Pennsylvania Federal Court Holds Promissory Note Transfer Equivalent To A Mortgage Assignment And Must Be Recorded


On July 1, the U.S. District Court for the Eastern District of Pennsylvania held that in Pennsylvania the assignment or transfer of a promissory note secured by a mortgage on real estate is equivalent to a mortgage assignment and, as such, must be recorded. Montgomery County, Penn. Recorder of Deeds v. Merscorp, Inc., No. 11-6968, 2014 WL 2957494 (E.D. Pa. July 1, 2014). A Pennsylvania county recorder of deeds filed a putative class action against an electronic mortgage registry claiming the registry violated state law and unjustly enriched itself by failing to record conveyances of interests in real property. The recorder challenged the registry’s practice of serving as the mortgagee of record and as the nominee for a lender, which obviates the need to record the transfer of a note each time it is sold. The court held that although state law recognizes a clear distinction between a promissory note and a mortgage and that a promissory note generally may be transferred without recording, a promissory note still falls within the meaning of a “conveyance” under state law, and therefore must be recorded. The court further explained that notes and mortgages are legally inter-woven, and “whether effectuated via a writing or a mere ‘transfer of possession’ of a note, the result is the same by operation of law”—an interest in the property has been assigned and conveyed and therefore must be recorded. The court acknowledged evidence that the registry may have been unjustly enriched by avoiding recording fees on transfers the court now determined were required to be recorded, but declined to make that determination as a matter of law, let alone a determination as to the amount of damages. The court left those issues to be determined at trial. The decision is likely to be appealed to the Third Circuit.

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