mortgage

The Pennsylvania Supreme Court has agreed to hear arguments over whether an electronic mortgage registry company violates state law by not recording transfers with local county officials.

On Tuesday the justices agreed to hear argument in Merscorp v. Delaware County, Pennsylvania, Recorder of Deeds. The court specifically agreed to address whether electronically registering transfers “systematically evade[s]” 21 P.S. Section 351, which governs the failure to record conveyances, and whether the county recorders of deeds have standing to bring their claims.

According to the questions raised in the Supreme Court’s one-page per curiam order, at issue are “ many thousands of conveyances” across the state, and “conduct that undermines the public land recording system.”

The specific dispute, however, already came to a head in the federal system, and ended with a 2015 decision from the U.S. Court of Appeals for the Third Circuit finding that Merscorp’s recording system did not violate Pennsylvania law.

The Supreme Court’s decision to take up the case comes about six months after an en banc Commonwealth Court panel adopted that holding from the Third Circuit.

In the Commonwealth Court’s decision, issued May 4, Judge Michael Wojcik said the case law did not support the position of the recorders of deeds, who argued that Section 351 mandates that every mortgage and every assignment be recorded by the counties, which would require the company to pay recording fees.

“Pennsylvania courts have consistently interpreted 351, as well as the similar language contained in Section 1 of the Act of April 24, 1931, and Section 1 of the Act of March 18, 1775, as intending to protect subsequent purchasers,” Wojcik said. “As indicated above, the failure to record a deed or mortgage is of limited consequence: Pennsylvania law recognizes an unrecorded interest in property as valid.”

The Commonwealth Court’s ruling reversed a decision from the Delaware County Court of Common Pleas that denied Merscorp’s preliminary objections that sought to have the case tossed. Merscorp had asked to have the case dismissed based on the Third Circuit’s ruling, which, according to some attorneys, resolved a split that had developed between state and federal courts.

In 2014, the Superior Court issued a precedential decision finding that the company, which is estimated to have processed hundreds of thousands of mortgages across the state, has the authority to assign mortgages. The ruling in Gibson v. Bank of America reaffirmed a 2009 holding from the Superior Court that denied a mortgagor’s attempts to stall a sheriff’s sale by arguing that MERS did not have authority to foreclose on a property.

However, earlier in 2014, U.S. District Senior Judge J. Curtis Joyner of the Eastern District of Pennsylvania allowed a class action suit on behalf of county clerks to go forward against MERS. Class members had alleged its mortgage-assignment tracking system was in violation of state law.

The Third Circuit’s ruling said state law was clear and did not create a duty to record all land conveyances.

Wojcik further said that any public policy concerns of the recorders of deeds would best be handled by the General Assembly.

“The recorders cite no authority suggesting that their obligations and authority include protecting the public from the myriad of harm they argue is sure to result from the allegedly inaccurate and unreliable records in the MERS system,” Wojcik said. “To the extent that public policy matters are implicated in this appeal, there is no question that matters of public policy are solely committed to the legislature, and not this court.”

Charles Kocher of Saltz Mongeluzzi Barrett & Bendesky, who is representing Delaware County Recorder of Deeds Thomas Judge, said the case is very significant.

“We’re happy with the court granting allocatur, and we look forward to making our case before the Supreme Court of Pennsylvania,” Kocher said.

Morgan, Lewis & Bockius attorney Franco Corrado, who is representing Merscorp, did not return a call seeking comment.

Max Mitchell can be contacted at 215-557-2354 or mmitchell@alm.com. Follow him on Twitter @MMitchellTLI.