Louisiana clerks ask high court to weigh in

The nation’s highest court will be the next stop for a lawsuit that accuses some of the country’s largest banks and mortgage firms of plotting to avoid filing real estate transactions in Louisiana parish clerk of court offices, costing the clerks tens of millions of dollars in fee revenue.

East Baton Rouge Parish Clerk of Court Doug Welborn and 46 other clerks in Louisiana filed the suit, alleging through their attorneys that they’ve lost more than $450 million in fees since 2000 because of the big lenders’ refusal to record transfers of mortgage assignments at parish courthouses.

The suit, filed in April 2012, was dismissed by U.S. District Judge James Brady in January 2013. A three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeals affirmed his ruling Wednesday, saying the clerks lacked legal standing to sue.

Richard Faulkner, an attorney for the clerks, said Friday the U.S. Supreme Court will be asked to review the case.

The suit alleges that losses to the East Baton Rouge Parish clerk’s office alone amount to as much as $40 million.

In Louisiana, clerks run their offices with filing fees, not tax dollars.

“I think they got it dead wrong on the standing issue,” Faulkner said of Brady’s ruling, which has now been upheld by the appellate court.

Kent Lambert, an attorney for the lenders, said in an email that he was unable to comment on the ruling at this time.

Brady noted in his ruling that the clerks did not allege Louisiana law requires lenders to record the disputed transactions at parish courthouses. He also ruled that the clerks mistakenly concluded the federal Trust Indenture Act of 1939 authorized them to sue the big lenders under federal law.

The clerks’ suit says the big banks and mortgage lenders created their own private recording system in 1993. The system was housed under both Mortgage Electronic Registration Systems Inc. and MERSCORP Inc., according to the clerks, who refer to both entities as MERS.

The MERS system is not open for public inspection, review or research the way records in the clerk of courts office are.

The clerks contend that a MERS lender records only the first purchase of a residential property at the courthouse, then keeps 10 to 12 subsequent transfers of that mortgage note in the private MERS system.

“As a result of the creation of MERS, one can no longer look to the public recording system as a reliable source for identifying the proper payment of the obligation, tracking the chain of title for a loan or for identifying the current beneficial owner of the mortgage,” the clerks allege in their suit.

The clerks claim the banks and mortgage companies violated the Racketeer Influenced and Corrupt Organizations Act, or RICO, by controlling MERS in a scheme to cheat clerks of court of recording fees.But the 5th Circuit panel said the recording systems were not created to serve as a “revenue-generating function” for the states.

“It is not accurate to cast the recording systems as commercial. Rather, they serve a governmental function,” the panel added. “Because the (clerks of court) cannot allege an ‘injury to business or property’ under RICO, they have not stated a legally cognizable claim.”

Attorneys for the lenders had argued to Brady that neither Louisiana law nor the federal law cited by the clerks authorizes the clerks to force the filing of repeated mortgage assignments at parish courthouses.

The clerks sued The Bank of New York Mellon, Bank of America, Chase Home Mortgage Corporation of the Southeast, CitiMortgage Inc., GMAC Residential Funding Corp., Merrill Lynch Credit Corp., Nationwide Advantage Mortgage Co., SunTrust Mortgage Inc., Wells Fargo Bank N.A., Deutsche Bank AG, U.S. Bank N.A., HSBC Finance Corp., HSBC Bank USA NA, JPMorgan Chase Bank N.A., Washington Mutual Bank, United Guaranty Corporation and La Salle Bank N.A.