Business

14 Kentucky counties sue over mortgage-recording fees

Gov. Steve Beshear watches in the background as Emily Beshear, USA, aboard Here's To You talks with her trainer before competing during the second day of the Dressage phase of the Rolex Kentucky Three-Day Event at Kentucky Horse Park in Lexington, Ky., April 27, 2012. Photo by 13828
Gov. Steve Beshear watches in the background as Emily Beshear, USA, aboard Here's To You talks with her trainer before competing during the second day of the Dressage phase of the Rolex Kentucky Three-Day Event at Kentucky Horse Park in Lexington, Ky., April 27, 2012. Photo by 13828 ©2012 Herald-Leader

A mortgage-recording service and financial institutions have schemed to avoid paying Kentucky counties millions of dollars in fees, 14 counties contend in a federal lawsuit.

In addition to depriving the counties of money, the conspiracy has shortchanged a fund used to make grants and loans for low-income housing, the lawsuit says.

The counties involved in the lawsuit are Boyd, Breathitt, Carter, Christian, Clark, Floyd, Franklin, Greenup, Johnson, Letcher, Magoffin, Mason, Pike and Warren.

They are suing Mortgage Electronic Registration System, or MERS, a company that operates an electronic clearinghouse for mortgage interests among members, and related business entities, shareholder companies and financial institutions.

The lawsuit lists two dozen defendants, including the U.S. government-sponsored lenders Freddie Mac and Fannie Mae.

The complaint says that under state law, when one company transfers or sells a mortgage to another, the company receiving the interest has to pay a recording fee at the county clerk's office.

The act of bundling mortgages and selling them as securities, which became common in the 1990s, results in several such transfers, or assignments, the lawsuit says.

Shareholders set up the MERS system in the 1990s to avoid paying the required fees to record such assignments among financial institutions, the lawsuit says.

Those transactions are recorded in the private MERS system but not with county clerks as required by state law, the lawsuit says.

The electronic system "from the outset anticipated depriving local land recording systems of millions of dollars in recording fees, and estimated that its scheme would save its members $77 to $200 million annually nationwide," according to the complaint.

MERS has been the assignee, nominee or beneficiary on hundreds of thousands of loans in Kentucky, according to the complaint.

The typical fee for an assignee on a mortgage has been $12, with some money going to pay for land-record services and some going to the state Affordable Housing Trust Fund, the complaint says.

In addition, excess fees from a county clerk's office go to the county, so the failure to pay recording fees shortchanged other services as well, the lawsuit argues.

The complaint accuses the defendants of fraud, misrepresentation and civil conspiracy. It seeks certification as a class-action suit for Kentucky counties and unspecified damages.

House Speaker Greg Stumbo and Lexington attorney Sandra Spurgeon filed the lawsuit for the counties on April 19 in federal court in Ashland.

There have been other lawsuits against MERS around the country. A spokesperson for the company did not return a call seeking comment Friday.

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