A column in Sunday's business section of the New York Times discusses the difficulty in sorting out claims on property after the big run up in prices and in the number of transactions. A private firm that tracked electronically mortgages called the Mortgage Electronic Registration System claimed to eliminate the need to record changes in property ownership in local land records. Gretchen Morgenson notes that there have been foreclosures that missed a possible lien holder on a home because the information was not in the land records. MERS has successfully proceeded in the courts to obtain funds for the claimant that used its serves. But, a recent Kansas Supreme Court ruling prevented a claimant from getting part of the proceeds of a foreclosure process because the information was not part of the official records. As Morgenson notes, the business model of MERS has been rejected by the Kansas Supreme Court.
A market system relies on well-defined property rights. Traditionally, we have put more effort into maintaining clear lines of ownership on real property--land and the buildings on land. Market systems also rely on bankruptcy laws that allow property to move to higher valued uses. The mortgage market in recent years may be bringing these two needs into conflict. It will be interesting to see how other state courts handle things. MERS did not cause the housing markets around the country to overheat, but it did facilitate the process.