Lending Servicing

Federal Court of Appeals hands yet another victory to MERS

Rules Kentucky law does not require recording promissory note transfers

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A ruling handed down by the United States Sixth Circuit Court of Appeals hands another legal victory to MERSCORP Holdings, which again saw its authority challenged, this time in the state of Kentucky.

MERS, parent of the electronic mortgage registry with the same name, announced Friday that the United States Sixth Circuit Court of Appeals issued a ruling stating that Kentucky’s recording statutes do not require a recording in the land records when promissory notes are transferred.

The decision stems from Higgins v BAC Home Loans Servicing, in which the plaintiffs alleged that transfer of notes was an assignment of the underlying mortgages and that for the purposes of Kentucky’s recording statutes requires note assignments to be recorded.

In the Court of Appeals ruling, the Court states that the Kentucky legislature distinguishes between mortgage assignments which must be recorded and note assignments for which recording is optional.

The ruling goes on state that while it is true that by operation of Kentucky law, an equitable interest in the mortgage is acquired when a note is transferred.

But the Court recognized that “The text, structure, and purposes of Kentucky’s recording statutes compel the conclusion that recording is not required when a party acquires merely an interest in the mortgage, without acquiring the actual mortgage deed.”

In his opinion, Circuit Judge John Rogers wrote, “Because it is undisputed that defendants transferred only promissory notes and did not fail to record any transfers of mortgage deeds, defendants did not violate KRS 382.360(3) and the district court should have dismissed plaintiffs’ action on that basis.”

MERSCORP Holdings Vice President for Corporate Communications Janis Smith said that MERS is pleased with the ruling.

“We’re pleased that the United States Sixth Circuit Court of Appeals recognized that Kentucky’s recording laws are consistent with MERS’ practices,” Smith said. “The Court confirmed that the Kentucky recording statutes do not require that promissory notes be recorded.”

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