On February 23, 2016, in the case of MERSCORP Holdings, Inc. et al. v. Dannel P. Malloy et al., the Connecticut Supreme Court upheld the constitutionality of certain state statutes which impose higher fees for mortgage nominees, such as MERSCORP Holdings, Inc. and Mortgage Electronic Registration Systems, Inc. (“MERS”), for recording documents in the public land records.

A brief history shows that back in 2013, the Connecticut legislature created a two-tiered system by which town clerks collect recording fees with the effect that mortgage nominees were obligated to pay up to three times more for recording documents than other filers.

In response, MERS commenced an action against state officials.

The Court first rejected MERS’ challenge and ruled that it was permissible for the legislature to impose higher recording fees on mortgage nominees than other parties because (1) large corporations such as MERS are “better able to shoulder high recording fees than are smaller mortgagees;” and (2) because the purpose of MERS is to remain the mortgagee of record for its members (thus saving members additional recording fees each time a loan is transferred on the secondary market). The conclusion was that it was reasonable to require MERS to pay higher fees “to compensate for the fees ‘lost’ over the course of the life of the loan.”

The Court next rejected MERS argument that the statutes facially discriminated against interstate commerce because they imposed higher fees only on mortgage nominees who operate national electronic databases. In rejecting this premise, the Court concluded, “there is no indication that the legislative choice to impose higher fees on nominees – whether in state or out of state – who operate national mortgage databases… or [that there reflected] an effort to favor Connecticut-based financial companies.” The Court determined that the statutes advanced a legitimate local purpose – to recoup those fees that MERS members would have otherwise paid upon the transfer of a mortgage.

Finally, the Court determined that the statutes did not place an undue burden on the secondary mortgage market or interstate commerce. The Court explained that there was no evidence that the additional fees adversely impacted MERS’ business and that the benefit to MERS members of reducing the amount of recorded mortgage assignments outweighed the additional fees imposed.

In short, as a result of the Supreme Court’s decision, mortgage lenders who are members of MERS must continue to pay increased recording fees in Connecticut.