The United States Court of Appeals for the Sixth Circuit recently addressed a split in its district courts and held that entities that utilized the Mortgage Electronic Registration System (“MERS”) did not violate a Kentucky statute by failing to record a note assignment within thirty days.  See Higgins v. BAC Home Loans Servicing, LP, 793 F.3d 688 (6th Cir. 2015).  Under Kentucky law, the assignee of a mortgage is required to record the assignment within thirty days. See KRS 382.360(3).  In the putative class action, the plaintiffs all had executed mortgages that designated MERS as the mortgagee “solely as nominee for Lender and Lender’s successors and assigns,” and in all cases the original noteholders and assignees had transferred the notes to the defendants.  The plaintiffs argued that, because the assignee of a note acquires an equitable interest in the mortgage securing the note under Kentucky law, the defendants were required to record these note assignments.  The defendants filed a motion to dismiss, but the District Court rejected their argument, holding that “where a secured note is assigned by delivering the note to the assignee, the assignment of the mortgage that occurs by operation of law should be recorded as provided in Kentucky’s recording statutes.”  Higgins, et al. v. BAC Home Loans Servicing, LP,  2014 WL 1333069, at *7 (E.D.Ky. Mar. 31, 2014).  Noting that the United States District Court for the Western District of Kentucky had reached the exact opposite conclusion on the exact same date, the Sixth Circuit addressed the issue on appeal.  On appeal, the Sixth Circuit reversed the lower court’s denial of the motion to dismiss, noting that “Kentucky’s recording statutes pointedly distinguish between mortgage assignments—which must be recorded, see KRS 382.360(3)—and note transfers—for which recording is optional, see KRS 382.290(2)” and that “t would be strange for Kentucky’s legislature to require recording of note transfers as mortgage assignments while elsewhere in the same statutes providing that note transfers need not be recorded.”  Thus, the defendants did not violate the recording statutes by using MERS.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.