Appeals court KOs deed recorders’ suit against registry

The Commonwealth Court of Pennsylvania has reversed an order from Delaware County Common Pleas Court Judge Charles B. Burr that denied a mortgage registry company’s objections to a lawsuit brought by several recorders of deeds.

The suit, filed by recorders of deeds in Delaware, Berks, Bucks and Montgomery counties against MERSCORP Inc., its subsidiaries and several banks, alleged the defendants created an electronic registry system to circumvent traditional recording requirements and associated fees, costing counties millions of dollars.

The “mortgage electronic registration system” acts as a proxy or placeholder in mortgage transactions, allowing member banks or other entities to transfer titles to members within the system while the named designee for the assignment remains “MERS,” effectively side-stepping normal recording requirements, to the suit.

Mortgages can therefore be transferred numerous times within MERS, which has no actual economic interest, until the mortgage is satisfied, foreclosed upon, or transferred to a non-MERS member, the suit claims.

Delaware County Recorder of Deeds Thomas Judge Sr. filed suit in 2013 alleging this system violates Pennsylvania Statute 351, which requires that “all deeds, conveyances, contracts, and other instruments of writing … shall be recorded in the office for the recording of deeds in the county where such lands … are situate.” The suit was later joined by the other three counties.

The Commonwealth Court notes that Montgomery County raised similar claims in federal court against MERSCORP in 2012. The U.S. District Court for the Eastern District of Pennsylvania determined that the defendants were obligated to create and record written documents memorializing the transfer of promissory according notes, but the Third Circuit Court of Appeals reversed that ruling in 2015, finding Section 351 does not create a duty to record all land conveyances.

The Third Circuit held that the statute’s language, when read in context, indicates only that conveyances “shall be recorded” in order to protect the property holder’s rights against any subsequent purchaser, and that the statute did not appear to provide the recorders with any express or implied right to enforce the law.

In light of this decision, the defendants filed their preliminary objections to dismiss the suit in Delaware County, but were denied. The defendants then sought an interlocutory appeal from the Commonwealth Court, arguing that the trial court went against the Third Circuit’s decision when it overruled their objections.

The Commonwealth Court’s majority opinion, filed May 4 and written by Judge Michael H. Wojcik, notes that prior cases referencing Section 351’s recording requirement typically arise in some dispute over the purchase of land involving an unrecorded document.

Pennsylvania courts have consistently ruled in such cases that unrecorded interests in properties are still valid, according to the opinion. If Section 351 did require the recording of all conveyances, the Third Circuit held, “it does not follow that Pennsylvania courts would recognize unrecorded conveyances as valid,” the opinion says.

Even if the Commonwealth Court agreed with the recorders that Section 351 did impose a mandatory recording requirement, it found there is no legal framework conferring any authority on the recorders of deeds to enforce the law.

While the recorders argued that their function is partially to “protect the public,” the Commonwealth Court found that obligation extends only as far as the custodial duty to record and safeguard the records that are properly presented for recording.

“In response to the recorders’ contention that they are the only entities with a sufficient interest in this matter to ‘vindicate the purpose of the recording acts and protect Pennsylvania citizens from fraud related to land records,’ we respectfully observe that such concerns are more appropriately protected by the Attorney General,” the opinion states.

The opinion notes that neither he Third Circuit nor the Commonwealth Court were tasked with actually evaluating the impact of MERS or whether it is “good or bad,” leaving matters of public policy to the state legislature.

Judge P. Kevin Brobson said in a dissenting opinion joined by Judges Patricia A. McCullough and Anne E. Covey that preliminary objections dismissing an action outright should only be sustained “where it is clear and free from doubt that the pleader has not pleaded facts sufficient to establish his right to relief.”

Finding that “a whiff of doubt” remains, Brobson said he would have preferred to allow the matter to proceed beyond the pleading stage before rendering final judgment.