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The U.S. Court of Appeals for the Third Circuit has ruled, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], that Pennsylvania’s recording statute does not require the recording of all conveyances. As a result, the Third Circuit reversed the district court’s refusal, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], to enter summary judgment in favor of Mortgage Electronic Registration Systems (MERS) in a class action filed by a county recorder of deeds seeking to compel MERS to record past, present, and future mortgage assignments and pay the associated recording fees.
In Montgomery County, Pennsylvania, Recorder of Deeds v. MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc., the district court had interpreted Pennsylvania’s recording statute to require, rather than merely permit, the recording of all conveyances. Although a mortgage is recorded naming MERS the mortgagee as nominee for the lender and its assigns, no assignment is recorded when the lender’s rights are assigned to a new owner who is a MERS system member. Instead, the change in beneficial ownership is registered in the MERS electronic database and MERS remains the nominee for the new owner. The county recorder’s class action complaint sought a declaratory judgment and permanent injunction establishing that each transfer required a formal mortgage assignment and alleged that MERS had violated state law by failing to record such assignments. The county recorder also asserted a claim for unjust enrichment based on MERS’s failure to pay recording fees.
The Third Circuit agreed with MERS that, when read in context, the Pennsylvania recording statute’s language relied on by the county recorder stating that all conveyances “shall be recorded” meant “not that every conveyance must be recorded, but only that conveyances must be recorded in the county where the property is located in order to preserve the property holder’s rights as against a subsequent bona fide purchaser.” According to the Third Circuit, the recording statute’s primary purpose is to prevent deception by providing public notice of who holds title to land. The court noted that the only consequence of failing to record is that an unrecorded conveyance will be void as to a subsequent purchaser. Observing that recording is not necessary to validly convey property in Pennsylvania, the court commented that if recording of conveyances was statutorily required, Pennsylvania courts would not recognize unrecorded conveyances as valid.
The Third Circuit also found that, in light of its interpretation of the recording statute, the county recorder’s unjust enrichment claim failed as a matter of law. Since there was no requirement to record conveyances, the recorder had not conferred any benefit on MERS for which it failed to pay.
In addition to ruling that MERS was entitled to summary judgment in its favor, the Third Circuit denied the county recorder’s motion to certify two issues to the Pennsylvania Supreme Court. In the Third Circuit’s view, the answer to the first issue, whether the state statute required conveyances to be recorded, was “so clear that we would be abdicating our responsibilities by punting.” With regard to the second issue, whether a recorder has a private right of action under the statute, the Third Circuit stated that the recorder’s “lack of an express right or implied right of action under [the statute] would provide an independent ground for judgment in favor of MERS.” (The district court found it unnecessary to decide whether the recorder had a private right of action and instead construed the pleadings as a quiet title claim. The Third Circuit commented that it took no position on whether it was proper for the district court to do so “because it is clear that the Recorder cannot maintain a quiet title claim, as she does not claim an interest in land, only an interest in recording fees.”)In its decision, the Third Circuit cited decisions from other courts, including the Seventh and Eighth Circuit Courts of Appeals, in similar lawsuits likewise against MERS brought under similar state statutes by local recording officials. Those lawsuits found that the statutes created no mandatory duty to record.
Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. The group includes the firm’s Mortgage Banking Group, which combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.
For more information, please contact Consumer Financial Services Group Practice Leader Alan S. Kaplinsky at email@example.com, Mortgage Banking Practice Leader John D. Socknat at firstname.lastname@example.org, Martin C. Bryce, Jr., at email@example.com, or Daniel JT McKenna at firstname.lastname@example.org.
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