In the wake of the housing bubble burst, a lawsuit against big mortgage companies isn't going to be unpopular, but whether it will be successful is another matter.
St.Clair County is suing the Mortgage Electronic Registration System, a company that was formed by several large banks to privately record mortgages. By filing the mortgages with MERS, rather than with a county recorder of deeds, the mortgage companies don't have to pay filing fees to counties.
A number of counties have tried suing MERS to recoup their lost fees, but so far the suits haven't had much success.
St. Clair County's suit got a boost earlier this month when Circuit Judge Vincent Lopinot found that an Illinois law doesn't protect an electronic registry system that tracks ownership interest in mortgages from recording mortgages and paying the associated fees to the county's recorder's office.
That finding will allow St. Clair County State's Attorney Brendan Kelly, who filed the lawsuit last year, to request documents from the banks to find out how the mortgages were bundled into securities, when the fees were supposed to be paid, and who bought and sold the mortgages. The information is needed to determine who really owns the properties, Kelly said.
Private citizens and owners of small businesses pay a $35 fee to record transfers of property or mortgages at the county recorder's office when they purchase, transfer or refinance property, Kelly said.
Large banks, such as Bank of America, Citibank and Wells Fargo, created the MERS electronic mortgage database, avoiding registering changes in mortgages with the recorder's office and paying the fee. That database allows banks and mortgage holders to avoid property transfer fees when the mortgages are bundled and sold as securities or transferred to other banks.
But Karmela Lejarde, spokeswoman for MERS, said Lopinot's ruling didn't speak to whether the case will succeed.
"The ruling in the St. Clair County lawsuit was merely on the motion to dismiss, and not on the merits of the case," Lejarde said. "We are proceeding to trial and will defend against this complaint, as we have with others. We have already prevailed in similar recording-fee cases in Kentucky, Florida, Iowa, Missouri, Arkansas, Illinois, North Carolina, Oklahoma and Rhode Island."
In a federal courthouse in East St. Louis, U.S. District Judge G. Patrick Murphy in January dismissed a MERS class-action lawsuit filed on behalf of all counties in Illinois. Murphy found that under Illinois law there was no duty to record mortgages with the counties.
Murphy found that if the bank or landowner doesn't record a mortgage with the county, they aren't exposed to any penalties.
If a St. Clair County jury finds differently, there could be a lot of penalties. The county had 25,372 mortgage filings from 2006 until May 2012, when the suit was filed, according to the St. Clair County Recorder's Office. But Kelly said there could be multiple transfers within the MERS system that were never recorded with the county. Each recording of those transactions would cost $35.
Besides the damages, Kelly is seeking an injunction that would require banks to record future mortgages.
There is no trial date scheduled yet in the case.
"Right now, in St. Clair County, we have a very inaccurate picture of who owns what," Kelly said. "We filed the suit to return transparency to the ownership of property.
The MERS scheme systematically avoids the filing of assignments of mortgages, and has resulted in a shadow, privately-run recording system whereby the public is denied access to public records that reflect who has a beneficial interest in a given parcel of land."
Contact reporter Beth Hundsdorfer at firstname.lastname@example.org or 239-2570.