Citing the irregularities with the recording of mortgages and assignments that negatively impact municipalities and consumers, Attorney General Peter F. Kilmartin filed legislation to require that all transfers of a mortgage interest on residential property be recorded to provide a clean chain of title. The legislation, S0547 sponsored by Senator William Conley (District 18, East Providence, Pawtucket) and H5512 sponsored by Representative Brian Kennedy (District 38, Hopkinton, Westerly), is scheduled to be heard before both the Senate Committee on Judiciary and House Corporations Committee on Tuesday, March 26, 2013.
The legislation makes it easier for borrowers and regulators to determine who owns loans secured by mortgages on Rhode Island property. Borrowers facing foreclosure will be able to more easily discover who owns their loans before it is too late, and municipalities will be able to identify lenders who are responsible for abandoned homes. The legislation will the practice of having the vast majority of mortgages held in the name of a private registry with no interest in the loans known as Mortgage Electronic Registration Systems, Inc., or "MERS."
Since 1997, the banking industry has been using MERS, which lenders claim has minimized their administrative and financial burdens of the recording process. However, this practice has basically privatized the local land recording process, thereby undermining the accuracy of public records and leading to negative consequences for consumers and municipalities.
"The changing of servicing and subservicing rights within the lending history often leaves the borrower confused regarding which entity they are supposed to be dealing with on a monthly basis and why," said Attorney General Kilmartin. "The legislation is designed to give borrowers a public record of who ultimately owns their loans, increasing the ability of homeowners to negotiate with their lenders and their ability to have full knowledge of their rights, counterclaims and defenses if they are faced with litigation."
"Rhode Island has experienced a record number of foreclosure and short sales since the mortgage crisis," said Representative Kennedy, "This legislation will assist homeowners in knowing who maintains the note on their property while also ensuring that local cities and towns will know the potential owner of a property after a forced sale has occurred, to ensure that municipalities have the proper information available on the documentation for taxation and municipal recording fees."
"With this legislation, we are taking another step toward easing the pain of the housing and mortgage foreclosure crisis, which has affected both the state's municipalities and individual consumers," Sen. William J. Conley Jr. said. "It is common sense to record these transfers and take out the unnecessary middle man. Rhode Islanders need to know exactly who they are dealing with and how they can protect themselves. The foreclosure process is tough enough already without adding the frustration of MERS."
By having a nominee entity listed as the mortgagee, the banking industry has privatized Rhode Island's mortgage recording system, and left the accuracy of public land records at the mercy of a private company's database. Federal banking authorities have already concluded that the private mortgage system contains numerous inaccuracies and has not been accessible to homeowners. Moreover, the nominee frequently has no contractual relationship with the actual noteowner, despite the contention in the mortgage documents of a nominee relationship.
Not only has this private system deprived cities and towns the recording fees that they are owed for over 15 years, it has also hampered the ability of municipalities to adequately address abandoned property and nuisance issues because the mortgagee liable for these issues is not clear from the chain of title.
Consumers are adversely impacted due to the fact that their mortgage loans change hands multiple times through the life of the loan without proper recording. The lack of a contemporaneous public record hampers their ability to deal directly with their lenders and enforce their legal rights.
The banking industry's practice of using a nominee entity process for recording deeds has become a highly litigated issue by consumers, municipalities and counties throughout the country. This very issue is currently being litigated in Rhode Island with private citizens and municipalities calling into question the legality of using the nominee process to record mortgage interests. The multitude of legal issues surrounding the nominee process has caused confusion and delay in foreclosure proceedings in our State, and has raised the critical issue of whether a nominee entity can enforce the power of sale. High Courts in other States, including Massachusetts and Washington, have already ruled that a nominee cannot utilize the power of sale. This legislation resolves this issue in Rhode Island by simply eliminating the nominee recording process and restoring accuracy and transparency to the public land records.
Since taking Office in January 2011, Attorney General Kilmartin has worked to unravel the housing and mortgage foreclosure crisis in Rhode Island. Last year, Kilmartin signed on to the National Mortgage Settlement, bringing $187 million in relief to Rhode Island homeowners. For the past two years, Kilmartin has proposed legislation that would a mortgagee to participate in good faith in a conciliation conference prior to foreclosure proceedings.
"The housing and mortgage foreclosure crisis in Rhode Island and the country did not happen overnight," added Kilmartin. "It is going to take time, as well as reforms to existing systems like MERS to right the housing market and to eliminate past bad practices from happening again."