The Supreme Court of Appeals of West Virginia recently held that West Virginia’s recording statutes do not require that an assignment of a trust deed or mortgage securing a promissory note for the purchase of real estate be recorded in the office of the clerk of the county commission.
The Court also held that the failure to record an assignment means that the assignee is vulnerable to claims of priority by other creditors or bona fide purchasers without notice of the unrecorded assignment.
A copy of the opinion is available at: Link to Opinion
The case was filed as a class action by a West Virginia county on behalf of itself and other similarly situated counties against banks serving as trustees under various trust deeds. The trustees had registered trust deed assignments with Mortgage Electronic Registration Systems, Inc. (“MERS”), rather than recording them in county public records. The trustees moved to dismiss the complaint, arguing that trust deed assignments do not have to be recorded in county record books under West Virginia law.
The trial court denied the trustee’s motion to dismiss, ruling that trust deed assignments are required to be recorded in county public records and the lead plaintiff was entitled to show that the trustees had been unjustly enriched by using MERS instead of paying county recording fees.
The trustees appealed, a seeking writ of prohibition and dismissal of the putative class action. West Virginia is one of only eleven states with a single appellate court.
The West Virginia Supreme Court first described the housing finance industry’s practice of loan pooling and securitization and the creation of MERS by the mortgage industry as a way of eliminating the need and expense of recording the assignment or transfer of rights under the trust deeds from lenders to loan trusts that issue certificates to investors. The Court noted that MERS plays two roles in loan pooling and securitization: first, it serves as a registry for the transfer of ownership rights under the trust deed or mortgages; second, it serves as the mortgagee under the trust deeds or mortgages.
In the case at bar, the deeds conveying the residential real property and the trust deeds or mortgages securing payment of the purchase money loans were recorded in the public records.
The West Virginia Supreme Court analyzed West Virginia’s recording statutes, finding that nothing in those statutes requires the public recording of trust deed assignments as a matter of law. The Court held that it is not mandatory to record an assignment of a trust deed under the recording statutes in the office of the clerk of the county commission. The Court held that an assignment is valid between the parties thereto, but the failure to record in the public records renders the assignment invalid as to other creditors and bona fide purchasers of the property without notice of the unrecorded assignment.
The Court noted that the fact that the trust deeds or mortgages and assignments thereof were registered in the MERS database did not change the result, agreeing with the trustees that because MERS is named in the trust deed or mortgage as the beneficial owner of the debt secured by the trust deed, as well as the nominee for the lender and its successors and assigns, MERS is the mortgagee of record, rendering any additional recording with the county clerk unnecessary.
The West Virginia Court cited with approval four federal district court decisions rendered in 2012 and 2013 in Kentucky, Illinois, Florida and Iowa, all of which dismissed similar challenges to the MERS registry system, concluding that the most important factor is the specific wording of the recording statutes of the jurisdiction in question, and that the recording statutes in recording in the public records.
The Court granted the trustee’s writ prohibiting enforcement of the trial court’s order and directed the lower tribunal to dismiss the case with prejudice.
Ralph T. Wutscher
McGinnis Wutscher LLP
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