IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MONTGOMERY COUNTY, PENNSYLVANIA,
RECORDER OF DEEDS, by and through NANCY J.
BECKER, in her official capacity as the Recorder of
Deeds of Montgomery County, Pennsylvania, on its own
behalf and on behalf of all others similarly situated,
Plaintiff,
vs.
MERSCORP, INC., and MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.,
Defendants.
PLAINTIFF’S MEMORANDUM IN OPPOSITION TO
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
AND IN SUPPORT OF PLAINTIFF’S
CROSS MOTION FOR PARTIAL SUMMARY JUDGMENT
EXCERPTS
The MERS system was set up and operates for the explicit purpose of attempting to avoid the
recording of mortgage assignments in public land record offices. MERS operates upon a series
of legal fictions that courts and commentators have labeled as absurd, and which violate
Pennsylvania law. In essence, MERS and its members seek to use these fictions to enjoy the
benefits of the legal system—the right to have the mortgage assigned so they can use it in
judicial foreclosure proceedings whenever they deem it needed—but to avoid the burdens of
recording the assignments of these same mortgages, so that there will be a public record of the
chain of title. The result is a now-you-see-it-now-you-don’t crazy quilt that has played havoc
with public land records. Because there is no dispute as to how MERS operates, nor that MERS’
actions contravene Pennsylvania Statute 21 P.S. §351 and constitute unjust enrichment,
Defendants’ motion for summary judgment should be denied, and Plaintiff’s cross motion for
summary judgment should be granted.
I. THE SUMMARY JUDGMENT STANDARD
Summary judgment is proper where “there is no genuine issue as to any material fact and
the moving party is entitled to a judgment as a matter of law.” Liberty Lincoln-Mercury, Inc. v.
Ford Motor Co., 676 F.3d 318, 323 (3d Cir. 2012), quoting Fed. R. Civ. P. 56(a).
Summary judgment is awarded to plaintiff where, as here, the material facts are not in
dispute and plaintiff is entitled to prevail under the governing law. See Genter v. Acme Scale &
Supply Co., 776 F.2d 1180, 1181 (3d Cir. 1985) (“We …grant summary judgment in plaintiff’s
favor.”). Accord Green Party of Connecticut v. Garfield, 616 F.3d 189, 213 (2d Cir. 2010) (“we
… instruct the Court to grant summary judgment to plaintiffs”); Te-Moak Tribe of Western
Shoshone of Nevada v. U.S. Dept. of Interior, 608 F.3d 592, 606 (9th Cir. 2010) (remand with
instructions to enter summary judgment for plaintiff).
As Judge Clary of this Court held, in granting summary judgment to plaintiff in an
antitrust price fixing case: “With every document admitted as genuine, it would be futile for the
defendants at this late date to attempt to explain away the contents of documents which so clearly
express the actual business transactions of the respective defendants.” U.S. v. Krasnov, 143 F.
Supp. 184, 202 (E.D. Pa. 1956). The Supreme Court affirmed. Krasnov v. U.S., 355 U.S. 5
(1957).1
II. MERS’ ACTIONS CONTRAVENE 21 PA. STAT. §351
A. The Promissory Note And Mortgage Are Inseparable
When a lender, such as a bank, lends money for a homeowner to purchase a home, the
homeowner executes a promissory note, agreeing to repay the principal and interest of the loan in
monthly installments over time. The bank requires that the homeowner grant to the bank a
mortgage as security for the loan, i.e. the legal right to foreclose and obtain the house and
property in the event the homeowner does not repay the promissory note according to its terms.
Montgomery County, Pa. v. MERSCORP, Inc., 904 F.Supp.2d 436, 439-440 (E.D. Pa. 2012)
(hereinafter, Montgomery County). The mortgage recites that it exists as security for the note,
and the note recites the attendant mortgage.
An example of a typical note and mortgage from a mortgage loan file produced by a
Montgomery County bank, which cross-reference each other, are attached a Exhibit 1 to the
Declaration of Craig W. Hillwig (“Hillwig Decl.”, Exh. A to this Memorandum). Paragraph 10
of the note provides that the mortgage, “protects the Note Holder from possible losses which
might result if I do not keep the promises which I make in this Note,” and quotes at length from
the mortgage’s provisions for acceleration of payments. The mortgage in turn identifies the note,
and details at length the borrower’s payment obligations under the note, the imposition of
charges by the lender, and the provisions for subsequent sales of the note (at ¶¶ 1-2, 14, 20).
Each instrument incorporates and complements the terms of the other. See, e.g., In re Sacko, 394
B.R. 90, 101 (Bankr. E.D. Pa. 2008) (“[T]he Mortgage and the Note together constitute ‘the
underlying agreement’”).
When the bank sells the note to another bank, the interest in the land created by the
mortgage is transferred with the note as a matter of law. They are not legally decoupled. A
promissory note without a mortgage is unsecured debt. Conversely, a mortgage decoupled from
its promissory note is a nullity:
The note and mortgage are inseparable; the former is essential, the
latter as an incident. An assignment of the note carries the
mortgage with it, while an assignment of the latter alone is a
nullity.
Carpenter v. Longan, 83 U.S. 271, 274 (1872).
The familiar maxim that “the mortgage follows the note,” and that they are transferred
together, is a bedrock of U.S. real property law, as Carpenter held. The note is a negotiable
instrument under U.C.C. Article 3. When a note is transferred the attendant transfer of the
mortgage is a conveyance of an interest in land, which is therefore recorded in the public land
recording system, so that there is a transparent chain of title. As the Pennsylvania Supreme Court
held:
A mortgage is a charge upon the land; whatever will give the
money, will carry the estate in the land along with it. The estate in
land is the same thing as the money due upon it … the assignment
of the debt, or forgiving it, will draw the land after it, as a
consequence.
McCall v. Lenox, 9 Serg. & Rawle 302, 305 (Pa. 1823) (emphasis added). As the first
Restatement of Property stated:
[T]he rule is that the security follows or accompanies the
obligation it was given to secure…Thus a real estate mortgage
given to secure the payment of a promissory note passes with the
note by any form of transfer sufficient to produce a succession to
the rights of the owner of the note.
Restatement (First) Property §553 (“Running of Benefit of Lien”). See also 13 P.S. § 9203(g),
cmt. 9 (“Subsection (g) codifies the common law rule that a transfer of an obligation secured by
a security interest or other lien on personal or real property also transfers the security interest or
lien”).
This has long been the law of Pennsylvania. See, in addition to McCall, supra: Moore v.
Cornell, 68 Pa. 320, 322 (Pa. 1871) (“an assignment of the debt transfers the right to the
mortgage itself; for whatever will give the money secured by the mortgage, will carry the
mortgaged premises with along with it”) (emphasis added); Beaver Trust Co. v. Morgan, 103 A.
367, 369 (Pa. 1918) (“When the Peoples National Bank purchased from the Monaca Bank the
obligation of the Jacks, it acquired as well, by operation of law, whatever was pledged for its
payment”); Appeal of Brice, 95 Pa. 145, 150 (Pa. 1880) (“When the note to secure which the
mortgage was given was negotiated, the interest in the mortgage, which was given for no other
purpose than to secure that note, passed of course”).
B. An Assignment Of Mortgage Is A Recordable Conveyance Of Title In Land
The transfer of a mortgage is an assignment, and is a conveyance of an interest in real
property. Pines v. Farrell, 848 A.2d 94, 100 (Pa. 2004). Because Pennsylvania is a “title
theory” jurisdiction, a mortgage constitutes more than just a lien. It represents a conveyance of
an interest in real property. Both a mortgage and every conveyance of that mortgage serve to
convey conditional title to each successive owner of the note:
The ‘title theory’ of mortgages deems a mortgage to be a
conveyance …. It is well settled in Pennsylvania that a mortgage
… in form [is] a conveyance of title.
……
Petitioners suggest that it would be absurd not to regard a
mortgage assignment as a transfer of property. In other words, if
an assignment is not a transfer, then title of the mortgaged property
theoretically remains with the original mortgagee even after
assignment. This circumstance would be absurd since the very
point of an assignment is to convey all of the original mortgagee’s
rights to the assignee….Given our conclusion that a mortgage
conditionally conveys the subject property, it logically follows
that an assignment of the mortgagee’s rights likewise effects a
conditional transfer of the subject property to the assignee.
848 A.2d at 99-100 (emphasis added). MERS pretends to the contrary: “When secured debt is
transferred, legal title to the land securing the debt is not transferred.” (Def. Br. p. 22).
In Pennsylvania, all conveyances of interests in land must be recorded with the
applicable county recorder of deeds. 21 P.S. § 351. Earlier in this case, MERS argued that 21
P.S. § 351 was merely “permissive” and did not require the recording of mortgage assignments.
(See Docket No. 6 [Motion to Dismiss] at pp. 8-14). This Court rejected that argument, holding
the recording statute was mandatory. Montgomery County, 904 F.Supp.2d at 445-46:
21 Pa. Stat. § 351, which makes recording of certain types of
documents compulsory, appears under the heading “NECESSITY
OF RECORDING AND COMPULSORY RECORDING.”
Accordingly, we conclude that “all … conveyances … shall be
recorded,” 21 Pa. Stat. § 351, means that all conveyances shall be
recorded.
This holding is the law of the case, and controls here. “The law of the case doctrine directs courts
to refrain from re-deciding issues that were resolved earlier in the litigation.” Pub. Interest
Research Grp. of N .J., Inc. v. Magnesium Elektron, Inc., 123 F.3d 111, 116 (3d Cir. 1997).
The standard Pennsylvania mortgage assignment form specifically recites that the
mortgage and the debt obligation are assigned together. Kenneth E. Gray, Mortgages in
Pennsylvania with Forms §11:4 (3d Ed. West) (assigning the mortgage, and also “the bond—or
obligation—in the said indenture—of mortgage recited, and all moneys, principal and interest,
due and to grow due thereon”). The Pennsylvania Housing Finance Agency’s mortgage
assignment form provides that the mortgage is assigned “together with the Note secured
thereby.”2 Ladner on Conveyancing in Pennsylvania, §12.29(a) at 88 (4th ed. 1979 & Supp.
2003) states that a mortgage assignment is “a writing under seal, signed, witnessed,
acknowledged and recorded, assigning the bond and mortgage to an assignee”.
C. The MERS System Seeks To Circumvent Public Recording Of Mortgage
Assignments
MERS is based on accepting the benefits of the legal system while trying to skirt the
burdens of complying with that same system. By that, Plaintiff means the following. MERS
believes that the note and mortgage are inseparable, and are transferred together from one owner
of the note to another. As MERS stated to a federal court in New York:
[N]egotiation or transfer of the note can be accomplished by mere
delivery of the note to the transferee, therefore, the mortgage will
follow the note and pass as an inseparable incident to the note.
Fryer v. Rockefeller, 63 N.Y. 268, 276 (1875); In Re Falls’ Estate,
31 Misc. 658, aff’d 67A.D. 619 (1st Dep’t 1900); Becker v. Wells,
297 N.Y. 275 (1948); Flyer v. Sullivan, 284 A.D.(1st Dep’t 1954).
Hillwig Decl. Exh. 8 at p.14. (emphasis added). And as MERS then-President testified to the
U.S. Senate:
A fundamental legal principle is that the mortgage follows the
note, which means that as the note changes hands, the mortgage
remains connected to it legally even though it is not physically
attached.
Testimony of R.K. Arnold, President and CEO of MERSCORP, Inc., Before the Senate
Committee on Banking, Housing and Urban Affairs, November 16, 2010.3
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