Clark County officials joined those from 13 other counties earlier this month in a federal lawsuit charging a mortgage-recording service and financial institutions of scheming to avoid paying millions of dollars in fees.
The counties are suing Mortgage Electronic Registration Systems (MERS), its shareholders, financial institutions and 12 other defendants — including the U.S. government — for the intentional and deliberate plan to avoid paying fees which are mandated by law to be paid to counties each time a mortage is signed.
Under Kentucky law, every time a mortgage is sold, the institution has to pay a recording fee to the county in which it is sold. If the original mortgage holder then sells that mortgage to another institution, the receiving institution must pay another recording fee to the county.
The lawsuit alleges that MERS is ”a shell corporation set up by the nation’s largest banks to assist them in avoiding the recording of mortgage assignments in order to save money,” by not paying recording fees to county clerks.
MERS members register and track mortgages and notes in a MERS database, creating a private land registry. MERS estimates that it tracks nearly half of all mortgages in the nation, the suit states.
The transactions were recorded in the private MERS system, but not with county clerks as required by law, Clark County Attorney Brian Thomas said.
“Any time there is a mortgage, institutions have to pay a recording fee. Any time a different financial institution takes ownership of that particular mortgage or note, then there is supposed to be a recording fee paid,” Thomas said. “The suit says that knowing this was an obligation, they went ahead and created this corporation, (MERS) and had these different corporations become a part of it. That way they could sell within themselves these mortgages and not have to worry about paying the recording fees that were rightfully owed.”
The suit estimates that the 14 counties have lost up to $32 million in fees because of the MERS system.
Clark County has lost more than $267,000 in fees because of MERS, Thomas said.
A typical fee on a mortgage is $12, with some of the money going to pay for land-record services and some going to the state.
Each year, excess fees from the county attorney’s office are turned over to the county to be used in other areas, Thomas said, so the lost revenue hurts more than just the county clerk’s office.
“When they don’t pay those fees, it’s taking money away from the county that can be used for many other needs within the county,” Thomas said. “These are fees that by law they should have been paying and they didn’t. We’re just trying to get back money that was rightfully owed to the counties.”
Other counties joining in the lawsuit are Boyd, Breathitt, Carter, Christian, Floyd, Franklin, Greenup, Johnson, Letcher, Magoffin, Mason, Pike and Warren.
Contact Bob Flynn at firstname.lastname@example.org.