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GSEs, MERS Hit With Wave of Fee Litigation

The Mortgage Electronic Registration Systems Inc. saw victories this summer, winning dismissals of several lawsuits, including a slap down of a man for the sixth time who seems determined to find a court that will rule in his favor against MERS. Fannie Mae and Freddie Mac, however, are being sued in Illinois, Ohio and Florida over their failure to pay recording fees. The GSEs claim they are exempt as government entities.

An Iowa federal trial court judge threw out a recording fee case against MERS, finding that a county’s claim relied on a requirement that doesn’t exist under Iowa law. In Plymouth County, Iowa v. MERSCORP Inc., Judge Mark W. Bennett dismissed on Aug. 21 a five-count, class action lawsuit alleging civil conspiracy and unjust enrichment and seeking relief under Iowa’s recording statutes.

Judge Bennett wrote in the order that “it could not be plainer that none of the statutes upon which the county relies imposes a requirement on a party assigning a mortgage or receiving such an assignment to record the assignment.”

He found that that each “claim depends upon an alleged requirement to record mortgage assignments and seeks as relief … or damages for failure to do so.”

“There is, however, no such requirement in Iowa law,” he wrote.

Janis Smith, MERSCORP’s vice president for corporate communications, said in a statement discussing the case, “We have consistently held that there is no basis for these suits, and the Iowa court has affirmed this by pointing clearly to the absence of any statutory requirement to record mortgage assignments. Iowa is the third state to rule on a claim like this, and all have granted our motions to dismiss.”

Use of the MERS system to register mortgage loans fulfills the purpose of the recording statutes. MERS mortgages are recorded in the public land records and MERS members pay recording fees when the mortgage is recorded,” Smith added. “The statutes’ intent is to assure that liens are discharged when an underlying loan is paid off to give subsequent purchasers and lenders notice of recorded liens and to allow creditors to give notice of their secured interest in the property. MERS’ business model is consistent with these purposes.”

MERS also won dismissal in June in a Florida recording fee lawsuit. In Fuller v. MERS, federal trial court Judge Harvey E. Schlesinger dismissed a six-count claim seeking relief under the provisions of Florida’s Recording Statutes and alleging civil conspiracy, unjust enrichment and fraud. The suit was filed by the Clerk of the Circuit Court of Duval County, Florida.

Judge Schlesinger found that “MERS has not committed an unlawful act, or a lawful act by unlawful means,” saying, “First, this court must be clear that the recording of mortgage assignments, under Florida law, is at the complete discretion of the party wishing to record the document.”

Judge Schlesinger noted that the statutes cited by the clerk in the lawsuit did not provide a remedy for the clerk to sue, but merely laid out what the clerk’s duties and responsibilities are for recording documents. That statute was intended to protect bona fide purchasers or creditors. “Even if plaintiff could establish that he has a right to bring this cause of action, each of his claims for relief would fail on the merits,” Judge Schlesinger wrote.

In his order, Schlesinger wrote that the lawsuit presented the court with a recurring problem: “The difficulty of reconciling new technology with old law.”

“While the rub has indeed caused considerable friction, this court, at least under present Florida law, lacks the power to add the necessary grease,” Schlesinger wrote.

MERS also won dismissal of a lawsuit in June filed in Indiana state court by a Nevada resident who evidently has made it a crusade to go after MERS. MERS says Barrett Bates was handed his sixth consecutive loss. Heather Welch, Special Judge of the Marion Superior Court in Marion County, Ind., dismissed a lawsuit filed by Nevada resident Barrett Bates against MERS and seven mortgage lenders.

The complaint, originally filed Nov. 12, 2009, alleged that naming MERS as the mortgagee of record or beneficiary of a deed of trust constitutes the creation of a false record to avoid payment of recording fees and that use of the MERS® System involved fraud.

Judge Welch held that Bates failed to adequately plead his case under the Indiana Whistleblower and False Claims Act.

Bates has unsuccessfully filed similar lawsuits against MERS in Hawaii, Tennessee, Nevada, California and Washington, D.C., according to a statement on the lawsuit released by MERS.

“Bates is an opportunist who has been trying for years to make something out of nothing. We remain confident that the MERS system will continue to withstand these baseless challenges,” Smith said.

Bank of America, N.A., in July asked a Maryland federal judge to dismiss a class action alleging that it engaged in a scheme with Academy Mortgage LLC to charge unlawful “finder’s fees” to borrowers in connection with their mortgage transactions. The lawsuit accused the bank of violating Maryland’s Finder’s Fee Act, a law that makes it illegal for a mortgage broker that also acts as a mortgage lender to collect a finder’s fee.

The case was voluntarily dismissed by the plaintiffs because the defendants had not filed an answer or motion for summary judgment. The plaintiffs’ attorney did not return phone calls asking for more information. The order was entered by the court on Aug. 20.

First Horizon Loan Corp. lost its appeal from the denial of its motion for entry of satisfaction of judgment and an award of attorney’s fees entered in favor of counsel representing the plaintiff class. The Court of Appeals of Missouri, Western District affirmed the trial court’s decision.

The decision stemmed from a class action lawsuit filed by David and Holly McLean in the Circuit Court of Jackson County in November 2000 against First Horizon alleging violations of the Missouri’s Second Mortgage Loans Act. The parties agreed to a comprehensive class action settlement in 2007.

Two Ohio counties have sued government-sponsored housing enterprises over real estate fees. Summit County is suing Freddie Mac, alleging that the company avoided taxes and fees on more than 3,500 real estate transactions by fraudulently claiming it was a tax-exempt government entity, according to a story in the Akron Beacon Journal.

The county said in its lawsuit that Freddie Mac did not pay required fees, which includes a $4 charge for every $1,000 on the sale price of the home, between 2002 and 2008. The company could owe more than $25,000, though the county hasn’t determined the exact amount, according to the newspaper report.

Last year, a Michigan county won a similar lawsuit against both Freddie Mac and Fannie Mae.

And, Montgomery County in Ohio has filed suit against Fannie Mae and Freddie Mac, according to a story by the Associated Press. Montgomery County filed a federal lawsuit in June alleging that Fannie Mae and Freddie Mac wrongfully claimed various exemptions; including saying they are government entities, to avoid paying transfer taxes to state counties. The lawsuit involves most state counties in Ohio. Summit County has filed an individual case.

Fannie Mae and Freddie Mac were granted an extension of time to file an answer through a mutual stipulation of the parties. The GSEs now have until Sept. 13 to file an answer unless there is a consent motion to extend the deadline further to October 5.

Fannie and Freddie are being sued by several counties in Illinois.

Winnebago County Recorder Nancy McPherson says Fannie Mae and Freddie Mac owe Winnebago County $26,000 in unpaid real estate transfer taxes, according to news reports. The county joined in a class action lawsuit filed June 21, 2012 in federal court in Rockford seeking to compel Fannie and Freddie to pay local counties overdue taxes. The class action lawsuit filed on June 21 alleges Fannie and Freddie failed to pay the transfer tax to Kane, Whiteside, Will, Winnebago, Dekalb, and Kendall counties for several years.

The mortgage giants claim they don’t have to pay the tax because they are exempt as a governmental entity.

A hearing is set for federal court in New York on Sept. 20 to pick a federal judge to receive all of the 20 or so cases.

The Federal Housing Finance Agency filed a federal lawsuit on Fannie and Freddie’s behalf in Chicago on June 22, asking the court to rule on whether they are exempt.

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