Judge allows Dallas County suit against mortgage registration system to continue

By Marilyn Tennissen | May 29, 2012


DALLAS - A federal judge in Dallas has denied a request to dismiss Bank of America and Mortgage Electronic Registration Systems Inc. from a suit claiming they created a system to avoid paying uncollected mortgage filing fees in Texas counties.

On May 23, U.S. District Judge Reed O'Connor of the Northern District of Texas-Dallas Division said the plaintiffs "have brought sufficient evidence to allow the case to go forward."

Dallas County filed the initial complaint in September, alleging that Merscorp Inc.'s MERS was established by banks including Charlotte, N.C.-based Bank of America to avoid paying filing fees, as well as to ease transfers of mortgages. Dallas revised the lawsuit in October, seeking to represent all other Texas counties in which a deed of trust has been filed identifying MERS as a beneficiary.

MERS said it followed Texas law and didn't shortchange counties on fees.

MERS tracks servicing rights and ownership interests in mortgage loans on its registry, allowing banks to buy and sell loans without recording transfers with counties. MERS acts as the lender's nominee and remains the mortgagee of record as long as the note promising repayment is owned by a MERS member.

Dallas County claims this allows banks that own stakes in MERS to buy and sell loans without properly recording transfers with counties and paying the fee. According to a Bloomberg article, Dallas County may be owed as much as $100 million.

"The MERS system has created massive confusion as to the true owners of the beneficial interests in mortgage loans and mortgages throughout the United States, and the loss of revenues has harmed U.S. counties," Dallas County lawyers said in court papers last year.

"As of today, the system they are so proud of is a complete and total failure," Dallas County attorney Stephen Malouf said at the hearing before O'Connor. "It has made the property recording system in the U.S. spaghetti."

O'Connor allowed the counties to seek damages and an injunction limiting future filings by MERS. He rejected county allegations that MERS was filing false liens, which would have allowed the counties to seek $10,000 for each contested filing.

The Dallas County class-action lawsuit would cover every county in Texas where MERS is identified as beneficiary or where "any record has been filed" that would cause MERS to be identified in deed files as a grantor of interest in a property, unless "MERS itself actually holds in the property the interest that MERS purports to be granting," county lawyers said in court filings.

Lawyers for MERS and Bank of America claim that under Texas law, there is no duty to record assignments.

"The Texas Property Code, which contains various statutes concerning recording interests in land, allows parties to record interests in land to protect their interests but does not require that any recording occur," the defendants said in a March 9 filing. "The counties have suffered no injury — and thus lack standing — from nonpayment of recording fees for documents that were never recorded."

Dallas County v. Merscorp Inc., 11-cv-02733, U.S. District Court, Northern District of Texas (Dallas).

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