Neighboring counties join Beaufort County in suing mortgage-services company

The Beaufort GazetteJuly 4, 2014 

The other counties in the South Carolina’s 14th Judicial Circuit are following Beaufort County’s lead by filing lawsuits against a nationwide mortgage database, according to an attorney for those counties.

Beaufort, Allendale, Colleton, Hampton and Jasper counties say Mortgage Electronic Registration Systems, owned by nearly two dozen large banks and mortgage services, operates an electronic record-keeping system that parallels the counties’ deed records.

The counties contend the system hides who owns loans, often by listing only MERS as the owner, not a specific member bank or service. That constitutes fraud and undermines the county’s property-ownership records, which state law requires to list the exact owner of a property’s title, county attorney Josh Gruber said.

In extreme circumstances, that could mean homeowners are left in the dark about who owns their loans and would have no public records to turn to try to defend their homes against foreclosure, Gruber said.

“You’re talking about anticipating the worst-case scenario,” he said. “Your mortgage company is entitled to foreclose on the loan (if its agreement isn’t met), and if you don’t know who has that, you could find yourself in big trouble.”

The company also could have sidestepped several hundred thousand dollars in local Register of Deeds’ filing fees for recording transactions on deeds. Lawsuits against MERS to recoup those fees have failed in other states, so the 14th Judicial Circuit counties have avoided that claim, Gruber said.

Instead, the counties contend the MERS system has caused their register offices to break state law by not accurately updating deeds to reflect which specific service or bank owns a lien, according to Bluffton attorney Jim Scheider of Vaux & Marscher, who helped write all five lawsuits.

The counties seek unspecified compensatory and punitive damages, along with a court order for MERS to correct any inaccurate records. Vaux & Marscher will be paid only if MERS or other defendants are required to pay damages.

Merscorp Holdings, MERS’ parent company, has filed to dismiss the case, but the courts have not ruled on the motion. A company spokesman has said the claims are without merit.

Defendants also include Bank of America, J.P. Morgan Chase and HSBC Mortgage Corp. Local banks that are MERS members and named in the lawsuit are S.C. Bank and Trust (now South State Bank), Coastal States Bank and Tidelands Bank.

Attempts to reach the defendants this week were unsuccessful.

In Beaufort County, Scheider and county officials say, more than 50,000 mortgages have MERS on record.

However, that doesn’t immediately create problems for consumers — they will still know who is servicing their loan and who to make payments to within the MERS network, Scheider said.

The system instead has cracks that could leave people in extreme circumstances out of the loop on their mortgage. If their new bill is delivered to the wrong address or they’re sick in a hospital and miss a payment, they cannot use public records to find who they are in debt to, Gruber said. However unlikely, the counties want to plug those recording holes, he added.

“When you’re dealing with somebody’s home, which is usually the biggest investment anyone will make in their life, you don’t want to take any chances with that,” Gruber said.

Last month, the defendants attempted to move the case to federal court, but U.S. District Judge Sol Blatt Jr. of Charleston ruled the case should stay in the state courts, Scheider said.

Now the state’s business court will consider the defendants’ request to hear the case there later this year. Scheider said he has not decided whether to challenge that request or argue to keep the case in the 14th Circuit.

“Wherever we end up, we’re still entitled to a jury trial in the individual counties, and we want this to be heard by a group of borrowers,” Scheider said.

The S.C. Supreme Court could also rule to consolidate the lawsuits because they’re so similar, he added.

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