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U.S. district judge keeps Dallas DA's MERS case alive

U.S. District Court Judge Reed O'Connor kept the Dallas County District Attorney's case against Merscorp Inc. alive this week when he dismissed five of 12 claims against the parent company of Mortgage Electronic Registration Systems, but agreed to keep seven claims, sources familiar with the case said.

The original lawsuit was filed in September and eventually obtained class-action status so neighboring counties could sign onto the action. The suit also named as defendants Stewart Title Guaranty Co., Stewart Title Co., Bank of America (BAC) and Aspire Financial doing business as TexasLending.com.

Dallas County District Attorney Craig Watkins originally accused the electronic mortgage registry of avoiding $50 million to $100 million in recording filing fees by creating a registry that allowed MERS in the securitization process to avoid recording fees on every new mortgage assignment. 

MERS had the case moved to federal court and filed for dismissal.

O'Connor declined to dismiss claims of conspiracy, injunctive relief, declaratory judgment, fraudulent misrepresentation, unjust enrichment and corporate alter ego, exemplary damages, sources say.

At the same time, the court dismissed three negligence claims and two statutory claims related to the DA's claim that MERS violated Texas laws.

MERS asked the court to dismiss the case in court records, claiming Texas does not accept the legal theories on which the counties based the case. MERS also alleged the DA's complaint failed to state cognizable claims for relief and suggested the corporate veil of MERS could not be pierced.

"The court should dismiss this suit because there is no misrepresentation as the Texas Legislature affirmatively allows MERS to appear as mortgagee or beneficiary; and (2) there is no duty to record assignments, or other documents, since Texas’ property recording system is permissive, not mandatory."

MERS added, "First, no false, fraudulent or otherwise wrongful activity occurred by filing security instruments naming MERS as beneficiary or mortgagee. To the contrary, the Texas Legislature adopted a statute authorizing a book entry system to serve as a secured party on Texas security instruments, and the courts in this state have held that MERS qualifies under that statute."

Ultimately, the Texas statutory claims and negligence claims were dismissed, but the counties' remaining allegations survived MERS' motion to dismiss.

Bank of America declined to comment on the court's decision.

kpanchuk@housingwire.com

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