Big Win for Mortgage Registry in Third Circuit

(CN) - Saving the electronic mortgage registry MERSCorp millions in recording fees, the Third Circuit reversed a decision that slammed it for not recording land conveyances.

MERSCorp and the Mortgage Electronic Registration Systems Corp. offer a service that lets members buy and sell the interest in mortgage notes, with the MERS name standing in for the note holders on the mortgage title in local records.

This often gives homeowners the impression that MERS owns their mortgage, when MERS is just acting as the "nominee" for the note's true assignee.

The registry has faced lawsuits by municipalities across the country over its failure to register transferred notes - a practice that counties claim costs them millions in recording fees.

In the Third Circuit case at hand, the Philadelphia-based federal appeals court looked at a federal judge's ruling for Montgomery County, Pa., in its case against MERS.

Though the lower court found that MERS had violated Pennsylvania recording law, a three-judge panel with the Third Circuit reversed Monday, finding that transfers of promissory notes among MERS members do not involve a reassignment of the mortgage itself - they are not conveyances of land.

"MERS contends that § 351 does not impose a duty to record all land conveyances, and that the statute's 'shall be recorded' language, when read in context, indicates not that every conveyance must be recorded, but only that conveyances must be recorded in the county where the property is situated in order to preserve the property holder's rights as against a subsequent bona fide purchaser," Judge Maryanne Barry wrote for the court. "We agree."

If the law created a duty to record all land conveyances, then unrecorded conveyances must be found invalid, but Pennsylvania courts have often recognized unrecorded conveyances, the 16-page opinion states.

"Section 351 does not issue a blanket command that all conveyances must be recorded; it states that a conveyance 'shall be recorded' in the appropriate place, or else the party risks losing his interest in the property to a bona fide purchaser," Barry said. "It informs property owners of what steps they must take in order to safeguard their interests, and does not in any way state or imply that failure to record constitutes a violation of the statute enforceable by a recorder of deeds."

The panel noted that its decision accords with Seventh and Eighth Circuit precedent, and they denied the Montgomery County clerk's motion for class certification order.

A spokeswoman for MERSCorp applauded the ruling as "significant."

"MERS has always maintained that no Pennsylvania law, including the recording statute imposes a duty to record the transfer of a promissory note," spokeswoman Janis Smith said in a statement . "We are pleased the Court of Appeals for the Third Circuit finds the county recorder's arguments to have 'no merit.'"

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