Essex official wants to sue over mortgage mess

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John O’Brien is a national folk hero to anti-foreclosure activists. The Southern Essex Register of Deeds has garnered national attention by accusing big banks of acting like a “criminal enterprise.” After an audit revealed widespread flaws in banks’ handling of mortgage paperwork, O’Brien likened his Salem registry to a crime scene.

So when a New York law firm began soliciting local registries to join a class action lawsuit against an embattled mortgage clearinghouse, O’Brien should’ve been the first to sign on. He wasn’t. O’Brien was told he didn’t have the authority to join the effort. Deed registries in Norfolk, Bristol, and Plymouth counties are now pushing ahead with the case, while O’Brien is left standing on the sidelines.

O’Brien’s inability to sue over mortgage paperwork filed in his own registry highlights a quirk in Massachusetts state government. The state eliminated most of its county governments more than a decade ago, even as it retained some of the trappings of county government. District attorneys and sheriffs are still elected at the county level, for example, but they’re funded by the state. The consolidation of county governments also left the state’s 21 registries of deeds intact.

The registries remain elected offices, but most registers are now employees of Secretary of State Bill Galvin’s office. They don’t have the sort of leeway they once had under county government, and that includes ability to retain outside lawyers and initiate lawsuits on their own. It’s a constraint registers in Norfolk, Bristol and Plymouth counties aren’t working under.

Several months ago, O’Brien says, he received a call from the New York law firm Bernstein Liebhard. The firm is representing Ohio’s counties in a class action lawsuit against the Mortgage Electronic Registration System (MERS), an electronic clearinghouse large banks and mortgage investors use to buy and sell loans. The Ohio lawsuit alleges that MERS cheated county deed registries out of millions of dollars in recording fees; since MERS handles loans from across the country, Bernstein Liebhard wanted to enlist O’Brien as a plaintiff in a Massachusetts lawsuit.

O’Brien says he would jump at the chance, but has been unable to get authorization to do so from Galvin’s office.

The MERS clearinghouse played a key role in turning home mortgages into financial commodities. MERS is owned by the banks and mortgage investors trading loans on the clearinghouse’s online platform. Mortgage companies would typically name MERS as a mortgage holder when filing paperwork with local registries of deeds; MERS members would then trade mortgages among themselves without recording each transaction at the registry, since every buyer and seller in the MERS clearinghouse was, technically, part of MERS.

The system allowed financial houses to assemble and sell large pools of loans rapidly, because MERS members weren’t recording mortgage transfers at the local level. The electronic clearinghouse’s critics charge that it encouraged sloppy record-keeping, obfuscated the true holders of homeowners’ mortgages – and cheated local registries of deeds out of billions of dollars in recording fees. The Ohio counties’ October 2011 class action suit was quickly followed by suits from state attorneys general in Delaware, Massachusetts, and New York.

“The fundamental thing about our legal system is, you don’t commit fraud, and yet it’s happening every single day,” O’Brien charges. “These banks and MERS have wreaked havoc with the land recordation system. They didn’t want you to know how many times they sold your mortgage.”

O’Brien estimates that his Salem registry has lost $44 million in recording fees to MERS.

The lawsuit Attorney General Martha Coakley filed against MERS in December primarily deals with land recorded with the state Land Court; the vast majority of O’Brien’s business doesn’t flow through the Land Court, so O’Brien worries that the state lawsuit is missing the mark. And that has O’Brien talking about stepping out of line and signing on with the county class action lawsuit, setting up a potential showdown with Galvin’s office.

“I’ve waited for orders from above for long enough,” he says. “I have an obligation to my constituents. I’m derelict in my duties if I don’t go after this. I’m 99.9 percent sure I’m going to go ahead and do what I think I have the authority to do, and if I’m wrong, prove me wrong.”