MERS, also known as Merscorp Inc, is a company that was formed for the benefit of big banks. The idea was that MERS would speed up recordkeeping of mortgages and the re-sale of mortgages. Somewhere along the way, though, MERS got into the business of commencing foreclosure proceedings against homeowners, even though MERS doesn't actually own any mortgages.

Now a Bankruptcy Court judge has ruled that MERS cannot come to court claiming to have the authority to start a foreclosure, without proving that it is acting on behalf of the true owner of the note and the mortgage. If this decision, made in New York, is followed in Florida and other jurisdictions, it could halt thousands of foreclosure proceedings.

U.S. Bankruptcy Judge Robert Grossman said that he realized ruling against MERs would "have a significant impact on MERS and upon the lenders which do business with MERS."

"However," he added, "it is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices."

MERS, which stands for Mortgage Electronic Registration Systems, keeps records on over sixty million mortgages. It has also filed thousands of foreclosure actions on behalf of mortgage lenders.

In the New York case, a mortgage lender (in this case Credit Suisse Group AG) wanted to foreclose on a home whose owner had filed for bankruptcy protection. It wanted relief from the automatic stay so it could proceed with the foreclosure. This is a typical motion by a mortgage lender that is commonly granted.

Judge Grossman did grant the motion, but said that MERS could not act as Credit Suisse's agent. He said that in future cases involving MERS, anyone seeking to lift the automatic stay in bankruptcy in order to start a foreclosure would have to show that they own both the note and the mortgage.

Source: Westlaw News & Insight "Mortgage registrar cannot transfer mortgages-court" 2/24/2011