Having spend most of my adult life working in the land title industry, I was very pleased to find a thoughtful report on the American Land Title Recording System in the Columbia Law review:
Tanya Marsh, Foreclosures and the Failure of the American Land Title Recording System, 111 COLUM. L. REV. SIDEBAR 19 (2011)

I was pleased, not so much because I believed in her suggestion that implementing a Federal System would be an answer to our current system, but rather because I applaud the research, investigation and thought process in analyzing our public recording systems.  It makes my brain “tick” – how better could this whole recording system work?  It is not often that anyone notices us.

Ms Marsh says:

The recent announcement that major lenders were suspending pending foreclosure actions in the wake of questions about their documentation practices has focused attention on another opaque system that has failed to keep pace with the increasing complexity of the modern real estate industry: the American land title system.

I have mixed feelings on that quote. After all, the system was working quite well before a specific group decided to start a separate system of recording mortgage assignments.  But, you say, “times change, and mortgages are no longer mom and dad local customers borrowing from the local bank. Mortgages are now big business commodities, where packages of millions of dollars of mortgages are sold in packages to investors who no longer collect the payments. They do not have a 100% interest in the land – just fractionalized interest in the mortgage. And they certainly have no interest in the local economy.”

I personally, believe that the MERS change was not driven by failure to “keep pace with the increasing complexity of the modern real estate industry,” but was driven rather by a business opportunity for making corporate profits. After all, recording mortgage assignments requires much specialized local knowledge – not the mass handling that big business is used to. Consider the inexperienced staff, asked to record thousands of mortgage assignments. They grouped them by state and sent all mortgage assignments for one state to the same county for filing- OOOPS. Yes, recording requires specific knowledge. It is time consuming.  It is expensive, and fees vary from location to location. In theory, recording assignments “under the covers” dozens of times saves lots and time and money. It would be much more efficient. It could be a very profitable business.

As Ms. Marsh points out, land record recording has always been a “local business” meaning that customs, fees, rules and regulations for recording are a hassle. But land titles ARE a “local business” in that each state has it’s own real estate law. Foreclosures are driven by those state laws, and changing to a Federal System would only complicate things even more. A Federal System would require a complete revamping of all existing state laws and possibly the US constitution, as real estate laws currently fall under the auspices of each respective state.

There are other considerations. What about all those judgment searches. State and Federal Tax Liens, Child Support Liens, Court Judgments, etc. They are all maintained in the same local, county systems we know so well.  As a title person, we know that those 3000 separate county offices mean that a common name is somewhat manageable when searching those names. After all, we can’t reference their SSN as that would be an identity theft problem.  A Federal System would be an absolute disaster. And the States and Feds acknowledge that the only way they are able to collect those State and Federal Liens are through our current recording system.

She Says:

Although many local recorders have viewed MERS with suspicion, a number of state courts have expressly permitted the recording of mortgages with MERS. Some courts and other observers, however, are concerned that the legal fiction of MERS’s status as the “mortgagee of record,” when it holds no beneficial interest in the property, is irreconcilable with [STATE- added for emphasis] mortgage law.

I agree with that statement.  MERS did not anticipate the complexity of 50 distinct state foreclosure laws, or the definition, state by state, of “Nominee” vs. “Assignee”  or the change in the market. Yes,  I agree that … a private MERS-like system is not the answer.

But what is the answer?  I can’t agree with the statements that  “the federal government should implement a solution that replaces … the existing local land title system…” When has a bigger government done a better job than the locals?  But I love the dream ideas that:

• Indexes should not be limited to the names of the parties, the type of conveyance, a legal description, and the date of recording, etc.
• Conveyance documents could be identified with limitless data, including cross-referencing to prior conveyances.
• Imagine integrating property tax records, subdivision plats, and recorded documents with a dynamic map. How fabulous would that be!

Ms Marsh ends with: “I do not lightly suggest that we abandon 370 years of precedent. But the residential foreclosure crisis, and the role of MERS, demonstrates that the American land title system is broken. The time has come for a radical reinvention that meets the needs of the modern real estate industry.”

I love the passion, research and inspiration behind her work, but as a day to day title practitioner, author and teacher of land titles, I know the problem is much more complex than she imagines. I can dream about the possibilities, but I can’t wrap my head around how to accomplish a better land title world.  Your comments are welcome.