I recommend anyone who wants to get this straight read: The Magic of the Mortgage Electronic Registration System: It Is and It Isn’t or just head over to my MERS 101 page for the real facts.

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In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 13–1443, 13-1794

UNION COUNTY, ILLINOIS, et al.,
Plaintiffs-Appellants,

v.

MERSCORP, INC., et al.,
Defendants-Appellees.
____________________
Appeals from the United States District Court for the
Southern District of Illinois.
No. 3:12-cv?00665-GPM-SCW — G. Patrick Murphy, Judge.
____________________
ARGUED SEPTEMBER 18, 2013 — DECIDED NOVEMBER 14, 2013
____________________
Before BAUER, POSNER, and TINDER, Circuit Judges.

POSNER, Circuit Judge. The plaintiffs, an Illinois county
and several of its officials, filed a class action suit in an Illinois
state court on behalf of all the counties in the state
against the mortgage services company MERSCORP Holdings,
Inc., and a number of banks that do business with it.

The suit alleges that MERSCORP is violating an Illinois statute
that, the counties (as we’ll call the plaintiffs) contend, requires
every mortgage on real property in Illinois to be rec
orded. The statute specifies that, if it is recorded, it must be
recorded in the public?records office of the county in which
the property is located. The question is whether, as the counties
contend, it must be recorded.

The defendants removed the case to federal district court
(basing federal subject?matter jurisdiction on diversity of citizenship)
under the Class Action Fairness Act. The district
judge ruled that Illinois law does not require that mortgages
be recorded, and dismissed the suit with prejudice without
deciding whether to certify it as a class action.
MERSCORP (we won’t need to discuss the bank defendants)
operates an online system called MERS (an acronym
for “Mortgage Electronic Registration System”) for tracking
mortgage assignments. If a homeowner obtains a mortgage
from bank B, B can register the mortgage on MERS and also
assign the mortgage to MERSCORP,

(WRONG it IS MERS “Mortgage Electronic Registration System” – MERSCORP is NOT listed anywhere in the contract)
Here is the wording on the security instrument [LINK] – “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns.)

which then records it in the county in which the mortgaged property is located, in
order to provide notice to subsequent purchasers and creditors
of the property.

Although MERSCORP is the mortgagee of record, the assignment
of a mortgage to it is not substantive. MERSCORP
is not the lender; and as it does not pay the assignor for the
assignment it does not become the lender—in fact it has zero
financial interest in the mortgage. In a previous decision we
described MERSCORP as “a membership organization that
records, trades, and forecloses loans on behalf of many lenders,
acting for their accounts rather than its own.” Mortgage
Electronic Registration Systems, Inc. v. Estrella, 390 F.3d 522,
524–25 (7th Cir. 2004). The purpose of assigning a mortgage
to MERSCORP is merely to enable repeated de facto assignments
of the mortgage by successive mortgagees. We call
those assignments “de facto” because MERSCORP remains
the official assignee (it prefers to be called the “nominee” of
the lender and of the lender’s successors and assigns). These
“assignments” are not recorded, and so B in our example can
transfer the mortgagor’s promissory note—the homeowner’s
debt to the bank—to another financial institution without the
transfer being recorded in a public?records office. The MERS
process thus facilitates, by streamlining, successive interbank
sales of mortgages. Often the purpose is to create
mortgage?backed securities, which are tradable interests in
packages of mortgages and were among the culprits responsible
for the financial crisis of 2008.

The counties make many criticisms of MERS. One, which
is related to the role it played in the market for mortgagebacked
securities, is that by facilitating mortgage transfers
that are effectively assignments but are not recorded, MERS
makes it difficult for a mortgagor to discover who is servicing
his mortgage (collecting the monthly interest on it, for
example)—a serious problem when the mortgage has been
securitized—and whom therefore he should deal with if he
wants to renegotiate the mortgage or challenge its validity.
He can ask MERSCORP for the information, but the counties
contend that MERSCORP won’t tell him—or can’t because it
often loses loan records. One court has called MERSCORP a
“straw man,” hiding the identity of the actual mortgage

(WRONG AGAIN – In Landmark, the KS Sup Ct did not say MERSCORP was a straw man.  It said MERS “Mortgage Electronic Registration System” was a straw man – Here are the exact words [link] –  “The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer“)

holder by not recording resales of the mortgage. Landmark
National Bank v. Kesler, 216 P.3d 158, 166–68 (Kan. 2009).
But the counties are not mortgagors complaining that
MERSCORP is concealing from them the identity of the
holders of the mortgages on their property. The complaint is
of an entirely different character. The complainers are coun-
ty governments and county officials claiming that their
counties are entitled to recording fees because Illinois law
requires that mortgage transfers by MERSCORP be recorded.
They contend that these transfers are really assignments
and that all assignments of mortgages on property in Illinois
must be recorded.

MERSCORP does not take issue (at least in this case)
with the recharacterization of these transfers as assignments.
It argues, rather, and the district court agreed, that Illinois
law does not require that mortgages (whether original or assigned)
be recorded. The land recording system exists to
provide notice of ownership of real property, or of possession
of a lien, such as a mortgage, on such property; recording
is not intended to be a source of government income—in
effect a tax on assignments or other transfers of mortgages.
Recording is optional.

The counties base their claim on section 28 of the Illinois
Conveyances Act, which assumed essentially its present
form in 1873 (portions of it date back to the 1820s) and is
codified as 765 ILCS 5/28 and provides, so far as relates to
this case, that deeds, mortgages, powers of attorney, and other instruments
relating to or affecting the title to real estate in this
state, shall be recorded in the county in which such real estate
is situated … . No deed, mortgage, assignment of
mortgage, or other instrument relating to or affecting the
title to real estate in this State may include a provision
prohibiting the recording of that instrument … .

The counties argue that the statute can mean only that all
mortgages and mortgage assignments must be recorded.
They harp on what they insist is the “plain meaning” of the
language that we’ve quoted. But a moment’s reflection will
reveal the shallowness of their recourse to “plain meaning,”
a tired, overused legal phrase. For suppose a department
store posts the following notice: “All defective products
must be returned to the fifth floor counter for refund.” Obviously
this is not a command that defective products be returned;
the purchaser is free to keep a defective product,
throw it out, or give it as a present to his worst friend.
There’s an implicit “if” in the command: If you want to return
a product and get a refund, here’s where you have to
return it. Similarly, section 28 of the Conveyances Act may
just mean that if you want to record your property interest
you must do so in the county in which the property is located.
That is not the statute’s “plain meaning” in the sense of
an unarguable meaning (though MERSCORP calls it the
“plain language” of the statute—and thus we have the unedifying
though common spectacle of opposing parties each
arguing that its interpretation of statutory or contractual
language is unarguable), but in context it’s the better meaning.

Notice the second sentence in section 28, prohibiting the
parties to a mortgage or other land instrument from including
a “no recordation” condition in the instrument. This sentence
(added in to the Conveyances Act in 1995) would be
superfluous if the law required recordation, for that requirement
would automatically make the inclusion of such a
prohibition in the instrument unlawful. More important (because
superfluity in statutes, as in legal discourse generally,
is common), section 30 of the Conveyances Act, 765 ILCS
5/30, provides that “all deeds, mortgages and other instruments
of writing which are authorized to be recorded, shall
take effect and be in force from and after the time of filing
the same for record, and not before, as to all creditors and
subsequent purchasers, without notice … .” The phrase “authorized
to be recorded” implies that some land instruments
can be recorded but don’t have to be.

Most important, the purpose of recordation has never
been understood to be to supplement property taxes by
making every landowner, mortgagee, etc. pay a fee for a service
he doesn’t want. The purpose is to protect the property
owner or mortgage holder against claims to the property interest
asserted in the deed, mortgage, or other instrument.
Recording is a valuable service, provided usually for a modest
fee—but provided only to those who think the service
worth the fee.

So even as an original matter, and without regard to authoritative
interpretations of the Illinois statute by Illinois
courts, MERSCORP has the better of the interpretive dispute.
But in addition, in cases decided more than a century
ago the Supreme Court of Illinois made clear that recording
is not mandatory. “We are aware of no principle, outside of
self?interest and prudence in business, that requires the
holder of a mortgage to put it on record at any particular
time. By not doing so promptly he runs the risk of having it
postponed to prior liens, and even of losing the benefit of it
altogether.” Field v. Ridgeley, 6 N.E. 156, 159 (Ill. 1886), followed
in Haas v. Sternbach, 41 N.E. 51, 54 (Ill. 1894). The supreme
court has not revisited the issue. A number of decisions
by the Illinois Appellate Court, however, assume or
repeat the interpretation adopted in those early supreme
court decisions. See, e.g., Federal National Mortgage Ass’n v.
Kuipers, 732 N.E.2d 723, 726 (Ill. App. 2000); Lindley v. English,
89 Ill. App. 538, 539 (1899), affirmed, 62 N.E. 522 (Ill.
1901); W.O. Tyler Paper Co. v. Orcutt?Killick Lithographing Co.,
35 Ill. App. 500, 502 (1890); Hegeler v. First National Bank, 28
Ill. App. 112, 118–19 (1888), affirmed, 21 N.E. 812 (Ill. 1889);
see also Macon County v. MERSCORP, Inc., No. 12?CV?2214,
2013 WL 4838850, at *6–7 (C.D. Ill. Sept. 10, 2013). Consistent
with Field and Haas, and contrary to the counties’ position in
this case, Illinois courts also uphold the validity of unrecorded
mortgage assignments, deeds, or related instruments. See,
e.g., Federal National Mortgage Ass’n v. Kuipers, supra, 732
N.E.2d at 725, 730; Schaumburg State Bank v. Bank of Wheaton,
555 N.E.2d 48, 51–52 (Ill. App. 1990); Dana Point Condominium
Ass’n v. Keystone Service Co., 491 N.E.2d 63, 67 (Ill. App.
1986). Obviously they wouldn’t do this if failure to record
violated Illinois law.

It is also significant that, to our knowledge, until this case
(and a case filed contemporaneously with it and discussed at
the end of this opinion), no Illinois county official had taken
the position that recording is mandatory. We are left to
speculate that it is the parlous financial condition of Illinois
state and local government that has impelled these officials
in desperation to seek to overturn a long?established understanding
of Illinois law.

The counties invite our attention to the statement in
Farmers State Bank v. Neese, 665 N.E.2d 534, 539 (Ill. App.
1996), that “section 28 of the Conveyances Act requires all
‘instruments relating to or affecting the title to real estate in
this state’ to be recorded.” But on the same page the court
explains that “parties which receive interests through such
instruments must record to be protected against third parties”
(emphasis added). So this is another example of the need to
understand the context of a flat statement (the law “requires
‘all instruments’ … to be recorded”) in order to understand
the statement’s meaning.

Haas had left open the possibility that failure to disclose a
debt could operate as a fraud, 41 N.E. at 54–55, but our counties
do not claim that MERSCORP’s failure to record transfers
of mortgage indebtedness is fraudulent. They are critical
of MERS because the system makes life hard for the mortgagor.
But their appeal claims only that MERSCORP is violating
section 28 of the Conveyances Act by failing to record
its transfer of mortgage debts, thus depriving the county
governments of recording fees. That claim—the only one before
us—has no merit.

Doubtless fearing that we would so rule—that we would
deem the state supreme court’s interpretation valid despite
its antiquity—the counties ask us if not disposed to agree
with their interpretation to certify the question to that court.
We can’t do that. Rule 20(a) of the Supreme Court of Illinois
authorizes that court to answer a question certified to it by
this court only if “there are no controlling precedents in the
decisions of” the Illinois supreme court; and there are two—
Field and Haas. Anyway we don’t see the point of bothering
the state supreme court with the question. For one thing the
court’s answer wouldn’t end this lawsuit, because the district
court, having satisfied itself that the case has no merit,
didn’t rule on several other defenses. For another thing, in
May of last year St. Clair County, another Illinois county
(and hence a member of the class in this suit), filed a materially
identical suit in an Illinois state court against
MERSCORP—and since it was not removed to federal court,
whoever loses that case will be able to appeal to the Illinois
Appellate Court, and the loser in that court can ask the Supreme
Court of Illinois to accept a further appeal.

In July of this year the trial court in the St. Clair County
case denied the defendants’ motion to dismiss, ruling that
section 28 indeed requires recordation of all mortgages. St.
Clair County v. Mortgage Electronic Registration Systems, Inc.,
No. 12?L?267 (St. Clair County Circuit Court, July 12, 2013).
The court’s opinion, which adopted the County’s proposed
opinion verbatim, typos and all, is not persuasive. But it sets
the stage for an eventual appeal that would give the state
supreme court a shot at the issue. The counties argue that
our case will get to the top of the Illinois court system faster
than St. Clair County’s case, if we certify. But that’s speculation.
Both cases were filed within months of each other last
year. And it’s quite likely that the Supreme Court of Illinois
would hold off on answering our certified question until the
St. Clair County case reached it. Moreover, the supreme
court is not required to answer, and does not always agree to
answer, a certified question that we put to it. Should the supreme
court decide in the St. Clair County case that registration
of mortgages in Illinois is mandatory, its decision will
supersede ours. But the court may find our decision helpful,
whichever way it decides, and this is another reason for our
offering an answer to the question rather than certifying it.

AFFIRMED.

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