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A home for sale on Paxton Street in Sioux City is shown in October 2010. 

LE MARS, Iowa -- Plymouth County has filed a class-action lawsuit against a national electronic mortgage registry company it says has enabled banks to avoid paying Iowa mortgage recording fees.

Plymouth County Attorney Darin Raymond filed the suit on behalf of all 99 Iowa counties against MERSCORP Holdings Inc. and Mortgage Electronic Registration Systems Inc., known as MERS, which tracks mortgages sold and traded among banks that subscribe to the company's service. The suit also names several of the nation's largest banks and mortgage companies.

In the lawsuit, Raymond said MERS has allowed banks to skirt Iowa's public information and recording laws by trading mortgages through an electronic registry that lists MERS as the mortgage holder, even though the banks are buying and selling the mortgages.

Iowa law requires a document called an assignment of mortgage to be filed in the county recorder's office when a mortgage is sold. The MERS system enables banks to avoid that practice and the payment of the accompanying filing fees, the lawsuit said.

Plymouth County is asserting claims of unjust enrichment and civil conspiracy, is seeking an unspecified amount of damages and has asked that the defendants record all past mortgage transactions that were not recorded from Jan. 1, 1998, through the present.

The suit was originally filed in Plymouth County District Court, but was transferred last week to U.S. District Court in Sioux City. No hearings have been scheduled.

Plymouth County is not the first to file suit against MERS to recover recording fees. Similar lawsuits have been filed in Pennsylvania, Texas and North Carolina.

Janis L. Smith, vice president of corporate communications for MERSCORP Holdings, said the company's practices comply with recording laws.

"As we have said before, we believe there is no legal basis for these claims," Smith said in a statement. "All MERS mortgages are recorded in the public land records, and MERS members pay recording fees when the mortgage is recorded. The MERS System complements the county land records, and use of MERS is in compliance with the purpose and intent of the state recording acts."

It is not uncommon for residential mortgage loans to be sold to an investment bank, which then packages the loans in a mortgage-backed bond deal, a process known as a securitization. The Plymouth County lawsuit said that a typical securitization of a single mortgage would require filing of at least three assignments of mortgage in the recorder's office, a process that the MERS system allows the banks to avoid.

An assignment of mortgage typically is a one- or two-page document. Iowa's recording fees are $7 for the first page and $5 for each subsequent page.

Nationwide, the lawsuit said, it's estimated that MERS has saved the mortgage industry $8.4 billion or more in filing fees.

MERS has gained national headlines in stories about foreclosure abuses. In February, the federal government and 49 state attorneys general, including Iowa's Tom Miller, reached a $25 billion agreement with the nation's five largest mortgage servicers to address mortgage servicing and foreclosure abuses. The agreement did not prevent filing of lawsuits against MERS.

The Reston, Va.-based company was created in 1995 to simplify the process of transferring mortgages. In the process, MERS is listed as the mortgage holder, and its electronic system tracks changes in ownership so that each buyer doesn't have to record the transaction.

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The company's website says that loans registered in the MERS system are safe from future assignments because MERS remains the mortgagee no matter how many times servicing is traded.

The Plymouth County lawsuit claims that practice leads to a lack of transparency in the mortgage industry. By not recording each individual sale, MERS and the banks are not disclosing information about the chain of ownership from the original lender to the current investors, nor are they providing documents regarding the transfers.

According to the lawsuit, since 1997, more than 70 million mortgage loans have been registered in the MERS system. Approximately 60 percent of all residential mortgages in the United States are recorded in MERS' name rather than in the name of the lender, trust or company that possesses an economic interest in the repayment of the mortgage, the suit said.

"It gets a little confusing sometimes when someone wants to check on who owns his or her mortgage," said Deborah Robert, Floyd County recorder and president of the Iowa County Recorders Association.

Robert said she's heard of the concerns about MERS, but in Floyd County, most home buyers are taking out mortgages with local banks, so MERS is not listed on many mortgages there. She said she did not know if other county recorders have encountered problems because of MERS.

"We just had a school last week, and it was not a topic of discussion," she said.

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