The U.S. Sixth Circuit Court of Appeals on Friday denied an en banc rehearing of a case in Kentucky that held that recording statutes in the state do not require a recording in the land records when promissory notes are transferred, according to an announcement from MERSCORP Holdings.
The Sixth Circuit Court denied two petitions to rehear Higgins v BAC Home Loans Servicing, a case in which the plaintiffs were Kentucky landowners who obtained loans in exchange for promissory notes secured by mortgages on their properties. Mortgage Electronic Registration System (MERS) was named as the mortgagee on each mortgage deed. MERS remained the mortgagee when the original noteholders and their assignees (all members of MERSI) transferred the notes to the defendant, BAC Home Loans Servicing, which is also a member of MERS.
According to the court ruling, when BAC accepted transfer of the notes, by operation of Kentucky law it acquired equitable interests in the mortgages securing the notes. BAC did not record their acquisitions of equitable interests in the mortgages with county records offices and the plaintiffs subsequently filed a complaint in the U.S. District Court for the Eastern District of Kentucky at Lexington, alleging that "transfer of the notes was an assignment of the underlying mortgages for purposes of Kentucky’s recording statutes," according to the filing.
"We’re pleased that the United States Sixth Circuit Court of Appeals held firm in its decision that the Kentucky recording statues do not require that promissory notes be recorded."
The district court originally ruled in favor of the plaintiffs, but the Sixth Circuit court reversed the district court's decision. The Sixth Circuit Court ruled that BAC did not violate Kentucky law because they transferred only promissory notes, which are not required to recorded by law in Kentucky, and they did not fail to record any transfers of mortgage deeds.
The Sixth Circuit Court on Friday denied two petitions to rehear the case, saying that "the original panel has reviewed the petitions for rehearing and concludes that the issues raised in the petitions were fully considered upon the original submission and decision of the cases." The petitions had been circulated to the full court and no judge had requested a vote on the suggestion of an en banc rehearing; hence the two petitions were denied.
"We’re pleased that the United States Sixth Circuit Court of Appeals held firm in its decision that the Kentucky recording statues do not require that promissory notes be recorded," MERSCORP Holdings VP for Corporate Communications Janis Smith said.
Click here to view the entire court ruling.
This is the fourth major court victory for MERS in just a little more than a month. In early September, a district court in Collin County, Texas, granted a motion for summary judgment in the favor of MERS and reinstated a MERS lien that had previously been extinguished. In mid-August, the U.S. District Court for the Middle District of Tennessee Nashville Division dismissed a lawsuit that challenged MERS' role in a deed of trust in Tennessee. In early August, MERS was awarded a victory in the U.S. Court of Appeals for the Third Circuit, which ruled that MERS was not duty-bound by the Pennsylvania recording statute to record all land conveyances.