HARTFORD, Conn. (Legal Newsline) - Despite claims that it violated equal protection and commerce laws, a Connecticut law passed in 2013 that tripled fees for filing a mortgage has been upheld by the state’s highest court.
The suit was filed by makers of a special mortgage document registration software, Mortgage Electronic Registration Systems (MERS) Inc., after new rules drastically increased the cost for filing mortgage paperwork through the system.
The company alleged the law violated the state’s equal protection clause, as it specifically targeted mortgage document filing, and no other types of documents.
The Connecticut legislature amended a statute in 2013 governing town clerk fees, which tripled the fees for documents recorded for “a nominee of a mortgagee,” a category in which only MERS falls. After numerous challenges, the Connecticut Supreme Court handed down its decision Feb. 8.
Goodwin Procter partner Joseph Yenouskas, who has followed the case, told Legal Newsline the ruling came as “somewhat a surprise.”
“MERS had some strong arguments,” Yenouskas said. “I do think that Connecticut was singling out MERS as a way to rectify what are probably some serious local budgetary issues.”
Those cuts, he said, are hitting counties particularly hard, and the new law helps provide a direct funding benefit. The county level is where documents covered under the new statute are typically collected, Yenouskas said.
Meanwhile, the state legislature in March voted on measures to cut roughly $220 million from its current budget shortfall and still faces roughly $700 million more in cuts for its next budget cycle.
Yenouskas said the move seemed unprecedented among states facing similar budget crises.
“Connecticut is facing budgetary pressures from increased unemployment and economic slowdown and were looking for increase in revenue, and I think that’s why the statute passed,” he said.
Though the fees are assessed to MERS-based documents transactions, Yenouskas said they would likely be handed down to borrowers.
In its ruling, the high court also rejected an argument from MERS Inc. that the law violated the “dormant commerce clause” by targeting the out-of-state company with fees. The court said the fees did not place an undue burden on the ability for MERS to do business within the state.
Though Connecticut appears to be the first state to pass fees targeting MERS, Yenouskas said other states, including Minnesota and Texas, are considering similar actions in their legislatures.