In an Order dated June 30, 2014, a US District Judge held that Mortgage Electronic Registry Systems, Inc., also known as MERS (the electronic mortgage registry operated by Merscorp Inc.) violated Pennsylvania law by failing to properly record home loans that were sold or transferred.

The typical residential mortgage finance transaction results in two legally operative documents: (1) a promissory note, which is a negotiable instrument which represents the borrower’s repayment obligation over the term of the loan; and (2) a mortgage, representing the security interest in certain property which entitles the holder of the note to foreclose on the property in the event of default on the note.  MERS enters a mortgage finance transaction when the lender and the borrower names MERS in the mortgage instrument as “the mortgagee (as nominee for the lender, it successors, and assigns).”  The promissory note is then sold on the secondary mortgage market.  MERS tracks each time a bank sells and assigns a mortgage, and does so without formally recording the ownership with the county land recording offices.

The Plaintiff in this case, Nancy Becker in her official capacity as Montgomery County Recorder of Deeds, filed this lawsuit on behalf of herself and all other Pennsylvania Recorder of Deeds.  The Complaint alleged that by creating and maintaining a private, members-only registry for recording and tracking conveyances of interest in real property, the MERS defendants violated 21 P.S. Section 351.  This statute requires that conveyances be publicly recorded in the county recorder of deeds offices.

Moreover, by privately recording such conveyances, title searchers and home owners/buyers are denied the ability to ascertain who currently owns the note secured by a MERS mortgage, thus clouding the chain of title to a property.

The Judge’s Order entered a Declaratory Judgment in favor of the Plaintiff, obligating Defendant MERS to create and record written documents memorializing the transfer of promissory notes which are secured by real estate mortgages within the Commonwealth of Pennsylvania.

Note: Mr. Proctor served as an expert witness on behalf of the Plaintiff in this case, and provided insight used by the Judge in making his determination.