New Jersey Bankers Consider Mortgage Assignment Process Reform

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On February 6, 2012, the Residential Lending and Loan Servicing Committee (the “Committee”) of the New Jersey Bankers Association forwarded to the Committee’s members a draft of a report on mortgage assignments in New Jersey (the “Draft Report”). The Committee asked the members to advise the Committee as to any comments or concerns that they may have about the Draft Report. Several financial services attorneys in the Reed Smith Princeton office are active committee members. Overall, the Draft Report appears to be an attempt to modernize the process of recording New Jersey mortgage assignments.

The Draft Report begins by describing how the mortgage recording system in New Jersey was traditionally intended to operate, with every assignment of a mortgage loan being recorded in the appropriate county recorder’s office promptly following its execution. (We note, however, that the law did not require assignees of mortgages to record their assignments. The law merely provided them with certain protections if they did.) The Draft Report then explains that the increased frequency of loan sales (much of it a by-product of the securitization process), the high costs associated with recording assignments of mortgages transferred as part of those sales, and the use of servicers to manage (typically without owning) the mortgages, caused the system to become impractical. (An additional factor, not mentioned in the Draft Report, was lost and misrecorded assignments in the land records.) This, in turn, led to the creation of Mortgage Electronic Registration Systems, Inc. (“MERS”) as a way to avoid the problem.

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