Merscorp, Inc. v. Del. Cnty.

207 A.3d 855

MERSCORP, INC. n/k/a MERSCORP Holdings, Inc. ; Mortgage Electronic Registration Systems, Inc.; Bank of America, N.A.; CitiMortgage, Inc.; Citibank, N.A.; Credit Suisse Financial Corporation ; Everhome Mortgage Company; JP Morgan Chase Bank, N.A.; State Farm Bank F.S.B.; Wells Fargo Bank, N.A.; Sovereign Bank; HSBC Bank USA, N.A.; HSBC Finance Corporation; Gateway Funding Diversified Mortgage Services, L.P. n/k/a Finance of America Mortgage LLC; Customers Bancorp, Inc.; Customers Bank; The Bank of New York Mellon; The Bank of New York Mellon Trust Company, N.A.; Deutsche Bank National Trust Company; Deutsche Bank Trust Company Americas; Santander Bank, N.A. f/k/a Sovereign Bank, N.A. ; and Trident Mortgage Company, L.P., Appellees

v.DELAWARE COUNTY, Pennsylvania, Recorder of Deeds, by and Through Thomas J. Judge, Sr., in His Official Capacity as the Recorder of Deeds of Delaware County, Pennsylvania; Frederick C. Sheeler, in His Official Capacity as Recorder of Deeds in and for the County of Berks, Pennsylvania ; The Office of the Recorder of Deeds in and for the County of Berks, Pennsylvania ; The County of Berks, Pennsylvania ; Joseph J. Szafran, in His Official Capacity as Recorder of Deeds in and for the County of Bucks, Pennsylvania ; The Office of the Recorder of Deeds in and for the County of Bucks, Pennsylvania ; The County of Bucks, Pennsylvania ; Richard T. Loughery, in His Official Capacity as the Recorder of Deeds in and for the County of Chester, Pennsylvania; The Office of the Recorder of Deeds in and for the County of Chester, Pennsylvania; and The County of Chester, Pennsylvania, Appellants

No. 67 MAP 2017

Supreme Court of Pennsylvania.

Argued: September 26, 2018

Decided: April 26, 2019

OPINION

JUSTICE DOUGHERTY

We consider whether the Commonwealth Court correctly determined that 21 P.S. § 351, "Failure to record conveyance," does not create a mandatory duty to record all mortgages and mortgage assignments in a county office for the recorder of deeds. We hold the Commonwealth Court did not err, and therefore affirm.

This appeal arose from four separate, yet substantively similar, lawsuits filed by the county recorders in Delaware, Chester, Bucks and Berks Counties and their respective Counties (collectively, the Recorders). Pursuant to Pa.R.C.P. 213.1 (Coordination of Actions in Different Counties), the suits filed by the Delaware, Chester and Bucks County Recorders were coordinated in the Court of Common Pleas for Delaware County in April 2015, and the suit filed by the Berks County Recorder was coordinated into the Delaware County action in October of 2015.¹ The Recorders sued appellees, MERSCORP, Inc., its wholly-owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS), and several financial institutions who are members of MERS (collectively, MERSCORP). MERSCORP owns and operates the MERS® System, which is a national electronic registry system for promissory notes associated with mortgages and secured by residential real estate. The MERS® System permits its members to transfer promissory notes associated with mortgages between and among its financial institution members. After a member-to-member transfer of a note, MERS remains the mortgagee and title holder of record as a "nominee" for the holder of the promissory note and its successors and assigns. Under this system, MERS facilitates operation of the secondary market for mortgages by enabling its members to transfer the right to repayment on the note associated with a mortgage to other members by recording the transfers only in the MERS database. Thus, priority for the mortgage is established within the MERS® System for purposes of notification to the members, even when the transfers of the note are not recorded in county recording offices. As a result, county recording fees may be avoided by MERS members.

The Recorders' complaints set forth six identical claims² based on Section 351 of Title 21 (Deeds and Mortgages), which is entitled "Failure to record conveyance," and provides as follows:

All deeds, conveyances, contracts, and other instruments of writing wherein it shall be the intention of the parties executing the same to grant, bargain, sell, and convey any lands, tenements, or hereditaments situate in this Commonwealth, upon being acknowledged by the parties executing the same or proved in the manner provided by the laws of this Commonwealth, shall be recorded in the office for the recording of deeds in the county where such lands, tenements, and hereditaments are situate. Every such deed, conveyance, contract, or other instrument of writing which shall not be acknowledged or proved and recorded, as aforesaid, shall be adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of any judgment, duly entered in the prothonotary's office of the county in which the lands, tenements, or hereditaments are situate, without actual or constructive notice unless such deed, conveyance, contract, or instrument of writing shall be recorded, as aforesaid, before the recording of the deed or conveyance or the entry of the judgment under which such subsequent purchaser, mortgagee, or judgment creditor shall claim. Nothing contained in this act shall be construed to repeal or modify any law providing for the lien of purchase money mortgages.

21 P.S. § 351.

A virtually identical challenge to the MERS® System was already proceeding in the United States District Court for the Eastern District, filed in 2011 by the Recorder of Deeds for Montgomery County, Pennsylvania, Nancy Becker (the Federal Action). The Federal Action was a putative class action complaint against MERSCORP seeking a declaratory judgment and permanent injunction establishing MERS members failed to record mortgage assignments in violation of Section 351. In 2012, the District Court held Section 351 creates a mandatory obligation on the part of MERS and its members to record documents memorializing the transfer of promissory notes. Montgomery Cty. v. MERSCORP, Inc. , 904 F.Supp.2d 436 (E.D. Pa. 2012). Proceedings in the Delaware County coordinated actions were stayed pending appeal of the Federal Action.

On August 3, 2015, the Third Circuit Court of Appeals reversed the District Court's decision and held Section 351 does not create a mandatory duty to record all land conveyances. Montgomery Cty. v. MERSCORP Inc. , 795 F.3d 372 (3d Cir. 2015). Relying on the Third Circuit's decision, MERSCORP filed preliminary objections in the nature of a demurrer to the Recorders' complaints seeking dismissal on the basis that Section 351 does not provide a duty to record, and the Recorders do not have authority to enforce Section 351 in any event. The court overruled the preliminary objections, and denied MERSCORP's request to certify its interlocutory order for an immediate appeal. See 42 Pa.C.S. § 702(b) (court may certify interlocutory order as involving controlling question of law on which there is substantial ground for difference of opinion and immediate appeal may materially advance ultimate termination of matter).

MERSCORP then filed a petition for review in the Commonwealth Court. See Pa.R.A.P. 1311(b), Note (where lower court refuses to amend interlocutory order to allow immediate appeal, petition for review is proper mode to determine whether prerogative appellate correction is required). The Commonwealth Court granted review of the following issues: "(1) whether Section 351 requires the recording of all mortgages and mortgage assignments; and (2) whether the General Assembly conferred on the Recorders a right of action to enforce Section 351." MERSCORP, Inc. v. Delaware Cty. , 160 A.3d 961, 964 (Pa. Cmwlth. 2017).

A divided Commonwealth Court reversed.³ The majority agreed with the Third Circuit's conclusion in the Federal Action, specifically ruling " Section 351 does not issue a blanket command that all conveyances must be recorded; it states that a conveyance ‘shall be recorded’ in the appropriate place, or else the party risks losing his interest in the property to a bona fide purchaser." MERSCORP , 160 A.3d at 965, quoting Montgomery Cty. , 795 F.3d at 377. The majority observed the plain language of Section 351 does not specify which party to a transaction must record a conveyance, nor does it state when recording must take place. The majority also recognized Pennsylvania courts have consistently interpreted Section 351 and other provisions of Title 21 as intended to protect subsequent mortgages and purchasers, and that the failure to record inherently provides a limited consequence — the loss of a priority interest. Id. at 965-66. The majority found further support for its conclusion in precedent recognizing as valid even unrecorded interests in land. Id. at 966, citing U.S. Bank N.A. v. Mallory , 982 A.2d 986, 993 (Pa. Super. 2009) (recording mortgage assignment not prerequisite to filing complaint in mortgage foreclosure and failure to record does not negate validly executed mortgage assignment).

In addition, the majority held Section 351 does not confer any authority upon the Recorders to enforce Section 351. Id. at 968, citing Montgomery Cty., 795 F.3d 372. The majority noted the Recorders have a ministerial duty to the public to record and safeguard records presented to them for recording, but that duty does not confer standing to file actions to protect the public from "inaccurate" records in the MERS® system. Id.⁴

We granted the Recorders' petition for allowance of appeal on the following issues:

(1) Whether the Commonwealth Court erred in ruling that [MERSCORP] may systematically evade Pennsylvania's land recording statutes, including 21 P.S. § 351, and not record many thousands of conveyances in the Offices of the Recorders of Deeds across the Commonwealth?

(2) Whether the Commonwealth Court erred in ruling that Recorders of Deeds and Counties do not possess standing or a right of action to pursue claims against Responden

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