Federal Judge Dismisses Arkansas County Clerk's Action Challenging MERS Recording
Legal Alerts
9.21.12
A recent trend among county clerks throughout the country is to file suit against numerous banking defendants on the grounds that participation in the Mortgage Electronic Registration Systems, Inc. (MERS) recording system unlawfully deprives their counties of recording fees and compromises the public record. Dykema has been involved in similar litigation, such as the action pending in Guilford County, North Carolina entitled Guilford County, ex rel. Jeff. L. Thigpen, Guilford County Register of Deeds v. Lender Processing Services, Inc., et al., No. 12-CVS-4531. A number of such cases have already been filed, but with little success for the counties that file them.
On September 17, 2012, in Brown v. Mortgage Electronic Registration Systems, Inc., No. 6:11-CV-06070 (W.D. Ark. Sept. 17, 2012), yet another court rejected such claims. In Brown, the county clerk alleged that MERS could not serve as the legal beneficiary of mortgages owned by its participants; therefore, each time the participants sold their right to payment under a mortgage they were required to record an assignment of mortgage with the county clerk. The court disagreed.
The court rejected the county clerk’s claims for three primary reasons. First, the court pointed out that Arkansas does not even require an assignment to be recorded. The court noted that the sole purpose of recording an assignment is to give constructive notice of the mortgage to subsequent purchasers; thus, “a mortgage’s legal efficacy as to the original parties is not diminished if the mortgage goes unrecorded.” Id. at 5. Second, the court noted that the county clerk was not a party to the MERS contracts and therefore held that it lacked standing to claim that the contracts somehow required MERS participants to record assignments when a mortgage is sold to a non-MERS purchaser. Third, the court held that even if the recorded assignments of mortgage were “untruthful” as a result of the MERS system, the county clerk’s claims failed because the clerk did not suffer an injury in fact. The court reasoned that an injury in fact was absent because “[t]he effect of an accidental recording error and an untruthful recording is the same: both fail to give effective notice. Under either circumstance, Defendants,and they alone, bear the consequences of inaccurate recording.” Id. at 7. Even if the recording caused harm to a third-party, the court concluded, the county clerk did not suffer the harm; and, thus, “lacks standing to sue on that theory.” Id.
For the moment, the court’s holding not only puts a chill on county clerk recording fee actions in Arkansas, but it also provides well-reasoned and persuasive authority to argue that copy-cat actions in jurisdictions where there is no requirement under law to record an assignment of mortgage are equally flawed and should be dismissed for the same reasons; that is, there is no duty to record, and even, if there were, the county clerk has no standing to sue.
Should you have any questions about this alert, or need additional information, please contact Dawn N. Williams, the author of this alert and an attorney in the Firm’s Consumer Financial Services group, at 312-627-2147, or contact Richard E. Gottlieb, Director of the Firm's Financial Industry Group, at 312-627-2196.
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