Insurance Policy for Slave, Warwick. Image provided by New York Public Library.
Alternative Headline: "MERS: Fighting Hard to Reduce Homeowners' Recording Costs."
MERS, or Mortgage Electronic Recording System, is an alternative recording system for recording residential mortgage loan documents. Banks and other lenders, servicers and other large corporations that generate income from mortgages made it up as a way to significantly lower costs and raise their return on investment.
Instead of paying the recording fees for public records that everyone else pays, MERS exists to replace the public records system with a private records system. MERS is accessible to private parties that pay fees for private recording of residential mortgage transactions in MERS' electronic database. A public records search for the chain of title on a given property has to stop when MERS is recorded as a stand-in for the mortgagee, or as a "mortgage nominee" in financial parlance. The search must then switch over to MERS' private database "to determine the present beneficial owner of the mortgage and loan, as well as any related servicing rights or subordinate security interests." Merscorp Holdings, Inc. v. Malloy, 320 Conn. 448, 455, 131 A.3d 220, 225 (2016), petition for cert. filed (U.S. June 24, 2016) (No. 15-1538). The Connecticut Supreme Court provided a handy and very understandable background explanation in its opinion, 320 Conn. at 452-55, 131 A.3d at 224-25. (If I can easily understand it, it is easy to understand, I assure you.)
For 3 years, the Connecticut statutes have authorized public recording charges for roughly three times the amount otherwise charged whenever MERS is named in a publicly recorded mortgage transaction as the substitute or stand-in for any and all mortgagees, servicers, etc. MERS challenged the "constitutionality" of the Connecticut statutes under the Commerce Clause and on equal protection, due process, and other grounds. It even invoked one of the Civil Rights Laws, 42 U.S.C.A. § 1983, in alleging its claims.
Although good in theory, perhaps, MERS' claims of unconstitutionality were undercut by the record. After three years of the statutes' operation, "there is no evidence that any member of MERS has discontinued its membership in the MERS system or halted or reduced its use of that system as a result of the 2013 amendments." Merscorp Holdings, Inc. v. Malloy, 320 Conn. 448, 458, 131 A.3d 220, 227 (2016), petition for cert. filed (U.S. June 24, 2016) (No. 15-1538).
The Connecticut Supreme Court also pointed out that the record reflected that in most cases, MERS would not pay the recording fees. Rather, homeowners pay the recording fees in most cases. Merscorp Holdings, Inc. v. Malloy, 320 Conn. 448, 458, 131 A.3d 220, 227 (2016), petition for cert. filed (U.S. June 24, 2016) (No. 15-1538). In this sense, it may be said that MERS is fighting hard to reduce Connecticut homeowners' recording costs. MERS itself did not say that, however.
Parenthetically, MERS' standing apparently comes out of the cases when MERS itself paid the recording fees. In any case, standing does not appear to have been raised as an issue or briefed in this case, and it was not mentioned in the Connecticut Supreme Court's opinion.
The Connecticut Supreme Court held that the Legislature's taxation of MERS in the form of enhanced recording fees is valid. MERS is now taking its contentions that it has a constitutionally protected right to set up an alternative to government to the U.S. Supreme Court. There, many mortgage industry groups have filed amicus briefs in support of freeing their private mortgage recording system from the Connecticut statutes at issue.
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