Court Upholds Constitutionality of Pennsylvania Recording Statute

A class action suit against Mortgage Electronic Registration Systems (MERS) in Pennsylvania will go forward after a federal district court ruled that the state recording statute is constitutional. The court ruled that the statutory recording requirements are "patently clear."

The plaintiffs, a class of county recorders of deeds, seek an injunction against the use of the MERS recording registry and compensation for money that would have been paid to the counties if transfers of security interests had been recorded in the county recorder's office, as the plaintiffs claim is required by the statute.

The court's ruling, issued on April 22, 2014, denied MERS's motion for summary judgment. MERS argued that the recording statute was unconstitutionally vague because it does not provide clear direction about what must be recorded, as well as when and by whom. The court rejected that argument and ruled that the statute clearly requires parties to record "mortgages and mortgage assignments" in the county recorder's office. It also found that the statute clearly provides that the parties must record transfers within 90 days. Finally, it rejected MERS's contention that the statute "lacks objective standards" leading to "arbitrary application" and "confusing" enforcement.

The decision differs from the conclusions drawn by other courts. Recent decisions by the U.S. Courts of Appeals for the Seventh and Eighth Circuits have rejected unjust enrichment claims by county recorders' offices. In January, the Seventh Circuit affirmed the dismissal of an unjust enrichment claim, holding that MERS engaged in no "unlawful act" that could permit the county recorders to recover for unjust enrichment. Similarly, in December, the Eighth Circuit rejected an unjust enrichment claim by county recorders on the grounds that MERS had no duty to record the transfers of security interest with the county recorder's office.

 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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