Union County v. Merscorp, Inc.
2013 U.S. App. LEXIS 23038
| 7th Cir. | 2013Background
- Illinois county plaintiffs filed a putative class action against MERSCORP and banks, alleging MERSCORP’s mortgage transfers violate Illinois recording law and deprive counties of recording fees.
- Defendants removed to federal court under CAFA; the district court dismissed with prejudice, holding Illinois law does not require recording of mortgages or assignments.
- MERSCORP operates the MERS electronic registration system and is often the recorded mortgagee of record though it holds no financial interest; its system enables unrecorded, de facto transfers among lenders and facilitates securitization.
- Plaintiffs concede these transfers can be viewed as assignments and argue Illinois Conveyances Act §28 mandates recording of all instruments “relating to or affecting the title to real estate.”
- Defendants counter that recording is optional and serves to give notice to third parties, not to impose mandatory recordation or a revenue source; statutory language and Illinois precedent support optional recordation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Illinois law (Conveyances Act §28) requires mandatory recording of mortgages and assignments | §28’s phrase “shall be recorded” means all mortgages/assignments must be recorded, entitling counties to fees | §28 means: if an instrument is recorded, it must be recorded in the county where the land is located; recording is permissive and for notice protection | Recording is not mandatory; §28 does not require all mortgages/assignments be recorded |
| Whether a statutory ban on contract provisions prohibiting recordation implies mandatory recordation | Prohibition shows legislature required recordation, so parties cannot opt out | The ban prevents contracting to bar recording but does not convert an optional public recording system into a mandatory one | The prohibition does not mean recordation is mandatory; it merely forbids contractual barriers to recording |
| Whether other statutory language (e.g., instruments “authorized to be recorded” take effect on filing) supports mandatory recordation | Plaintiffs: such provisions show all instruments must be recorded to have effect vis-a-vis third parties | Defendants: phrase “authorized to be recorded” implies recordation is elective and protects those who choose to record | Court reads phrase as confirming recordation is elective; recording provides protection against subsequent claims |
| Whether longstanding Illinois precedent requires recording or validates unrecorded transfers | Plaintiffs argue modern practice and policy require re-evaluation | Defendants rely on historical Illinois Supreme Court and appellate cases upholding validity of unrecorded mortgage transactions | Court follows Illinois precedents (Field, Haas, and appellate cases) holding recording is not mandatory; unrecorded instruments can be valid |
Key Cases Cited
- Field v. Ridgely, 116 Ill. 424 (1886) (recording not required; failure to record is a business risk)
- Haas v. Sternbach, 156 Ill. 44 (1894) (followed Field; recording discretionary)
- Mortgage Electronic Registration Sys., Inc. v. Estrella, 390 F.3d 522 (7th Cir. 2004) (describes MERSCORP’s role as nominee/recorded assignee with no financial interest)
- Federal Nat’l Mortg. Ass’n v. Kuipers, 314 Ill.App.3d 631 (2000) (appellate decisions assume unrecorded assignments and mortgages may be valid)
- Farmers State Bank v. Neese, 281 Ill.App.3d 98 (1996) (statement that §28 requires recording but clarifies parties must record to be protected against third parties)