Inside Report for Nov. 27, 2012

Transparency at issue in lawsuit by La. clerks

Forty-seven state district clerks across Louisiana are locked in a fierce fight with some of the nation’s biggest banks and mortgage companies over a 20-year practice that avoids filing millions of real estate transactions at courthouses.

It’s an expensive practice, according to attorneys for Doug Welborn, clerk of the 19th Judicial District Court in Baton Rouge. Welborn’s attorneys estimate his office has been blocked from $40 million in filing fees since 2000. Welborn is one of the 47 clerks suing 14 large banks and mortgage companies in Baton Rouge federal court for alleged racketeering in the avoidance of such fees.

The clerks allege in their suit the problem began in 1993, when big lenders created Mortgage Electronic Registration Systems Inc., or MERS, and decided to keep records of their real estate transactions in that private system.

The MERS system is not open for public inspection, review or research the way records in the clerk of courts office are.

In Louisiana, clerks run their offices with filing fees, not tax dollars, noted Jon A. Gegenheimer, clerk of the 24th Judicial District Court in Jefferson Parish.

In their suit, the clerks told U.S. District Judge James J. Brady that MERS has approximately 60 percent of all mortgages in the country.

The clerks also allege that the big lenders use MERS to avoid filing fees on 10 to 12 mortgage transfers per property hidden in its private records.

So what? argue the big lenders, including Wells Fargo Bank N.A., J.P. Morgan Chase Bank N.A., and Bank of America.

“Louisiana recording law is permissive, and does not mandate recording of mortgage assignments,” the lenders told Brady.

The judge or a jury eventually will decide that issue.

But the elephant not yet discussed in the courtroom is the question of whether the lack of transparency in such secret transactions could harm future individual buyers or, even worse, collapse the economy.

As developers, organized-crime figures and thrift executives looted the savings and loan industry in the 1980s, they left predator tracks on paper filed in the nation’s courthouses.

The greedy and heartless became convicted criminals after they were traced to appraisers who took bribes to estimate that raw land, sometimes valued as low as 50 cents per square foot, was worth as much as $17 per square foot six months later.

On occasion, a person with a $50,000 salary would buy a $350,000 condo. When a guy with a badge or a notebook knocked on the door, that person might answer the question of how that was possible: “I was paid $10,000 to sign the mortgage, and I was promised that my name would be removed from the debt inside of six months.”

Such questions and answers cannot be given voice if no one has public records to study before buying a home, or investing in raw land or selling a farm.

So, 47 of Louisiana’s district clerks say they want their filing fees. And they say a lack of transparency in property transactions could create problems for future home buyers.

Some other folks contend that Congress’ passage of the Dodd-Frank bill means that big lenders no longer pose a threat to average taxpayers.

But Neil Barofsky, former special inspector general for oversight of the Troubled Asset Relief Program, said in his book “Bailout” this year: “Dodd-Frank didn’t change the postcrisis status quo at too-big-to-fail banks; it cemented it.”

Bill Lodge covers federal courts for The Advocate. He can be reached at: blodge@theadvocate.com.