* MERS seeks dismissal of test case
* Judge asks why Delaware doesn't seek new laws
* Judge weighs whether "Kafkaesque" MERS was deceptive
By Tom Hals
WILMINGTON, Del, May 30 (Reuters) - Attorneys for the state of Delaware struggled at a court hearing on Wednesday to keep alive a closely watched lawsuit against MERS, the electronic mortgage registry accused of abuses in housing foreclosures.
The state's lawsuit, announced at press conference in October, is seen as a test case for addressing concerns that homes were being seized from defaulted borrowers without following proper procedures.
The Mortgage Electronic Registration Systems Inc, known as MERS, is an electronic-lien registry created by the mortgage banking industry as a way to streamline and speed up the mortgage recording and transfer process.
Delaware attorneys are seeking an injunction to force MERS to correct problems with its database. MERS, meanwhile, asked the chief judge of the state's Court of Chancery to dismiss the lawsuit, arguing that the allegations did not violate Delaware's Deceptive Trade Practices Act.
And while Judge Leo Strine was clearly sympathetic to the problems faced by delinquent borrowers who had no idea with whom to negotiate when trying to save their homes, he repeatedly questioned a state lawyer about why they had decided to sue MERS and under the deceptive trade practices law.
"The system has errors. How do I get to deceptive?" Strine asked Deputy Attorney General Jeremy Eicher.
Strine also told Eicher twice not to "make stuff up" as Eicher seemed to veer from the original arguments made in the state's briefs.
Eicher's boss, Delaware Attorney General Beau Biden -- son of U.S. Vice President Joe Biden -- sat watching in the courtroom.
Strine also wondered if the state would be better off trying to fix the "Kafkaesque" problems of MERS by going through the legislature or by ensuring existing foreclosure rules were followed.
Biden declined to comment following the hearing.
Other lawsuits against MERS have had mixed success. A federal judge in Phoenix last year dismissed a group of lawsuits filed by homeowners who said foreclosures based on MERS documents were invalid.
If Strine allows the lawsuit to proceed, the state will be able to begin the discovery process and demand documents and witnesses from MERS, although the registry's attorney said the company was already cooperating with a state investigation.
The case is State of Delaware v MERSCORP Inc and Mortgage Electronic Registrations Systems Inc, Delaware Court of Chancery, no. 6987.