Last winter, when state and federal regulators agreed to a $25
billion nationwide settlement with five of the banks responsible
for the mortgage and foreclosure crisis, one set of claims was
expressly carved out of the deal. As I reported at the time, the
mortgage servicing settlement left state attorneys general and
other local governments free to sue the Mortgage ElectronicRegistration Systems for allegedly shortchanging them on the
recording fees that are supposed to be paid when mortgages
change hands. The Massachusetts, New York and Delaware AGs had
already asserted such claims against MERS, the mortgage registry
established by its member banks to facilitate securitizations.
So had municipalities in Ohio, Florida, Kentucky, Iowa, Arkansas
and other states. Considering MERS's role as a mortgage
assignee, its potential exposure in these recording-fee suits
was truly mind-boggling; New York claimed MERS cost local
governments hundreds of millions of dollars a year.
So far, however, MERS hasn't been found to owe a dime in
unpaid recording fees. On Monday an Arkansas state judge
dismissed a class action on behalf of all the county clerks in
the state, finding that MERS had no responsibility to record
mortgage assignments so it owed no fees to Arkansas counties.
That's the latest of a string of wins for MERS in these cases.
In August, an Iowa state court judge dismissed a recording-fee class action. In June, a Florida case was tossed. In February,
in the first recording-fee ruling, a judge in Kentucky ruled
that county clerks don't have standing to pursue the
recording-fee claims. MERS's settlement with the Delaware AG in
July also makes no mention of unpaid recording fees.
Moreover, on Monday the 9th Circuit Court of Appeals
affirmed the dismissal of a qui tam case by a former Nevada real
estate agent who claimed he was the first person to raise
allegations that MERS wasn't paying recording fees; the appeals
court said he didn't qualify as a qui tam realtor because his
assertions were already publicly known at the time he brought
them to the attention of state officials. The whistle-blower,
Barrett Bates, brought similar suits in California, Indiana,
Hawaii, Tennessee, Nevada and Washington, D.C., claiming that
MERS member banks fraudulently assigned mortgages to MERS to
avoid recording fees. According to MERS, all of Bates's cases
have been dismissed. (I left a message for Bates counsel Treva
Hearne of Hager & Hearne but didn't hear back.)
MERS is cautiously optimistic about its record to date. "We
are pleased that recording fee claims against MERS have been
dismissed by the courts, either initially or following appeal,"
said spokeswoman Janis Smith in an email statement. "We have
long held that there is no merit to assertions that fees are
owed for services not performed or necessary.... All MERS
mortgages (or deeds of trust) are recorded in the local public
land records and the associated recording fees are paid."
I should note that the recording-fee litigation is far from
over. The Massachusetts and New York AG claims are still alive,
and you can be sure that if MERS loses either of those cases, it
will face a new wave of regulatory suits. But in the meantime,
MERS's success in dodging recording-fee cases is just one more
example of the difficulty of squeezing money out of anyone
involved in the securitization game.
(Reporting by Alison Frankel)
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