Duty to Record Land Conveyances; Standing under 21 P.S. § 351

MERSCORP, Inc. v. Delaware Cty., 160 A.3d 961 (Pa. Cmwlth. 2017), allocatur granted Oct. 31, 2017, appeal docket 67 MAP 2017

This appeal stems from actions brought by the Recorders of Deeds of Delaware, Berks, Bucks, and Chester counties against MERSCORP, Inc., n/k/a MERSCORP Holdings, Inc., which owns and operates a national electronic registry system (MERS System) for mortgage loans, its subsidiary that served as a mortgagee of record for mortgage loans registered in the system, and financial institutions alleged to have improperly used and/or otherwise benefited from the MERS System to circumvent statutory recording and fee requirements (collectively, MERSCORP Parties). The Recorders alleged the MERSCORP parties improperly used and/or otherwise benefited by circumventing statutory recording and fee requirements of 21 P.S. § 351 by not recording documents and paying recording fees when a promissory note associated with a mortgage loan was transferred from one MERS System member to another.

Section 351 (Failure to record conveyance) provides:

All deeds, conveyances, contracts, and other instruments of writing wherein it shall be the intention of the parties executing the same to grant, bargain, sell, and convey any lands, tenements, or hereditaments situate in this Commonwealth, upon being acknowledged by the parties executing the same or proved in the manner provided by the laws of this Commonwealth, shall be recorded in the office for the recording of deeds in the county where such lands, tenements, and hereditaments are situate. Every such deed, conveyance, contract, or other instrument of writing which shall not be acknowledged or proved and recorded, as aforesaid, shall be adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of any judgment, duly entered in the prothonotary’s office of the county in which the lands, tenements, or hereditaments are situate, without actual or constructive notice unless such deed, conveyance, contract, or instrument of writing shall be recorded, as aforesaid, before the recording of the deed or conveyance or the entry of the judgment under which such subsequent purchaser, mortgagee, or judgment creditor shall claim. Nothing contained in this act shall be construed to repeal or modify any law providing for the lien of purchase money mortgages.

21 P.S. § 351.

Virtually identical claims were asserted by the Montgomery County Recorder of Deeds in Montgomery County v. MERSCORP, 904 F.Supp.2d 436 (E.D. Pa. 2012), and the parties in this action agreed to a stay while the appeal in Montgomery County was pending. Ultimately, the Third Circuit held that Section 351 does not create a duty to record all land conveyances. Montgomery County, Pennsylvania, Recorder of Deeds v. MERSCORP, Inc., 795 F.3d 372 (3rd Cir. 2015).

Following the decision in Montgomery County, MERSCORP filed joint preliminary objections, which the trial court denied. The MERSCORP Parties then sought an interlocutory appeal, asserting that the trial court’s ruling conflicts with the Third Circuit’s decision in Montgomery County. The Commonwealth Court granted Appellants’ petition for review to consider two issues: (1) whether Section 351 requires the recording of all mortgages and mortgage assignments; and (2) whether the General Assembly conferred on the Recorders a right of action to enforce Section 351.

The Recorders argued that the “shall be recorded” language in Section 351 imposed a mandatory duty to record. However, MERSCO argued that the Recorder’s interpretation did not consider Section 351 in its entirety:

… the text of Section 351, taken as a whole, simply advises property owners of the steps they must take to safeguard their interests. Notably, Section 351 does not specify who must record the conveyance of real property: the assignor, the assignee, or some other person or entity; nor does it state when the recording must take place. Further, Section 351 does not indicate how or by whom such a duty would be enforceable, or that a failure to record constitutes a violation of the statute. It does, however, set forth one consequence of a failure to record, which is that every conveyance not recorded “shall be adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of any judgment … unless such … conveyance … shall be recorded, as aforesaid, before the recording of the [subsequent purchaser’s] deed or conveyance ….” 21 P.S. § 351.

Slip Op. at 5.

In response, the Recorders asserted that the Third Circuit Court of Appeals erred in Montgomery County by impermissibly rewriting Section 351, failing to apply the Commonwealth Court’s holding in Chesapeake Appalachia, LLC v. Golden, 35 A.3d 1277 (Pa. Cmwlth. 2012), and ignoring Pennsylvania’s unique public land recording history.

The majority agreed with MERSCORP and the Third Circuit in Montgomery County to hold that Section 351 does not issue a blanket command that all conveyances must be recorded.  In so holding, the majority noted the failure to record a deed or mortgage is of limited consequence in Pennsylvania where an unrecorded interest in property is valid.  Furthermore, the majority explained, “the plain language of Section 351 is clear, its purpose has been addressed by the courts on numerous occasions, and the decision in Montgomery County is in accord with that body of case law.” Slip Op. at 10.  Furthermore, the majority noted that neither Chesapeake Appalachia nor the body of case law addressing the purpose and effect of Pennsylvania’s recording laws provided support for the Recorders’ interpretation of Section 351. Contrary to the Recorders’ argument, the majority found Chesapeake Appalachia, which involved a Recorder’s refusal to record certain lease assignments, “illustrates that the role of the Recorders is to perform such ministerial acts as required by statute” – and did not impose any mandatory recording requirement.

Addressing the remaining issue of whether the Recorders had standing to bring the underlying actions, the majority provided:

Were we to reach a different conclusion as to whether Section 351 imposes a mandatory recording requirement, we would agree with the court in Montgomery County that there is no language in Section 351, or other statutory provision governing Recorders of Deeds generally, which imposes an obligation or confers authority upon the Recorders to enforce Section 351.

Slip Op. at 11. Finally, the majority rejected the Recorders’ argument that the consequences of mandating recording would better serve the public interest, and its related argument that the Recorders’ duty to the public conferred standing. Rejecting the notion that the Recorders have a right of action to enforce Section 351, the majority concluded:

Importantly, and as the court observed in Montgomery County, in this appeal “we are not called upon to evaluate how MERS impacts various constituencies or to adjudicate whether MERS is good or bad.” 795 F.3d at 379. To the extent that public policy matters are implicated in this appeal, there is no question that matters of public policy are solely committed to the legislature, and not this Court.

Slip Op. at 13.

Judge Brobson filed a dissenting opinion, joined by Judge McCullough and Judge Covey. While the dissent acknowledged that it may ultimately adopt the majority’s view on the merits, it would affirm the denial of the MESCORP Parties preliminary objections given “a whiff of doubt remains.” Slip Op. at PKB-2. Judge Brobson wrote that he would prefer to see this matter mature past the pleadings stage before rendering a final judgment on either the proper construction of Section 351, or the authority of the Recorders to maintain their declaratory judgment actions.  He posited that this view may have been the trial court’s rationale for overruling the preliminary objections.

The Supreme Court granted allocatur on the following issues as phrased by the MERSCORP Parties:

(1) Whether the Commonwealth Court erred in ruling that Respondents may systematically evade Pennsylvania’s land recording statutes, including 21 P.S. § 351, and not record many thousands of conveyances in the Offices of the Recorders of Deeds across the Commonwealth?

(2) Whether the Commonwealth Court erred in ruling that Recorders of Deeds and Counties do not possess standing or a right of action to pursue claims against Respondents that have deliberately engaged in a course of conduct that undermines the public land recording system and is without precedent in the long history of Pennsylvania’s recording laws?

For more information, contact Kevin McKeon or Dennis Whitaker