What Does an Inactive MERS Mortgage Mean?

When a bank lends you money to buy a home, the bank doesn't usually hang around to collect 30 years' worth of payments. It gets its money back right away by selling the right to collect your payments to another bank or an investor. The buyer might then resell that right to someone else. In fact, a single mortgage might be sold and resold among financial institutions and investors multiple times. You might not even know this is happening until you get a notice to send your payments to a different address. Each time the mortgage on your home is "reassigned" like this, the mortgage documents on file at your county property-records office have to be updated.

With millions of mortgages changing hands every year, the process of updating county records created mountains of paperwork -- and, with the filing fees involved, considerable expense. The financial services industry created MERS in the 1990s to streamline the process. Property records at the county office simply name MERS as the "mortgage assignee," and MERS keeps track of who currently has a claim on the mortgage. When a mortgage is sold or otherwise undergoes a change in status, that transaction is recorded within MERS, but the county records don't have to be updated.

Every loan in the MERS database has a unique 18-digit mortgage identification number, or MIN. No matter what happens with the loan, the number stays with it forever, even after it's deactivated. The database also records the "MIN status" of every loan. In most cases, a MIN status of "inactive" means that the debt has been paid in full. Mortgages are deactivated when you make all the payments but also when you refinance. In a refinance, the original loan is listed as "Inactive -- Paid in Full," and you get a new active loan with a new MIN. Lender-approved short sales also go into MERS as paid in full.

There's more than one way to deactivate a loan, though. If the loan gets reassigned to a party that doesn't participate in MERS -- and some don't -- it will get a status of "Inactive -- Transferred out of MERS." That's not really bad, although the buyer will now have to deal with updating county records; you don't have to do anything. What is bad, though, is when a mortgage is deactivated because of bankruptcy or foreclosure. In such cases, the lender, or whoever has claim to the house now, has taken back the property because the borrowers have defaulted on their payments. With the home having been seized, no mortgage payments are being made, so MIN status goes inactive.