With a recent ruling by a federal appellate court in Philadelphia, the string of victories for Mortgage Electronic Registration Systems, Inc. (MERS), continues unabated. Once again, a would-be class of county recorders challenged MERS’s practice of not recording mortgage transfers, and once again, an appellate court rejected the officials’ arguments. This much is clear: instead of fighting in court, county recorders are better off trying to change state laws.
In Montgomery County, Recorder of Deeds v. MERSCORP, Inc., officials claimed that state municipalities had lost nearly $100 million in recording fees as a result of MERS. The company, which was created in the 1990s, designates itself as the nominee of record for its members’ loans. That practice allows its members to transfer ownership of mortgage notes among themselves without having to record assignments—or to pay the resulting fees. Most of the nation’s larger lenders are MERS members. This system accelerates the selling and packaging of mortgage loans into mortgage-backed bonds.
In this recent ruling, the United States Court of Appeals for the Third Circuit found that Pennsylvania law does not require that all land conveyances be recorded. Instead, the statute at issue merely provides that unrecorded interests might be subordinated to a later bona fide purchaser for value. The Third Circuit noted that its holding was supported by decisions from at least two other federal courts, which interpreted similar laws in Illinois and Minnesota. Earlier posts in this blog examined related opinions interpreting Kentucky law.
At this point, it looks like only legislative changes will turn the tide against MERS. Whether county recorders and other interested constituents have enough clout to accomplish that remains to be seen. It is unlikely. Unanswered is whether MERS members derive unfair benefits from recording processes that were never designed with private registration systems in mind. That at least is debatable.