Judge denies Dallas Co. request in MERS litigation

By Marilyn Tennissen | Mar 11, 2014

A federal judge has denied Dallas County's request for reconsideration of a decision in favor of an electronic mortgage system, which it claims harms the county by denying filing fees. 

The plaintiffs argue Texas Statute, section 192.007 requires all assignments of Deeds of Trust be recorded in the land records. 

U.S. District Judge Reed O'Connor for the Dallas Division of the Northern District of Texas issued a decsion March 4 in the case Dallas County v MERSCORP Inc. et al. 

The action has been pending since October 2011 with 13 original claims. Only one claim remained unresolved and that is the plaintiffs’ request for declaratory judgment.

O’Conner in his March 4 opinion wrote, “This statute contains no remedy provision, and nothing stating or suggesting that a county or other litigant may seek relief under the statute.” Judge O'Conner continued, “Alternatively, even were declaratory relief available to the Counties, based on recent case law, the Court concludes that Section 192.007 does not support the Counties’ interpretation that the statute requires the recordation of interim instruments, such as assignments of deeds of trusts.”

Dallas County filed the original suit on Sept. 20, 2011, in state court against Mortgage Electronic Registration Systems (MERS), MERSCORP Inc. and Bank of America N.A.

The complaint alleges the defendants conspired to create a private electronic mortgage registration system for tracking ownership interests and servicing rights associated with residential mortgage loans.

According to Dallas County, this system usurps the county clerk’s role under the statutorily created recording systems in a manner inconsistent with Texas law, thereby depriving Dallas County of recording fees and corrupting its real property records.

The case was transferred to federal court in Dallas on Oct. 14, 2012. Harris County and Brazoria County were added as plaintiffs in March 2012.

They asserted claims for: unjust enrichment; negligent, grossly negligent, and fraudulent misrepresentation; negligent and grossly negligent undertaking; negligence per se and gross negligence per se; and conspiracy, as well as state statutory claims for violations of Texas Civil Practice and Remedies Code § 12.002 and Texas Local Government Code § 192.007, and seeking monetary damages, declaratory and injunctive relief, and exemplary damages.

Eight of the 13 counts claimed in the suit were dismissed on May 23, 2012.

All but one claim were settled, a declaratory judgment that the Texas Local Government Code requires interim documents relating to an initially-filed instrument be recorded, the complaint states.

The MERS System operates at the origination of a residential loan, when a mortgage lender who is a MERSCORP member loans money to a home buyer in Texas. Two documents are created, a promissory note executed in favor of the lender which is negotiable and can be bought and sold, and a deed of trust in which the borrower and lender designate MERS (as the lender’s nominee) as beneficiary of the security instrument.

When a MERS Deed of Trust mortgage loan is closed the lender becomes the holder of the note and records the MERS Deed of Trust in the county clerk’s office of the county where the property is located and registers the mortgage loan in the MERS system. If the note is assigned or transferred to a non-MERS system member, the assignee records the transfer in the public land records of the county.

Dallas County seeks reconsideration of the Court’s Nov. 4, 2013, decision granting summary judgment in favor of MERSCORP on Dallas County’s remaining causes of action, with the exception of its request for declaratory judgment regarding the meaning of Texas Local Government Code § 192.007.

However, the court concluded that the Nov. 14, 2013, memorandum opinion does not warrant reconsideration.

Judge O'Connor issued the following decisions:

Grants Defendants’ motion for summary judgment (ECF No. 298);

Denies Plaintiff Dallas County’s motion for summary judgment (ECF No. 301);

Denies Plaintiffs Harris and Brazoria Counties’ motion for summary judgment (ECF No. 294);

Overrules and denies as moot Plaintiff Dallas County’s Objections to and Motion to Strike Defendants’ Expert Designations and Reports (ECF No. 292);

Overrules and denies as moot Plaintiff Dallas County’s Objections to and Motion to Strike Exhibits in Support of Defendants’ Motion for Summary Judgment (ECF No. 315);

Denies as moot Plaintiff Dallas County’s Motion for Leave to File Reply to Defendants’ Response to Dallas County’s Motion for Summary Judgment (ECF No. 323); and

Denies Plaintiff Dallas County’s Motion to Reconsider and Vacate [November 4, 2013] Summary Judgment Decision (ECF No. 309).

"Plaintiffs’ request for declaratory judgment (and any associated injunctive relief) is hereby dismissed with prejudice," he wrote.

“We have been confident since this case began that the lawsuit filed in Dallas County was without legal or factual merit,” said MERSCORP Holdings Vice President for Corporate Communications, Janis Smith in a press release. “The MERS business practices are legal and comply with the recording statutes and regulations of Texas. Judge Reed’s opinion mirrors rulings in numerous cases in Texas courts and countless cases across the country on the state and federal level.”

This decision joins the dismissals of lawsuits brought by county recorders in Minnesota, North Carolina, Rhode Island, Michigan, Oklahoma, Iowa, Florida, Arkansas, Illinois, Missouri, Massachusetts and Kentucky, Smith said.

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