United States District Court, W.D. Kentucky, Owensboro Division
DEE LEE ELLINGTON and MARY V. ELLINGTON, on behalf of themselves and all other situated, PLAINTIFFS
FEDERAL HOME LOAN MORTGAGE CORPORATION, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., MERSCORP HOLDINGS, INC., FEDERAL HOUSING FINANCE AGENCY, as conservator for FMLMC, and DOE CORPORATIONS AND ENTITIES 1-100, DEFENDANTS
For Mary V. Ellington, On behalf of herself and all others similarly situated, Dee Lee Ellington, On behalf of himself and all others similarly situated, Plaintiffs: Debra Brewer Hayes, LEAD ATTORNEY, Reich and Binstock, LLP, Houston, TX; Gary E. Mason, Jason S. Rathod, LEAD ATTORNEYS, Whitfield Bryson & Mason LLP, Washington, DC; Jeffrey S. Goldenberg, Todd B. Naylor, LEAD ATTORNEYS, Goldenberg Schneider, LPA, Cincinnatti, OH; John C. Whitfield, LEAD ATTORNEY, Whitfield Bryson & Mason, LLP, Madisonville, KY; Sean R. Matt, LEAD ATTORNEY, Hagens Berman Sobol Shapiro, LLP, Seattle, WA.
For Federal Home Loan Mortgage Corporation, Defendant: Michael J. Ciatti, King & Spalding LLP - Washington DC, Washington, DC; Michael A. Johnson, Arnold & Porter LLP - Washington, Washington, DC.
For Mortgage Electronic Recording Systems, Inc., MERSCORP Holdings, Inc., Defendants: Carol D. Browning, Richard A. Vance, LEAD ATTORNEYS, Stites & Harbison, PLLC - Louisville, Louisville, KY; Robert M. Brochin, LEAD ATTORNEY, Morgan Lewis & Bockius LLP - Miami, Miami, FL.
For Federal Housing Finance Agency, as conservator for FHLMC, Defendant: Michael A. Johnson, Arnold & Porter LLP - Washington, Washington, DC.
MEMORANDUM OPINION AND ORDER
Joseph H. McKinley, Jr., Chief United States District Judge.
This matter is before the Court on motion bye the Defendants, Mortgage Electronic Registration Systems, Inc., and MERSCORP Holdings, Inc., to dismiss Plaintiffs' complaint pursuant to Fed.R.Civ.P. 12(b)(6) [DN 27] and on a motion by Defendants, Federal Home Loan Mortgage Corporation, and the Federal Housing Finance Agency, in its capacity as Conservator of Freddie Mac, to dismiss Plaintiffs' complaint pursuant Fed.R.Civ.P. 12(b)(6) [DN 28]. Fully briefed, this matter is ripe for decision.
Under Kentucky law, when a mortgage is assigned, the assignee is required to record the assignment with the county clerk's office. KRS § 382.360; KRS § 382.365(2). KRS § 382.365(3) provides that " [a] proceeding may be filed by any owner of real property or any party acquiring an interest in the real property in District Court or Circuit Court against a lienholder that violates subsection (1) or (2) of this section." The damages for failure to timely file an assignment is a minimum of $500 per violation. KRS § 382.365(5).
Plaintiffs, Dee Lee Ellington and Mary V. Ellington, executed a mortgage to Old National Bank that was recorded on October 14, 2009, in the Hopkins County, Kentucky, Clerk's Office. On October 26, 2009, Old National Bank assigned all rights, title and interest in the Ellington mortgage to Defendant Mortgage Electronic Registration System (" MERS" ). The assignment was recorded on November 9, 2009. Plaintiffs allege that their mortgage was then assigned several times among MERS's members before ending up with the Defendant, Federal Home Loan Mortgage Corporation (" Freddie Mac" ), with MERS as its agent. Plaintiffs allege that none of these assignments were recorded as required by law.
Under the MERS system, " [w]hen a home is purchased, the lender obtains from the borrower a promissory note and a mortgage instrument naming MERS as the mortgagee (as nominee for the lender and its successors and assigns)."
In re: Mortgage Electronic Registration Systems (MERS) Litigation, 659 F.Supp.2d 1368, 1370 n.6 (U.S. Jud. Pan. Mult. Lit. 2009). 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 with MERS as the named mortgagee." Id. " When the promissory note is sold (and possibly re-sold) in the secondary mortgage market, the MERS database tracks that transfer." Id. As long as the parties involved in the sale of promissory note are MERS members, " MERS remains the mortgagee of record (thereby avoiding recording and other transfer fees that are otherwise associated with the sale) and continues to act as an agent for the new owner of the promissory note."
Plaintiffs filed this suit alleging that MERS, its parent company MERSCORP Holding, Inc., Freddie Mac, and the Federal Housing Finance Agency, in its capacity as Conservator of Freddie Mac, created, designed, managed, maintained, operated, and utilized a sham privatized recording system to eliminate the need to prepare and record assignments. Plaintiffs further allege that through this conspiracy, MERS and the other defendants repeatedly failed to file assignments in accordance with KRS § 382.360. Specifically, Plaintiffs assert claims for (1) violation of KRS § 382.360 and KRS § 382.365 and (2) civil conspiracy to violate KRS § 382.360 and KRS § 382.365. The action was filed as a putative class action on behalf of all persons who own or owned real property, or who acquired an interest in real property, in the Commonwealth of Kentucky and had mortgages on their real property assigned to one or more of the Defendants without the assignment being filed for recording with the county clerk. Thus, the central claim of Plaintiffs' case is that the ...