– Forthcoming Real Property, Trust and Estate Law Journal
MORTGAGE ELECTRONIC REGISTRATION SYSTEM
forms of commerce.
County real property records are the oldest and hitherto moststable metric t tracking the “American dream” of family homeownership.To facilitate this service, county recorders charge modest fees ondocuments they record. While there is considerable variety in amount and in themethod of calculating these fees, a charge of about $35.00 for a mortgage istypical. County recorders use these fees to fund their offices as well as tocontribute to county and state revenue. Some county’s use real property recordingfees to fund their courts, legal aid offices, schools, and police departments.For centuries American mortgage lenders have eagerly recorded theirmortgages loans with county recorders because of incentives created by state landtitle laws. For example, if a mortgagee fails to properly record its mortgage, andthen someone subsequently buys or lends against the home, the subsequentpurchaser can often take priority over the first mortgagee.
Similarly, where amortgagee assigns a mortgage to an investor, that investor would eagerly recorddocumentation reflecting the assignment to protect herself from the possibility thatthe original mortgagee would assign the same mortgage to a different investor.
In the mid-1990s mortgage bankers decided they did not want to payrecording fees for assigning mortgages anymore.
This decision was driven bysecuritization—a process of pooling many mortgages into a trust and sellingincome from the trust to investors on Wall Street. Securitization, also sometimescalled structured finance, usually required several successive mortgageassignments to different companies. To avoid paying county recording fees,mortgage bankers formed a plan to create one shell company that would pretend toown all the mortgages in the country—that way, the mortgage bankers would neverhave to record assignments since the same company would always “own” all the
Gary A Jeffress & Lynn C. Holstein,
An International Survey of Real Property Recording Costs and Some Characteristics: A Preliminary Evaluation
5 URISA J.53, 53 (1993) (international survey suggesting recording systems are a“precondition of an efficient land market”).
Connecticut Mut. Life Ins. Co. v. Talbot, 14 N.E. 586 (Ind. 1887) (“Itis settled everywhere that unrecorded assignments of mortgages are void as againstsubsequent purchasers, whose interests may be affected thereby, and whoseconveyances are duly recorded, provided such assignments are embraced by therecording acts.”); Bacon v. Van Schoonhoven, 42 Sickels 446, 1882 WL 12538(N.Y. 1882) (“The assignments of the . . . mortgage are also conveyances withinthe act. This is well settled by authority, and such assignments, if not recorded, arevoid, not merely as against subsequent purchasers of the same mortgage, but alsoas against subsequent purchasers of the mortgaged premises, whose interests maybe affected by such assignments, and whose conveyances are first recorded.”)
Phyllis K. Slesinger & Daniel McLaughlin,
Mortgage Electronic RegistrationSystem
, 31 I
. 805, 810-12 (1995) (describing an Ernst & Young studycommissioned by mortgage banker to study how much money they could avoidpaying to county governments through the MERS system).