Mar 31, 2016 5 min read

Recorder of Deeds Debbie Bardella on Thursday brought a class-action suit in Washington County Court against an electronic registration firm and several lending institutions, claiming they failed to timely record mortgages during intermediary steps of forming mortgage-backed securities, creating “gaps in the record of ownership of title on Pennsylvania properties” and causing counties to lose millions of dollars in recording fees.

Many “promissory notes on properties in Washington County and throughout Pennsylvania have been sold and assigned on multiple occasions, but there is no recording” of promissory notes in the public record as they progress through these various steps, Bardella’s attorney, D. Aaron Rihn of Pittsburgh, asserts in the complaint.

To the extent that the lenders record mortgage assignments at all in connection with their transfers of promissory notes, “they usually do so only well after the 90-day deadline imposed” by state law to file a document known as a “satisfaction” or to facilitate foreclosure proceedings because of default.

“In such cases, the mortgage assignment is often recorded many years after the recording deadline has passed,” the suit claims.

“Gaps in title cloud ownership, increase questions about foreclosure procedures and raise doubts about the accurate satisfaction of mortgages,” Bardella claims, undermining laws that seek to assure an accurate public record of who owns land.

In addition to clouding title, the lenders and recording system have caused “difficulties for homeowners, who are unable to tell from public land records who owns their loan.”

According to background provided in the suit, mortgage loans, in Pennsylvania, are made up of both a promissory note and mortgage.

The note contains the terms of the borrower’s promise to repay the loan and the mortgage operates as a lien on the real estate giving the lender security for repayment of the note, including the right to foreclose upon and sell the mortgaged property at a sheriff’s sale.

Promissory notes for mortgage loans may be bought and sold in what is known as the “secondary market” for mortgage loans, and, in some cases, the mortgage loans are bought and sold for the purpose of being securitized.

The suit defines securitization as a “complex process in which an investment bank, for example, purchases several mortgages and pools them into a trust or other vehicle, then issues marketable securities backed by the mortgage loans in the trust. In a typical securitization, a mortgage loan may be sold multiple times as the promissory note passes through intermediaries between the lender originating the loan and the mortgage-backed securities trust.”

Since the 1990s, selling mortgage loans has become more common and the securitization process requires at least three mortgage assignments and often more.

Bardella, who signed the complaint, demanded both a jury trial and injunctive relief.

Named as defendants are Mortgage Electronic Registration Systems Inc., identified in the suit as a members-only, private electronic mortgage loan registry owned by MERSCORP, a Delaware corporation doing business in Reston, Va., which was also named in the suit; Bank of America of Charlotte, N.C.; Bank of New York Mellon of New York City; Bank of New York Mellon Trust Co. of Los Angeles; Citibank of Sioux Falls, S.D., CitiMortgage of O’Fallon, Mo.; Deutsche Bank National Trust Co. of Los Angeles; Deutsche Bank Trust Company Americas of New York City; HSBC Bank U.S.A., North America, of McLean, Va.; HSBC Finance Corp., formerly known as Household International Inc. of Mettawa, Ill.; JPMorgan Chase Bank of North America, Columbus, Ohio; Wells Fargo Bank of North America, Sioux Falls, S.D.; and West Penn Financial Service Center Inc. of Pittsburgh, all of which the suit identifies as members of MERSCORP.

“The mortgage industry considers recording laws to be an anachronism, creatures of a 17th-century real property law that do no coexist easily with high-volume, late 20th-century secondary mortgage transactions,” according to a quotation included in the suit from an article by Phyllis K. Slesinger on “The MERS Project” that appeared in the June 1995 issue of the publication, “Mortgage Banking.”

It also cited a statement by an unnamed former MERS’ chief executive officer that “‘MERS is owned and operated by and for the mortgage industry’ and stressed that its express purpose was to circumvent recording assignments and paying fees to recorders of deeds'” because “any loan where MERS is the mortgagee is inoculated against future assignments because MERS remains the mortgagee no matter how many times servicing is traded … Despite being the designated mortgagee of record for as many as half of the residential mortgages in the United States, MERS reportedly has no employees.”

Instead, according to the suit, MERS uses what it calls “signing officers” who are employees of the banks named in the suit and other MERS members who are appointed as vice presidents or assistant secretaries of MERS at the request of members for a small fee.