Kentucky Attorney General Andy Beshear said Tuesday that the state treasury will reap $2.8 million from a settlement his office has made with a national mortgage recording company.
Beshear also said the settlement will offer Kentucky homeowners some of the best mortgage protections in the country.
He is recommending that lawmakers use the $2.8 million to help right the company’s wrongs and to support affordable housing, legal aid foreclosure work and the budgets of local county clerks.
The settlement resolves claims against MERSCORP Holdings Inc. and its wholly owned subsidiary, Mortgage Electronic Registration Systems Inc., or MERS, based in Reston, Va. The company did not admit to any wrongdoing or liability.
A lawsuit filed by former Attorney General Jack Conway alleged that MERS violated Kentucky law by not recording mortgage assignments with county clerks when mortgages were sold or transferred from one bank to another. By law, mortgage assignments must be recorded in the appropriate county clerk’s office, and a $12 fee is collected by the clerks on behalf of the state.
The lawsuit alleged that since MERS’ creation in 1995, members have avoided paying more than $2 billion in recording fees nationwide. The company’s corporate shareholders include, among others, Bank of America, Wells Fargo, Fannie Mae, Freddie Mac and the Mortgage Bankers Association.
As a result of not publicly recording the mortgage assignments and not paying the required fees, the lawsuit alleged, MERS violated the Kentucky Consumer Protection Act by committing unfair, false, misleading or deceptive conduct.
“The mortgages of hundreds of thousands of Kentuckians are registered on the MERS database,” Beshear said. “This settlement brings a measure of much-needed transparency and accountability to a private mortgage registry that too often operates behind closed doors. Kentuckians will now have among the best protections in this process as this settlement imposes certain requirements on MERS to ensure that its information is accessible and accurate.”
Several state attorneys general have sued MERS and its member banks for their conduct related to their use of the MERS System, but Kentucky’s settlement represents the largest state attorney general recovery against MERS itself, Beshear said.
MERS came under heavy scrutiny for its role in the national housing market crisis and entered into an agreement with federal regulators in 2011 to address its conduct. Kentucky alleged that MERS violated the Kentucky Consumer Protection Act by obscuring and not monitoring the practices of its member banks.
Beshear said the settlement puts in place penalties that will be levied against MERS if it violates its obligations to Kentucky homeowners.