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County clerks lack standing to sue Mortgage Electronic Registration Systems for recording fees on mortgage assignments, the U.S. Court for the Western District of Kentucky said this week.
Even though the case is not an appellate decision, it gives plaintiffs a glimpse at how one court evaluated a county recording-fee lawsuit against MERS.
In the case — Christian County Clerk v. MERS — the facts pleaded are similar to other complaints that popped up in Dallas County and jurisdictions in several states. Since last year, county clerks and local governments have been filing lawsuits against MERS, claiming the mortgage registry robbed counties of assignment recording fees on loans by transferring property assignments within the MERS system during loan securitization.
The Christian County clerk in Kentucky brought suit against MERS and several banking defendants, claiming the electronic registry violated state recording statutes by allowing parties to avoid county mortgage-assignment fees each time a loan is transferred.
The district court dismissed the complaint, ruling for MERS on the grounds that county clerks lack standing to sue MERS over assignments not filed at the county clerk's office.
The court said the statutes that guide property recording fees give standing to parties with an interest in the property, but not county clerks.
The court held, "Thus, the Legislature conferred standing upon real property owners or parties acquiring an interest in real property, not upon county clerks, with respect to enforcing the mortgage assignment recording obligations of Kentucky statutes — KRS § 382.360 and KRS § 382.365." In addition, the court said the county clerk and its representatives did not possess a real interest in the property.
"This is a significant and precedent-setting decision for MERS. The court determined that county clerks lack standing to sue or collect damages from MERS," said Janis Smith, Merscorp’s vice president for corporate communications.
The case is similar to other suits filed by counties across the country. Dallas County District Attorney Craig Watkins filed a complaint against MERS, and its parent company Merscorp in 2011. In the suit, Watkins said the registry allowed banks to avoid county filing fees on mortgage assignments.
Watkins suggested the e-registry owes Dallas County $50 million to $100 million.
Geauga County in Ohio also filed suit, claiming the registry bypassed the recording of mortgage assignments at the local registry office, depriving numerous Ohio counties of revenue from filing fees.
MERS, at the time, said, "The MERS business model and practices comply with the recording statutes and regulations of Ohio. This position has been upheld in numerous cases in Ohio courts and countless cases across the country on the state and federal level. We are confident that MERS’ business practices will be upheld in court as complying with Ohio law."
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