County Clerks Have No Standing to Complain about MERS

Sixth Circuit Court of Appeals Confirms That

Kentucky’s County Clerks Not Injured by the MERS System

        In a recent decision, the Sixth Circuit Court of Appeals confirmed the holding of the trial court to the effect that the various county clerks in Kentucky were not injured by the existence of the Mortgage Electronic Registration Systems, Inc. program pursuant to which real estate mortgage assignments could be effected electronically and without a county filing.  Christian County Clerk v. Mortgage Electronic Registration Systems, Inc., 2013 WL 565198 (6^th Cir. Feb. 15, 2013).

      Under Kentucky law and specifically KRS § 382.360(3), mortgage assignments are required to be recorded with the county clerk’s office.  The county clerk collects a fee in connection with that filing.  Under the MERS system, a mortgage is recorded in its name as the assignee of the ultimate beneficial owner.  Transfers of that beneficial ownership are accomplished in the MERS computer system without any recording with the county clerk.  Various county clerks brought suit against MERS asserting that the transfers on its system, without a corresponding county-level filing (with the appropriate fee), was improper, asserting that MERS was established “to enable its members to avoid recording mortgage assignments and paying the associated recording fees to the county clerks,” for which the clerks sought “damages to recover unpaid recording fees and an injunction ordering Defendants to cease their practice of not recording mortgage assignments.” 

      The Sixth Circuit affirmed the determination of the Circuit Court that the count clerks lacked standing to prosecute the suit.  Rather, it was found that the clerks had no private right of action to sue for any alleged violation of the recording requirements imposed by Kentucky law.  Expressly avoiding the question as to “whether Defendants are obligated to record assignments when notes are transferred per the MERS system” (2013 WL 465198, *4), it was determined that the clerks did not fall within the class of persons intended to be protected by the recording requirement, those being:

(1)        Existing lienholders and lenders who record their security interests in the land to give notice of their secured status;

(2)        Prospective lienholders and purchasers; and

(3)        Property owners and borrowers whose loans have been satisfied.  2013 WL 565198, *5 (citations omitted).

In that the clerks were not persons intended to be protected by the statute, they were not entitled to bring an action to enforce the statute or to seek damages for its alleged violation.

      The Sixth Circuit also affirmed the dismissal of the claim for unjust enrichment, noting that unjust enrichment arises in contract as a mechanism for precluding one from enjoying benefits received without providing compensation.  In that the clerks had afforded no benefit to the participants in the MERS system, there can be no claim for unjust enrichment.  2013 WL 565198, *7-8.