Montgomery County takes mortgage fight to banks

After winning a June 30, 2014 decision against the company that maintains a national

registry of mortgage transactions, the Montgomery County Record of Deeds has filed a class action suit at the U.S. District Court for the Eastern District of Pennsylvania against the banks who allegedly bought and sold mortgages without paying the real estate recording fees.

In June, U.S. District Judge J. Curtis Joyner allowed Montgomery County Recorder of Deeds Nancy Becker to continue with her class action suit against Merscorps, the multi-billion dollar business that owns and maintains the MERS electronic database, which records mortgage transactions made between investors and trusts. Becker claimed that the database did not record thousands of transactions, denying Montgomery County more than $15 million in fees.

The civil trial has not yet begun, but in the meantime Becker has now gone after the banks that used the MERS system to avoid paying for each transaction of Montgomery County mortgages.

In court papers filed on Sept. 24, Becker claims that defendants The Bank of New York Mellon, Citibank, Deutsche Bank, JPMorgan, Wells Fargo and HSBC participated in the securities trading industry without properly recording each time a mortgage changed hands, actions that not only kept funds out of the county but left homeowners confused about which bank owned their loans.

"These failures to record mortgage assignments have damaged the integrity of Pennsylvania's public land records by creating gaps in the chain of title and creating confusion among property owners," the complaint says.

Since the 1990s, the mortgage securitization industry has grown into a major investment market. During the investment process, promissory notes attached to the mortgages exchange hands multiple times before settling into an investment pool or trust. The suit says that a mortgage securitization can change hands at least three times, if not more.

According to Pennsylvania law, however, the notes are not just financial tools. They are also attached to the title of the real estate property, meaning that each mortgage trade also transfers title ownership, requiring notification of the transaction with the county recorder of deeds, along with payment of a standard fee, within 90 days.

The only timely paperwork is received at the origination of the loan, the suit says. When a bank seeks to foreclose on a property, it will record the mortgage assignment, but it is usually well beyond the 90-day deadline and only affirms the current holder of the note, not the mortgage's trading history, according to the complaint.

The defendants have circumvented the recorder of deeds by participating in the MERS database, the suit says. At the origination of the mortgage, MERS is listed as the lending agent and remains there as the note is transferred numerous times. According to the complaint, there are more than 130,000 mortgages naming MERS as the mortgageee recorded in Montgomery County since 2004 and more than 78 million nationwide.

Becker has filed the class action on behalf of each county recorder of deeds in Pennsylvania. She claims that the commonwealth has been collectively denied more than $100 million in transaction fees, unjustly enriching the banks who avoided the payments.

The action seeks a declaratory judgment against the defendants and an injunction requiring payment for all unrecorded mortgage assignments.

The plaintiffs are represented by attorneys from Lamb McErlane in West Chester, Pa., Koh, Swift & Graf in Philadelphia, Whitefield, Bryson & Mason in Washington, D.C., Saffren & Weinberg in Jenkintown, Pa., and Cuneo, Gilbert & LaDuca in Washington, D.C.

The federal case ID is 2:14-cv-05500-JCJ.