Many states require lenders to record satisfactions of mortgage soon after the underlying debt is paid off. The failure to do so can result in monetary penalties. In light of a recent decision from the U.S. Supreme Court, judges now disagree about whether those situations can also lead to viable lawsuits.
The question is whether the simple failure to timely record a satisfaction of mortgage causes a sufficiently concrete injury to allow a consumer to sue. This past May, the U.S. Supreme Court, in the case of Spokeo v. Robins, found that a bare statutory violation might not constitute enough of an injury to sue over in federal court. The criteria for “standing” that the high court announced were vague and leave the state of the law uncertain.
In terms of whether the failure to timely record a mortgage satisfaction is a concrete harm that can sustain a legal claim, some federal courts have said “yes” and others have said “no.” New York has an aggressive statute that allows home owners to sue for as much as $1,500 in penalties for the delayed recording of a mortgage satisfaction.
This split of authority will have to be resolved at some point by the Supreme Court. In the meantime, plaintiffs’ lawyers will likely try to steer around the obstacle. They might do so by, for example, trying to sue in state courts based on classes comprised of only state residents. State laws do not necessarily have the same standing requirements as does the federal constitution. And the state-only class might keep the case out of federal court. Also, clever attorneys may also try to cook up ways in which consumers are allegedly harmed by the delayed recording. That harm might consist of aborted closings, additional telephone calls, etc. Overall, don’t expect these types of class actions to go away any time soon.