Three separate waves of Kentucky litigants have attacked MERS in federal court; all three have lost. In the latest decision, Higgins v. BAC Home Loans Servicing, a panel of three judges firmly debunked the attackers’ central claim: that Kentucky law requires lenders to record assignments of promissory notes. Only mortgage assignments need be recorded, the court held. The ruling is a huge relief for MERS, allowing the company to continue its note-swapping system without having to pay huge recording fees.

The plaintiffs in Higgins were Kentucky landowners who borrowed money and gave their lenders mortgages to secure the debts. The lenders were MERS members, and, as a result, that company was listed as the mortgagee of record. Later, the lenders sold the loans to other MERS members and, in the process, assigned to them the underlying promissory notes. In an earlier post, I explained how MERS works.

The landowners argued that those transfers qualified as mortgage assignments, which by law must be recorded. Central to that argument was the notion—which no one disputed—that the transfers vested the acquiring lenders with equitable interests in the mortgages. Nevertheless, the lenders moved to dismiss the lawsuit, but the trial court sided with the landowners and denied the motion. Ironically, the same day of that ruling, a different federal court in Kentucky reached exactly the opposite conclusion.


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MERS—the mighty, unseen mortgagee of record for millions of home loans—recently defeated an effort by Kentucky counties to recover the huge amounts of recording fees that they lose annually due to the company’s electronic-transfer system. According to the federal court ruling, Kentucky law does not clearly empower counties to enforce alleged violations of state recording-fee statutes. Instead, the counties must look to state sources—like local courts or the Kentucky legislature—to obtain that authority.

In 2012, forty-one of Kentucky’s 120 counties banded together and sued MERS and dozens of its members in Kentucky federal court. The counties argued that MERS’s transfer system violated state law and gave rise to, among other things, fraud and a civil conspiracy. Without reaching the merits of the counties’ arguments, the trial court dismissed the lawsuit on the grounds that the counties lacked authority to enforce the recording fee statutes at issue. On June 5, 2015, the United States Court of Appeals for the Sixth Circuit affirmed that result.


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