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Defeating Another Challenge to the Mortgage Electronic Registration System
March 13, 2015
Since the mortgage crisis began several years ago, the Mortgage Electronic Registration System (“MERS”) has faced numerous legal attacks relating to foreclosures, assignments and what interest MERS holds in a deed of trust or mortgage. Among these cases are claims brought by government officials alleging that the use of MERS circumvents a requirement to record assignments and deprives the recording jurisdiction of recordation fees that would be derived from a recorded assignment. Such a challenge was brought in West Virginia in 2012, in County of Wyoming, West Virginia v. U.S. Bank Nat’l Assoc., N.A. et al., Civil Action No. 12-cv-01465. On appeal, the West Virginia Supreme Court of Appeals held that West Virginia statutes do not require recording of an assignment of a trust deed. Accordingly, the Court upheld the use of MERS to register deed of trust assignments instead of requiring recordation with the Clerk of the County. The opinion reiterates, however, a basic tenet of real estate law that a non-recorded assignment provides no protection against a bona fide purchaser or other creditors.
 
In Wyoming County, a county filed a putative class action against various banks which served as trustees under certain residential mortgage-backed security trusts (“RMBS”). The County alleged the trustees had failed to record deed of trust assignments relating to the RMBS and, as a consequence, failed to pay the requisite recordation fee to the Clerk of the County Commission. It was undisputed that none of the deed of trust assignments were recorded and that no recording fees were paid to the County.  
 
The circuit court denied the defendants’ motion to dismiss, ruling that an assignment of a deed of trust was required to be publicly recorded. The circuit court then entered an order entitling Wyoming County to show that the trustees had been unjustly enriched by using MERS, rather than recording and paying the recording fees. The trustees then filed a Writ of Prohibition, asking the West Virginia Supreme Court of Appeals to prohibit enforcement of the circuit court’s order and dismiss the complaint.
 
The Supreme Court first briefly reviewed the development of loan pooling and securitization and recognized that MERS was created specifically to eliminate the multiple recordings of assignments and costs associated therewith. It noted that MERS was designated as the nominee and beneficiary for the lender in the original trust deeds, which were recorded in the respective West Virginia counties. However, subsequent transfers of the trust deeds, by assignment, to the various RMBS trusts were not recorded, and no recording fees attributable to the assignments had been paid. The Court recognized that MERS served as a registry for the transfer of rights under the trust deeds, and as mortgagee, which eliminated the need for subsequent recording.
 
The Supreme Court then turned to the West Virginia statutes governing recordation. Like many other states, West Virginia is a “permissive” jurisdiction. That is, nothing in the statutes mandates public recording of deeds, trust deeds, or trust deed assignments. Consequently, “a party assigning a trust deed or mortgage, or receiving an assignment, is under no statutory duty to record the assignment in the office of the county clerk.” Hence, the trustee defendants did not violate West Virginia law by not recording the assignments. The Court cautioned, however, that failure to record an assignment exposes an assignee to an element of risk vis-à-vis a bona fide purchaser or other creditors without notice of any unrecorded assignment. The Court went on to note that its decision was consistent with other jurisdictions, citing decisions from Kentucky, Illinois, Florida and Iowa, where the courts have similarly held that the recording of an assignment was not required. The West Virginia Supreme Court of Appeals then directed the circuit court to dismiss the Wyoming County action with prejudice. 
 
The West Virginia Supreme Court of Appeals’ decision joins a number of other jurisdictions upholding the use of MERS by not requiring assignments to be publicly recorded with county clerks. 
 
If you have any questions about this legal issue, or any consumer finance issue, please contact our Consumer Finance Practice Group.

 
 
Consumer Finance Angela L. Beblo
304.340.3852
abeblo@spilmanlaw.com