While the flood of new MERS litigation is finally dying down, many cases are still winding their way through the appellate courts. Among them are cases involving suits brought by county recorders claiming that MERS owes millions in unpaid recording fees.
MERS is an electronic book-entry system developed by the mortgage industry for tracking assignments of mortgages. The original lender names MERS as the mortgagee or beneficiary in the public land records and enters the data in a private, electronic database maintained by MERS. So long as the mortgage remains in the MERS system, the public sees only one mortgagee of record—MERS. Even if the mortgage note is sold or assigned repeatedly in the background, those transfers are not recorded in the public land records but are reflected only in MERS’ publicly inaccessible database.
County recorders across the country have brought suits claiming that the MERS system has denied them millions of dollars in recording fees that lenders would have paid had they recorded every mortgage assignment. Recording was the usual practice before MERS existed. In fact, avoiding county recording fees was the raison d’être for MERS’ creation.
On the whole, the county recorder suits have not fared well. Most have been dismissed by the courts, though the reasoning in each case varies.
The counties’ argument generally begins with the premise that state law requires recording of all mortgages and assignments of mortgages in the public land records. With each recorded assignment, there is a mandatory recording fee paid to the county. By avoiding recording of mortgages and subsequent assignments, MERS has denied counties millions of dollars in fees and, in this economy, much needed revenue.
In Illinois, the relevant statute provides that “deeds, mortgages, powers of attorney, and other instruments relating to or affecting title to real estate in [Illinois], shall be recorded in the county in which such real estate is situated.” Union County argued that this statute requires all mortgages and mortgage assignments to be recorded.
Judge Posner, writing for the Seventh Circuit Court of Appeals, was unpersuaded that the statute mandates recording of all mortgages. Rather, according to Posner, the statute requires that if a mortgage is recorded, it must be recorded in the county where the property is located. In other words, the statute does not require recording but only restricts the place of recording.
Posner’s interpretation is, ironically perhaps, consistent with the purpose of recording mortgages: to ensure that third parties have notice of the lien on the property. If the mortgagee fails to record, then a third party will not have record notice of the mortgage and the lien may lose its priority or, in some states, become unenforceable.
Because the court rejected the key premise of Union County’s argument—that recording is required by law, the Seventh Circuit affirmed the district court’s dismissal of the suit with prejudice.
Read the full opinion on Justia Dockets here.