So your point is that the MERS system has further broken the chain of ownership such that recently obtained titles are subject to dispute in court?
If so, purchase of foreclosed properties would carry a substantial risk not currently recognized as such.
That would reduce market liquedity and stifle recovery in the housing markets.
or make the cost of title insurance skyrocket.
Not just foreclosed properties. The real problem that is little spoken of is this, all transactions that at some time went through MERS are questionable, as to ownership. This means that if you bought a house during the last ten years (myself included), you're likely to have a hard time getting a truly clear title. The people who set up MERS need to be in jail.