MERS Successfully Fends Off Lawsuit By County Recorder By Showing That Mortgages Need Not Be Recorded Under Illinois Law To Be Effective

In Union County, Illinois v. MERSCORP, Inc., 735 F.3d 730 (7th Cir. November 14, 2013) the Seventh Circuit upheld the rejection of another attempt by a municipality to eviscerate the MERS model. The municipalities argued that MERS continuously and intentionally violated the Illinois Conveyance Act by its model of de facto assigning mortgages between its member banks. The municipalities do not suggest that MERS’s failure to record the transfers is an act of fraud, but argue that the failure to record simply deprives local county governments of recording fees. They insisted that the plain language of the 765 ILCS 5/28 requires deeds, mortgages, and other instruments relating to or affecting the title to real estate be recorded in the county in which the real estate is situated. Judge Posner, writing for the Seventh Circuit, observed the purpose of recordation has never been understood to supplement local county coffers, but to provide notice of ownership or possession of a lien, such as a mortgage, on the property. Recording is a way to put others on notice of that interest – not a source of government income. Moreover, recording is not mandatory. There is an implicit if then clause in 765 ILCS 5/28, meaning that if you want to record your mortgage, then you must do so in the county in which the property is situated. Section 30 of the conveyance act further states that all deeds and mortgages [. . .] which are authorized to be recorded shall take effect and be in force from and after the time of filing the same. The phrase authorized to be recorded implies that some land instruments can be recorded but don’t have to be. On numerous occasions Illinois courts have upheld the validity of unrecorded mortgages, assignments, deeds, or related instruments. Finally, he noted that if Illinois law required recordation, the provision prohibiting non-recordation clauses in 765 ILCS 5/28 would be completely superfluous. Thus, the municipalities’ interpretation of 765 ILCS 5/28 is inaccurate in light of the plain meaning of the statute on which they base their argument and the long standing history of Illinois courts ruling on this very issue.

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