Higgins v. BAC Home Loans Servicing, LP, 793 F.3d 688 (6th Cir. 2015).
Borrowers who obtained mortgage loans brought a class action against banks that received transfers of the mortgage notes through Mortgage Electronic Registration Systems (“MERS”), the privately-held company that operates a national electronic registry tracking servicing rights and ownership of mortgage loans. The borrower claimed that the banks owed statutory penalties for violating a Kentucky recording statute, Ky. Rev. Stat. Ann. §382.360, when they failed to record the promissory note transfers within 30 days. Although the notes were transferred, the underlying mortgages remained recorded in the name of MERS as nominee for the lenders. The borrowers contended that, under Kentucky law, transfer of a mortgage note constitutes transfer of the mortgage securing the note, such that the transfer must be recorded under the Kentucky statute. The district court issued an order in favor of the borrowers. On appeal, the Sixth Circuit reversed. Although the court acknowledged that assignment of a mortgage note effects a transfer of an equitable interest in the mortgage, it held that “the text, structure and purposes of Kentucky’s recording statutes compel the conclusion that recording is not required when a party acquires merely an interest in the mortgage, without acquiring the actual mortgage deed.” Higgins, 793 F.3d at 689. Further, from the plain reading of the relevant recording statute, only mortgage assignments are required to be recorded under Ky. Rev. Stat. Ann. §382.360, not promissory note assignments.
