Jessica M. Karmasek May 8, 2013, 3:00pm

GRAND RAPIDS, Mich. (Legal Newsline) -- A federal judge in Michigan last week sided with the national mortgage registry known as MERS and a group of banks in a case over transfer taxes.

On Friday, Judge Robert Holmes Bell of the U.S. District Court for the Western District of Michigan dismissed a lawsuit filed by Curtis Hertel, register of deeds of Ingham County, and Nancy Hutchins, register of deeds of Branch County.

Bell dismissed the case, Hertel-Hutchins v. MERS, et al., on its merits.

The registers alleged that the defendants -- Wells Fargo Bank, Mortgage Electronic Registration Systems Inc., Bank of America N.A., CitiMortgage Inc., JP Morgan Chase & Co. and MERSCORP Inc. -- did not pay transfer tax on assignments of mortgages and that they improperly avoided tax by transferring quit claim deeds for nominal consideration.

Bell dismissed the claims, holding that "none of the instruments submitted by plaintiffs were subject to the transfer tax."

With regard to the assignments of mortgages, the judge relied on a recent decision by the U.S. Court of Appeals for the Sixth Circuit, McLaughlin v. Chase Home Finance, which held that "[a]ssignments of mortgages... are specifically exempt from transfer taxes under" Michigan law.

As to the quit claim deeds, Bell held that "nominal consideration on a quit claim deed has been found presumptively valid by the Michigan Court of Appeals."

The judge further explained that these quit claim instruments are not evidence of a sale of property for its full value, and that nominal consideration is typical and valid between agents and principals when the agents "who foreclosed on and purchased properties in their capacity as agents of lenders, return the properties to the lenders, who at all times maintain the beneficial ownership interest in the debt and the property securing the debt."

Bell also found that the registers for the two counties lacked standing to challenge alleged violations of Michigan's County Real Estate Transfer Tax Act, or CRETTA.

"Michigan statutes expressly define the powers of registers of deeds... but no statute authorizes a register of deeds to file lawsuits," the judge wrote in his 22-page opinion. "Moreover, no statute empowers a county's board of commissioners to authorize a register of deeds to do so."

Bell went on to say that the plaintiffs' complaint and briefs make inaccurate statements of the law under the CRETTA and allege "far-fetched" theories of liability.

"While the complaint purports to be a class action covering instruments filed in 83 counties over a number of years, the court will not allow plaintiffs to continue 'fishing' for an improperly claimed exemption to the CRETTA when transfer taxes are indisputably not owed for any of the instruments plaintiffs' attached to their complaint," the judge wrote.

"Because plaintiffs' claims against the defendants are entirely devoid of supporting factual allegations, their claims to relief are not plausible. Accordingly, the bank defendants' motions to dismiss will be granted."

Read Bell's full opinion here.

In a statement Tuesday, MERSCORP said Bell's ruling was spot-on.

"We are pleased that Judge Bell addressed the liability question and invested his time in debunking each of the plaintiffs' fanciful theories in this decision, despite their inability to bring the suit on procedural grounds in the first place," said Jason Lobo, director of corporate communications for MERSCORP Holdings.

MERSCORP and Mortgage Electronic Registration Systems Inc. were formed in 1995 to facilitate the growing mortgage finance market.

The privately-held electronic registry is designed to track servicing rights and ownership of mortgage loans in the U.S.

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