Don't Mess with Texas: Dallas County Sues MERS for Unpaid Recording Fees

Yesterday afternoon Dallas County, Texas sued MERS, along with Bank of America, a local Texas lender, and a Texas title insurance company to recover unpaid recording fees. The lawsuit alleges that recorded deeds of trust characterizeing MERS as a deed of trust beneficiary are false statements designed to deprive the county of recording fee revenue. The complaint asserts several theories for recovery including unjust enrichment, negligent misrepresentation, fraud, and violation of a Texas false recording statute. The latter is particularly interesting because it includes a large statutory penalty of $10,000 per occurence.

The complaint, which was filed in state court, appears to have no federal questions and lacks complete diversity, suggesting that successful removal to federal court is unlikely.The team of attorneys assisting Dallas County appear to be well capitalized and sophisticated. (I have proposed lawsuits along these lines here.)

While the potential liability in this case alone is not staggering (a few billion if the statutory penalty theory works), if Dallas wins this lawsuit, other counties in Texas and around the country are likely to follow suit.  But perhaps more important for the future, this lawsuit has the potential to effectively reassert the traditional mortgage and deed of trust theory that MERS effectively ignored. This case, and others like it, are likely to determine whether elected county recorders will remain a relevant in coming generations. The courts adjudicating these cases are going to be forced to confront whether property records will be maintained in transparent legally authoritative public systems maintained by democratically elected local officials or in a secret database maintained by a profit oriented corporation that is owned by banks. Whatever the outcome, this case demands attention from anyone interested in mortgage lending.

Comments

[Dean Farris]

If you can record with a cabal of bankers, how about with Dick & Jane's lemonade stand or Wild Willie's porno shop? Given what we now know about MERS, Wild Willie is a safer bet.
Lots of folks will want to record with Dallas County, simply because they filed suit.

[matt]

I hope counties start doing this in droves. This is the proper procedure posture to attack MERS. Consumers trying to do so almost never win because of the severe anti-consumer bias in so many courts across the country. If the entire purpose of the recording statute, as it relates to trust deeds, is to provide a lock step method for a borrower to know who their current loan holder is, then MERS obliterates that purpose. So often, loan servicers refuse to disclose who the actual loan holder is as say that information is "confidential" and that the borrower has no right to know. This type of proposition is so ridiculous, that only a pro-creditor judiciary could ever fall for it.

Matt Wadsworth, Arnold & Wadsworth, arnoldwadsworth.com