Fuller v. Mortg. Elec. Registration Sys., Inc.

• Decision Date: 27 June 2012
• Docket Number: Case No. 3:11–CV–1153–J–20MCR.
• Parties: Jim FULLER, Clerk of the Circuit Court of Duval County, Florida, in his official capacity and on behalf of all those similarly situated, Plaintiff, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. and MERSCORP INC., Defendants.
• Court: U.S. District Court — Middle District of Florida

888 F.Supp.2d 1257

Jim FULLER, Clerk of the Circuit Court of Duval County, Florida, in his official capacity and on behalf of all those similarly situated, Plaintiff,

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. and MERSCORP INC., Defendants.

Case No. 3:11–CV–1153–J–20MCR.

United States District Court,

M.D. Florida.

Jacksonville Division.

June 27, 2012.

Ian Robert Mckillop, Timothy Wayne Volpe, Volpe, Bajalia, Wickes, Rogerson & Wachs, Jacksonville, FL, for Plaintiff.

Andrew B. Boese, Morgan, Lewis & Bockius, LLP*, Robert M. Brochin, Miami, FL, for Defendants.

ORDER

HARVEY E. SCHLESINGER, District Judge.

THIS CAUSE is before this Court on Defendants' Motion to Dismiss (Dkt. 10), Plaintiff's Memorandum in Opposition (Dkt. 16), Defendants' Reply to Plaintiff's Opposition (Dkt. 21), and Plaintiff's sur-reply (Dkt. 24). This Court held a hearing on these motions following which the parties submitted additional material (Dkts. 27, 28, 31, 32, and 33).

In this case this Court is confronted with an old problem: the difficulty of reconciling new technology with old law, thus raising the centuries old separation of powers controversy. Technology moves rapidly whereas the law moves at glacial pace, and as custodians—not promulgators—of the law, courts frequently lack the power to rein in practices that comply with its letter, but perhaps not its spirit. Alexander Hamilton, when explaining the structure of the federal judiciary under Art. III, touched upon the difficulty facing this Court:

The Executive not only dispenses the honors, but holds the sword of the community. The legislature not only commands the purse, but prescribes the rules by which the duties and rights of every citizen are to be regulated. The judiciary, on the contrary, has no influence over either the sword or the purse; no direction either of the strength or of the wealth of the society; and can take no active resolution whatever. It may truly be said to have neither force nor will, but merely judgment ....

This simple view of the matter suggests several important consequences. It proves incontestably, that the judiciary is beyond comparison the weakest of the three departments of power ....

(Alexander Hamilton, The Federalist, No. 78, reprinted in The Federalist: A Commentary on the Constitution of the United States, Book 2, 98, 99 (1942)). Here Plaintiff is asking the weakest branch of the federal government to resolve a question that is better suited for the Florida legislature. In the words of a Florida court, this case involves “the rub between the expanding use of electronic technology to track real estate transactions and our familiar and venerable real property laws that has generated the heat that led to this [case] and to countless others nationally.” Taylor v. Deutsche Bank Nat'l Trust Co., 44 So.3d 618, 623 (Fla. 5th DCA 2010). While the “rub” has indeed caused considerable friction, this Court—as least under present Florida law—lacks the power to add the necessary grease.

I. HISTORY OF MORTGAGE RECORDING

To fully appreciate the importance of the issues before this Court, it is necessary to review the history of the recording of mortgages in the United States.

Since the founding of the American republic, each county in the United States has maintained records of who owns the land within that county. Most states track changes in ownership of land, including mortgages and deeds of trust, by maintaining records indexed through the names of grantors and grantees. These grantor-grantee indexes allow individuals and businesses contemplating the purchase or financing of land to investigate—or hire a title insurer to investigate—whether a seller or mortgagor actually owns the land being offered for sale or mortgage. Communities traditionally have elected their county recorders or registers of deed; these elections provide an important democratic check and balance in the preservation of property rights. A public, enduring, authoritative, and transparent record of all land ownership provides a vital information infrastructure that has proven indispensible in facilitating not only mortgage finance, but virtually all forms of commerce. County real property records are the oldest and most stable metric tracking the “American dream” of family homeownership.

To facilitate their service, county recorders charge modest fees on documents they record. Although the amount and the method of calculating these fees varies considerably, a charge of about thirty-five dollars for a mortgage is typical. County recorders use these fees to fund their offices and to contribute to county and state revenue. Some counties use real property recording fees to fund other county departments such as courts, legal aid offices, schools, and police.

For centuries, American mortgage lenders eagerly recorded their mortgages with county recorders because state land title laws created incentives for recording and disincentives for not recording. For example, if a mortgagee fails to record its mortgage properly and then someone subsequently buys or lends against the home and records its interest,the subsequent purchaser or lender often can take priority over the first mortgagee. Similarly, if a mortgagee assigns a mortgage to an investor, that investor eagerly would record documentation reflecting the assignment to protect against the possibility that the original mortgagee would assign the same mortgage to a different investor.

Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory, 53 Wm. & Mary L. Rev. 111, 114–15 (2011).¹ With this historical framework in mind, this Court turns to the facts that govern this controversy.

II. FACTS OF THE CASE²

On October 31, 2011, Plaintiff initiated this action by filing his Class Action Complaint (“Complaint”), on behalf of himself and the other Florida Clerks of Circuit Courts, against Defendants Mortgage Electronic Registration Systems, Inc. and MERSCORP, Inc. (collectively, “MERS”) in the Circuit Court, Fourth Judicial Circuit, in and for Duval County Florida.

Plaintiff maintains this is a “class action to recover millions of dollars in unpaid recording fees unlawfully avoided through a nationwide scheme perpetrated by MERS, its principals, and its members ....” (Dkt. 2, pg. 2). MERS is alleged to have developed and maintained a private system for tracking and recording interests in land, actions which Plaintiff alleges unlawfully interfere with and usurp the integrity of the public records system maintained by the Florida Clerks of Circuit Courts.

According to Plaintiff, it is the Florida Clerks of Circuit Courts who are the steward of the public records in each county, and the clerks are responsible for recording any and all instruments required or authorized by law that affect real property in that county. This system provides “a mechanism by which private individuals can put others on notice of their interest in a particular parcel of real property,” and “it protects the public by providing a reliable historical record of past and current ownership of all real property in the state [and for that service the Clerks charge and collect a fee].” Id. at 2–3.

Historically, and in conjunction with Florida law, those possessing an interest in real property would cause that interest, as reflected in a written document, to be recorded in the official records in the county where the real property was situated. Id. at 3. These written documents are generally commercial instruments such as mortgages and assignments of mortgages, and promissory notes. In spite of—or because of—this tradition, the Mortgage Bankers Association (“MBA”) along with others “in the mortgage lending industry determined to sidestep and refuse to comply with the recording laws by physically recording interests in real property.” Id. To that end, the MBA created MERS.

In the mid–1990s, “mortgage servicing companies sought to accumulate and trade ever-growing numbers of mortgage-servicing contracts, while others in the industry began purchasing large numbers of mortgages, packaging them into massive investment pools and selling interests in the pools to investors, a process commonly referred to as mortgage ‘securitization.’ ” Id. “In order to aggregate loans into pools and mortgage-servicing rights into large portfolios, promissory notes and mortgages had to be assigned from a multitude of smaller mortgage lenders to large national banks and servicers.” Id. This assignment of mortgage loans required certain costs, one of which was the payment of recording fees to the Florida Clerks of Circuit Courts who record and maintain the public records. Id.

To “streamline” the assignment of residential mortgages and mortgage-servicing rights between lenders, servicers, and securitizers, MBA created MERS. Id. at 4. MERS allows these entities to avoid the physical recording requirements in the clerk's office while at the same time depriving the Florida Clerks of Circuit Courts “of the recording fees to which they are entitled and the public of its ability to identify the true mortgagee of mortgaged property.” Id. at 4.

MERS accomplishes these goals by being listed as the “ ‘mortgagee’ on millions of loans throughout the nation.” Id. This is despite the fact that “MERS does not originate any loans, lend any money, or own or hold any promissory notes.” Id. The Complaint avers that MERS is “a straw man” in the public records which allows the true owner of the loan to remain anonymous. In addition, this designation of MERS in the public record permits the loan to change hands at will without notice to the public, without recording an assignment in the official records, and without paying the recording fees normally associated with an assignment. Id. According to Plaintiff, the “effort to disconnect the debt (the note) from the collateral (the mortgage) to save on recording costs is at the heart of the unlawful scheme...