-680-MERS (6377), provided one can provide the mortgagor's name or the property address. If a non-MERS member does not have any of the above information, the MIN should be available at the county clerk's office once the lien release has been recorded. "MERS has made a commitment to provide access to its system to county recorders and to the public generally," and the county recorder should be able to get people the information they need. 1997 Ill. Atty.Op.Gen No. 97-008.

As MERS becomes more prominent in the mortgage industry, title agents and companies may have to adapt some of their methodology and procedures to conform to the MERS system. While this initially may prove to be an inconvenience, the title industry should ultimately benefit from increased mortgage tracking efficiency that MERS will provide.

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The MERS Problem and Why Lenders Need Possession of the Note

There has been lot of recent case law over the “MERS” problem, which is when the loan instruments get split up – ie, the promissory note is endorsed in blank, and the deed of trust is recorded with MERS, which then does not record the assignment in the local county recorder’s office.

A majority of the MERS litigation is arising in the bankruptcy courts – with the most recent one being the In Re: Box decision – [ http://www.mow.uscourts.gov/bankruptcy/opinions/federman/box_order.pdf ] – on June 3, 2010, from Missouri.

The Court denied BAC (formerly known as Countrywide)’s motion for relief because they failed to establish that they were the “holder” of the Note.

In re: Box follows on the heels of In re: Hwang (movant must be the real-party-in-interest) and In re: Jacobson (Wells Fargo’s servicing agent denied), all bankruptcy decisions denying lender motions for relief from the automatic stay.

The Mechanics :

Once in bankruptcy, the debtor has effectively stayed the lender’s trustee’s sale. The lender must file a motion for relief from the automatic stay as to that lender. That motion requires an evidentiary showing that the lender has the right to foreclose on the deed of trust.

Essentially, the key facts a lender must establish in order to seek relief:

the lender is owed a debt by the borrower(s)/debtor(s)
the debt is secured by a deed of trust against the borrower’s/debtor’s property
the borrower/debtor is not paying, or the lender is not otherwise adequately protected

The debtor can then object to the motion for relief by raising the “Produce the Note” defense or a variation thereof. This is in effect challenging that the party filing the motion is owed a debt by the borrowers.

In California, the original promissory note is not required by the Trustee in order to conduct the trustee’s sale. However, in every jurisdiction, the moving party (aggrieved party) must be the real-party-in-interest and have standing to bring a claim.

The problem with MERS is that MERS is not the lender, the borrower, the servicer or even an agent. Instead, MERS is the “nominee” which has no real legal definition.

Example of a lender with standing to bring a motion for relief to foreclose:

Joe and Jane Smith own a house in Mountain View. The Smiths first took out a loan with Countrywide (now BofA) and then the loan was re-sold to Wachovia. Wachovia hires AMS Loan Servicing to service the loan.

The Smiths default, Wachovia commences foreclosure, the Smiths files for bankruptcy in the Northern District of California (San Jose). Wachovia’s loan servicer (AMS) files a motion for relief to conduct Wachovia’s foreclosure sale.

AMS’s motion attaches a declaration from an employee of Wachovia bank, a copy of the promissory note between the Smiths and BofA, the note is endorsed to Wachovia, and a copy of the assignment of the deed of trust showing Wachovia as the assignee, and a substitution of trustee subbing in AMS.

Wachovia also states in the employee declaration that it has possession (not just that it is the “holder”) of the note and that the servicing agent AMS has authority to file the motion for relief on behalf of Wachovia.

This lender has standing – has established that it is owed the debt (is the real-party-in-interest), is in possession of the debt instrument (promissory note) and that the loan servicer is the lender’s authorized agent, has been substituted in under the deed of trust, and has the power of sale.

The lender did not produce the note.

Lender = win.

Example of a lender without standing to bring a motion for relief to foreclose :

Same facts as above, except the promissory note is endorsed “in blank” and Wachovia fails to state that it has actual possession of the Note. Deed of Trust is not assigned properly with a recorded assignment in the county recorder’s office where the borrower’s property is located, shows MERS instead, declaration from MERS employee.

Lender = fail.

The original note is not required but in this circumstance when the endorsement is “in blank” – then only the party with actual possession of the note can be paid on it.

Essentially, “in blank” is like turning the note into cash and so only the person with the cash in hand can spend it. [See California Commercial Code Section 3205]

PRACTICE POINTER – the Court (Judges) need to know that the borrower only has to pay the debt once. Lenders need to supply enough evidence to show that it is unlikely that any other lender is going to come out of the woodwork and produce the original note and demand to be paid.

The more facts presented to show that even without the original note, such as the copy of the note shows an endorsement to the moving party and that the loan instruments all have the same beneficiary (assignee), the stronger the case the lender has in establishing it is the real-party-in-interest, holder in due course and has standing to conduct the foreclosure sale.

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