Banks Face Penalties over Unpaid County Fees
There used to be a time when the county land recording office would receive around $30 or so for every mortgage sold by a bank. But those days have long been gone since the early 1990s, the start of the housing boom, and had continued when banks sold mortgage-backed securities to investors.
But the unpaid fees had grown considerably since the banks started ignoring them and they are now struggling to avoid what could possibly be billions of dollars in hefty accumulated penalties.
The failure of the banks to pay these county fees could be traced back to the change that banks instituted to cope with the huge amount of paperwork when the Real Estate market surged. The shift from paper forms to an electronic system to easily track home mortgage loans could have speeded the procedure, but may have overlooked the fees that should have gone to counties.
The Mortgage Electronic Registry Systems, Inc or MERS, a private company formed by big mortgage companies, such as Bank of America, Citigroup, Wells Fargo, GMAC and JPMorgan Chase, was able to register more than 65 million home loans, which are about 3 for every 5 loans on the market.
But counties are complaining that they were not paid the fees due them since the MERS was implemented. The discovery is only part of a series of consequences of the foreclosures anomaly investigation that is now challenging the biggest US banks and putting them under tight scrutiny.
In Reno, Nevada, two lawyers have already filed a suit alleging that banks have evaded county recording fees through MERS and are now asking the state's attorney general to investigate this alleged fraud. And with the huge number of loan transactions that have been registered to and processed by MERS, the claims could add up to the already brewing foreclosure scandal.
Normally, the standard procedure would be to include the county fee in the closing costs but a Nevada lawyer said that MERS was able to evade these fees by privatizing public records, thereby making it more difficult for counties to track the paperwork, which resulted to their losing billions of dollars in fee revenues. But banks insist that MERS is a legitimate system which does not require such fees. The spokesperson for MERS stressed that the fees were payment for service, but since no such service has been needed since its implementation, then no fees should be collected.
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