The Seventh Circuit Court of Appeals has affirmed dismissal of another mortgage recording fee lawsuit brought by an Illinois county.

Two months after the Seventh Circuit ruled against Union County, the Court held again on Jan. 30 that there is nothing illegal or inappropriate in the way Mortgage Electronic Registration Systems (MERS) conducts its business in Macon County.

Macon County challenged U.S. District Judge Michael McCuskey’s dismissal of its suit on the grounds that defendants’ refusal to pay recording fees when promissory notes are transferred results in the defendants’ being unjustly enriched, a violation Illinois common law.

Macon County claimed that recording fees should be paid when promissory notes are transferred, but by not paying the fees, MERS and MERSCORP were unjustly enriched because the county was deprived revenues it would have otherwise received.

Judge Richard A. Posner, writing for the panel of judges, pointed out that Illinois law does not require mortgages to be recorded, which was his ruling in November in Union County’s challenge.

“Competition is not a tort at common law,” Posner wrote. “A firm is not required to charge a price for its goods or services that enables a competitor to prosper. No more are MERSCORP and the banking industry required to adopt a system of mortgage protection that generates revenues for a state or local government—as the Eighth Circuit held last month in a case almost identical to this one.” (Brown v.Mortgage Electronic Registration Systems, Inc.).

Posner also held that defendants “obtained nothing to which Macon County had a right.”

“Suppose a man rents a movie from Netflix, and his whole family—his wife and their four children—watches it,” Posner wrote. “The man pays; the other five, though they enjoy the movie, watch it for free. It is the same here. MERS records the mortgage, and the assignees of the promissory note secured by the mortgage benefit from that recordation but pay nothing to the recording office. In neither case are the free riders obligated to pay the provider of the service from which they benefit; they are lawful free riders.”

The Union County and Macon County lawsuits are similar to action pending in St. Clair County Circuit Court where MERS and 20 lenders are accused of  conspiring in a shadow mortgage system set up to avoid transparency and evade county recording fees.

Circuit Judge Vincent Lopinot presides. He denied a defense motion to dismiss stating that recording is mandatory.

In the Seventh Circuit’s Union County decision, Posner wrote that Lopinot’s opinion “which adopted the county’s proposed opinion verbatim, typos and all, is not persuasive.”

Posner wrote that until the Union County case, 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,” Posner wrote.

He wrote that the purpose of recording has never been to supplement property taxes.

“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,” he wrote.

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