Connecticut Supreme Court Upholds Constitutionality of Statute Targeting MERS Documents For Increased Recording Fees

Litigation  •  MERS  •  Mortgage

States have longThumbnail for 1392 imposed fees for recording land records documents, and until recently they have generally done so uniformly, without regard to who the parties to the document might be.  The Connecticut Supreme Court has, however, just upheld a statute imposing dramatically higher filing fees for MERS-related documents.

In 2013, the Connecticut legislature amended a statute governing its town clerk fee structure to triple recording fees for mortgages and mortgage assignments in which Mortgage Electronic Registration Systems, Inc. (MERS) is a party.  Though the statute does not identify MERS by name, it imposes the increased fees for any document recorded by a “nominee of a mortgagee,” which is defined so that only MERS falls within the definition.

MERS filed a lawsuit in Connecticut state court challenging the constitutionality of the statute on various grounds, but the trial court granted summary judgment in Connecticut’s favor.  MERS appealed the trial court’s ruling under the equal protection clause and the dormant commerce clause to the Connecticut Supreme Court.  That Court affirmed the trial court in MERSCORP Holdings, Inc. v. Malloy (Docket No. 19376)(released February 8, 2016).

MERS argued that the increased recording fee violated the equal protection clause because it charged MERS higher recording fees than other mortgagees.  The Connecticut Supreme Court rejected MERS’s argument.  Because MERS was not a member of a protected class and the recording fee did not implicate a fundamental right, the Court held that Connecticut need only have a rational basis to impose a higher recording fee on MERS.  The Court found that the purpose of the amended recording fee statute—to raise revenue and recoup “lost” recording fees that resulted from mortgage assignments that were never recorded because of MERS’s business model—was a legitimate public purpose and that targeting MERS to pay higher recording fees was a rational way to achieve that purpose.

MERS also argued that the statute violated the dormant commerce clause by discriminating against MERS, an out of state market participant, by imposing a recording fee specifically targeted at it.  The Court disagreed, finding that the statute did not violate the dormant commerce clause because it was neither facially discriminatory (the purpose of the statute is not economic protectionism, because there are no in-state market participants to protect) and did not place an undue burden on interstate commerce (MERS’s business was not harmed by the statute and the statute served the legitimate purpose of recouping fees “lost” as a result of the MERS business model).

The Connecticut statute appears to be the first instance in which a legislature has passed a recording fee specifically targeted at MERS’s operations.  It remains to be seen whether other states will impose similar fees and, if so, how courts in other states will view the constitutionality of such statutes.  In the meantime, this case might not be over, as MERS could still petition the Supreme Court for a writ of certiorari.  LenderLaw Watch will continue to monitor litigation dockets for similar issues, as well as further developments in the Malloy case, and bring updates to you as they become available.

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