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Connecticut Supreme Court Upholds Mortgage Recording Fees for MERS

The Connecticut Supreme Court has upheld state legislation imposing an aggregate fee increase of approximately $5 million for mortgages recorded in Connecticut registries by Mortgage Electronic Registration Systems, Inc. ("MERS"). See MERSCORP Holdings Inc., et al. v. Malloy, No. SC19376, 2016 WL 510244 (Conn. Feb. 8, 2016). As noted previously in this blog on April 11, 2014, and August 7, 2015, certain government entities in Texas and Louisiana failed in their attempts to recoup fees from MERS by alleging violations of federal RICO statutes or by asserting claims for unjust enrichment. Connecticut chose instead to legislatively impose significantly higher recording fees for MERS than for other mortgage companies.

MERS is an organization that allows for the transfer of mortgages among its member banks without the need for a new recording in the applicable registry of deeds for each transfer. MERS typically appoints employees of its member banks as officers or secretaries of MERS, who then have the power to assign mortgages to other members, or from other members to themselves.  Throughout any transfer, MERS remains the mortgagee of record for the benefit of the member bank currently holding the note that the given mortgage secures.

In 2013, Connecticut increased the fees for recording of MERS's mortgages from $53 for the first page and $5 for each additional page (the cost for others to record mortgages) to $159 for the first page and $5 for each additional page. MERS sued the state, alleging that the fee increase impermissibly interfered with interstate commerce and violated the due process and equal protection clauses of the state and U.S. Constitution.

The state Supreme Court disagreed, finding that the fee increase was rationally related to a legitimate government purpose, raising revenue. The Supreme Court also noted that, given MERS's cost savings in not recording transfers of mortgages, imposing higher fees on MERS at the outset was not unfair. Finally, MERS failed to show a burden on interstate commerce, as MERS demonstrated no loss of business.

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