St. Clair County Circuit Judge Vincent Lopinot has denied a motion to dismiss Mortgage Electronic Recording System (MERS) and 20 lenders from a suit that alleges the defendants conspired in a shadow mortgage system set up to avoid transparency and evade county recording fees.

State’s Attorney Brendan Kelly sued in May 2012 alleging the defendants’ recording system effectively eliminates the ability to track the purchase and sale of properties through the traditional public records system, in violation of state statute. The five-count complaint also alleges unjust enrichment, civil conspiracy, deceptive trade practices and consumer fraud.

Kelly hailed Lopinot’s decision.

“Banks are an essential part of our system of credit that sustains the economy, but they shouldn't be above the law,” he said in a statement. “A line has to be drawn and if this is where it must be drawn so be it."

(Specifically, the complaint alleges: When a MERS member makes a home loan to a borrower, the MERS member obtains from the borrower a promissory note naming the lender as promisee and a mortgage instrument naming MERS as the mortgagee. In the mortgage, the borrower assigns his right, title and interest in the property to MERS, and the mortgage instrument is then recorded in the local land records office with MERS as the named mortgagee. When the promissory note is sold (and possibly re-sold) in the secondary mortgage market, the MERS database purports to track that transfer. As long as the parties involved in the sale are MERS members, MERS remains the mortgagee of record. Designating MERS as the mortgagee of record purportedly excuses MERS members from publicly recording mortgage assignments between themselves and, thus, from paying recording fees required by statute).

In a 12-page order entered July 12, Lopinot focused his opinion on a defense argument that Section 28 of the Illinois Conveyances Act does not create a statutory duty to record assignments of mortgages.

Bryan Cave attorney Rhiana Luaders, who filed the defense brief, had argued that recording statutes are “permissive.

Lopinot disagreed. He wrote that the Act “does in fact require the filings of assignments of mortgages.”

“The Court also finds that any agreements that prohibit the recording of assignments are null and void under Section 28,” he wrote.

Lopinot also disagreed with a defense argument that the state’s attorney lacks standing to bring suit.

He wrote that the state’s attorney has the authority and duty to prosecute civil and criminal actions as well as to recover money for the county.

“This constitutional power of the State’s Attorney to bring suits in matters of public interest has been broadly interpreted in Illinois,” he wrote.

The broad grant of standing and power provided the State’s Attorney by statute is intended to mirror that of the Attorney’s General’s common law grant of power, he wrote, especially when applied to the “protection of the public purse.”

Lopinot’s order comes five months after a joint motion to dismiss was filed by MERS, Bank of America, Wells Fargo Bank, CCO Mortgage Corporation, EverHome Mortgage Company, Regions Bank, First Collinsville Bank, FirstCo Mortgage Corporation, First County Bank, Commerce Bank, UMB Bank, Midland States Bank, Citi Mortgage, Suntrust Mortgage, MERSCORP, Inc., HSBC Finance, Bank of O’Fallon, SunTrust Mortgage, Mid America Mortgage Services of Illinois, Peoples National Bank and Mortgage Services.

Kelly further commented that the shadow recording system is inaccurate and unreliable.

“Under this shadow record system, the public doesn't have accurate information about who owns a large part of economy,” he said. “That’s not transparent. We are still feeling the effects of the Great Recession that began with a financial sector that played by its own rules and wasn't transparent.  It's a recipe for disaster."

Paul Slocomb, special assistant state’s attorney, is representing the county.

St. Clair County case number 12-L-267

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