Major banks and mortgage lenders are coming down with another legal headache in their efforts to seize properties from homeowners in default.

A little-known electronic database formed by them 15 years ago to track ownership changes on millions of mortgages is being challenged in court by desperate borrowers alleging it wrongly filed foreclosure actions against them.

The cases against Mortgage Electronic Registration Systems Inc., known in the industry as MERS, highlight the shortcuts taken by the financial industry during the housing bubble.

The suits also could further complicate efforts by major lenders to move quickly to correct botched paperwork that has led some of them to suspend foreclosures temporarily.

"MERS is just one more boulder in the gears," said independent banking analyst Bert Ely.

The high courts in at least three states have ruled that MERS, listed on about 20 million home loans as the mortgage owner, standing in for lenders and investors, is not the true owner because it only maintains the database.

That has called into question the right of MERS to foreclose on homes, causing some cases to be refiled — and, in at least a few instances, thrown out.

On Wednesday, Housing and Urban Development Secretary Shaun Donovan said the Obama administration is looking into concerns about foreclosures by MERS.

"There are both questions about whether the MERS process, if followed correctly, is valid and also questions about whether entities are following that process correctly," he said.

So far, administration officials have not found "any evidence of underlying structural issues" with the MERS process, Donovan said.

The company's murky legal status as owner of the mortgages has led to class-action suits in California, Nevada, Arizona and Kentucky challenging its right to foreclose on delinquent loans.

One suit, filed by a whistleblower on behalf of California communities, struck at a key reason for MERS acting as the owner — to avoid filing fees for recording documents at counties nationwide.

The lawsuit, filed in Lassen County, accused MERS of costing California's counties $60 billion to $120 billion in property recording fees since it began operations.

"What we see is a systematic, industrywide fraudulent scheme in which the true owners of the loan do not participate in the foreclosure," said Robert Hager, a Reno lawyer for borrowers.

MERS countered that it has the right to foreclose because borrowers, as part of a property closing, sign documents agreeing to give the company legal title as a representative of the true owner of the loan. MERS said its legal right to foreclose has been upheld by courts in Arizona and Missouri, among others.

The company — whose shareholders include Bank of America Corp., CitiMortgage, Fannie Mae,Freddie Mac and Wells Fargo & Co. — has 65 million loans registered in its database.

MERS, based in Reston, Va., was created in 1995 to speed up legal recordkeeping of mortgages. It keeps track of repeated sales of mortgages as they go through the process of being turned into packages of loans and the basis for securities sold on Wall Street.

MERS also allowed banks to avoid the trouble — and the recording fee of up to $50 — of filing deeds and other documents at county registrars' offices every time ownership of a mortgage changed hands.

It did that by listing itself as the owner of the mortgages on official property documents, even though it was simply a stand-in, or nominee, for the real owner listed in its database.

Those documents say MERS holds the lien on the property until the mortgage is paid off. When mortgages went into default, MERS often was the one that pursued a foreclosure.

But recent court rulings have thrown a wrench into that foreclosure process by finding that MERS had no right to take any action. State supreme courts in Arkansas, Kansas and Maine have ruled that MERS is not the owner of record because it only maintains the database.

"It's not like this is some minor loophole or technicality," said Christopher Peterson, a law professor at the University of Utah who has studied MERS and has consulted on some lawsuits against the company.

MERS neither received payments from the borrower nor the proceeds from a foreclosure, he said, so it was "silly" for it to say it was the owner of the loan.

"In the American mortgage lending industry, MERS has become the veiled man wielding the foreclosure ax," Peterson wrote this summer in the University of Cincinnati Law Review.

MERS Chief Executive R.K. Arnold defended his company, saying it was "an important component" of the housing finance system and was committed to following state and local laws.

"What we're seeing now is that the foreclosure process itself was not designed to withstand the extraordinary volume of foreclosures that the mortgage industry and local governments must now handle," he said in a statement this month.

But MERS is facing growing criticism as more attention is focused on it. Local officials have long been concerned about the loss of fees caused by putting mortgages in MERS' name, essentially privatizing property ownership records, said Mark Monacelli, the St. Louis County, Minn., recorder, who has been active on the issue since MERS was created.

"Today our county is in serious financial trouble, and we could really use the revenue," said Monacelli, who estimated MERS has cost his 200,000-resident county about $350,000 annually in recording fees.

In Orange County, for example, there have been about 8,000 MERS mortgage filings since 1997, although officials there did not estimate the fees lost from the company's internal transfer of ownerships.

Consumers Union is worried about the legal questions surrounding the MERS database, including the ability of lenders to produce documents showing they are the owner of a property being foreclosed, said Gail Hillebrand, senior lawyer for the nonprofit advocacy group.

JPMorgan Chase & Co., one of the nation's largest mortgage lenders, said last week it stopped doing foreclosures in MERS' name in 2007.

"We take the title out of the MERS name before we start foreclosure proceedings because some local courts don't accept foreclosures in the MERS name," spokesman Tom Kelly said.

MERS said banks have the option to foreclose on their own and Chase "has chosen to foreclose in their own name, which is a common decision that is allowed under the structure of MERS."

But Ely said MERS' problems are an example of "a lot of shortcuts taken, a lot of the I's not dotted properly and Ts not crossed properly."

Still, in most cases, he said, the homeowner is in default on the loan, and that fact will take precedence over paperwork issues.

"Some cases are going to get thrown out, but I think in most cases substance is going to trump form," Ely said.

But Max Gardner, a North Carolina consumer bankruptcy lawyer and expert on foreclosures, disagreed.

"It's not a simple … we-can-fix-it-in-two-weeks issue," Gardner said. "This is a structural problem with the legal model that the industry decided to use."