IN THE COURT OF COMMON PLEAS OF WASHINGTON COUNTY, PENNSYLVANIA

Civil Division

COUNTY OF WASHINGTON, PENNSYLVANIA, on behalf of itself and all other similarly situated Pennsylvania Counties, Plaintiff, vs. U.S. BANK NATIONAL ASSOCIATION,

Defendant.

Civil Action No.: 2011-7095 BRIEF IN OPPOSITION TO THE PRELIMINARY OBJECTIONS OF U.S. BANK NATIONAL ASSOCIATION TO PLAINTIFF’S SECOND AMENDED COMPLAINT CODE: Filed on behalf of Plaintiff, County of Washington, Pennsylvania and all other similarly situated Pennsylvania Counties Counsel of Record for this Party: D. AARON RIHN, ESQUIRE Pa. I.D. No.: 85752 ROBERT N. PEIRCE, III, ESQUIRE Pa. I.D. No.: 76130 ROBERT PEIRCE & ASSOCIATES, P.C. Firm I.D. 839 2500 Gulf Tower, 707 Grant Street Pittsburgh, PA 15219 (412) 281-7229 GARY E. MASON, ESQUIRE WHITFIELD BRYSON & MASON LLP 1625 Massachusetts Ave. NW Suite 605 Washington, DC 20036 JASON S. RATHOD, ESQUIRE WHITFIELD BRYSON & MASON LLP 1625 Massachusetts Ave. NW Suite 605 Washington, DC 20036 JONATHON W. CUNEO, ESQ.

CHARLES LADUCA, ESQ. CUNEO GILBERT & LADUCA 507 C Street, N.E Washington, D.C. 20002 DEBRA BREWER HAYES REICH AND BINSTOCK, LLP 4265 San Felipe, Ste. 1000 Houston, TX 77027 Phone: (713) 622-7271

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TABLE OF CONTENTS

I. INTRODUCTION……………………………………………………………………….. 1

II. FACTS ..................................................................................................................................3

A. The Pennsylvania Recording Laws and the Statutory Duty to Record ....................3 B. The Mortgage Electronic Registration System, Inc. ................................................4 C. U.S. Bank Did Not Record Assignments, Yet Claimed the Benefits of

Doing So ...................................................................................................................7

III. LEGAL STANDARD ........................................................................................................10 IV. ARGUMENT .....................................................................................................................10

A. There is A Statutory Duty to Record Mortgage Assignments ...............................10 B. Plaintiff Has Standing for its Requested Declaratory and Injunctive Relief ......................................................................................................................13

1. Plaintiff Has Standing Because the Injury it Alleges Touches on Statutorily-Designated Areas of its Concern ....................................................14 2. Plaintiff Has Standing Because Defendant’s Conduct Has Impaired the County’s Recording System and Deprived it of Fees and the

County Has a Duty to Protect Itself and the Public From This Harm ...............16 3. Plaintiff Has Standing Because Its Priority Rights as a Creditor Confer Standing to Challenge the Perfection of MERS Mortgages Defendant Represents as Perfected .....................................................................................18

C. Plaintiff Has Named the Correct Defendant ..........................................................20

D. Plaintiff States a Claim for Unjust Enrichment .....................................................20

1. Defendant Benefited from Claiming Compliance with a Statute that it Violated ..........................................................................................................21 2. Defendant Benefited in its Role as an RMBS Trustee by Using the County Recorder to Claim that it Held Perfected Mortgages When it Did Not...........................................................................................................22 3. Defendant Benefited by Using the County Recorder to Prosecute Foreclosures When it Lacked the Authority to do so ........................................23

E. The Court Should Overrule the Objections for the Quiet Title Claim ...................27 1. This Court is an Appropriate Venue for Plaintiff’s Quiet Title Claim .............29 2. Plaintiff’s Quiet Title Claim Sufficiently Describes the Property ....................30 3. Plaintiff Has Alleged Sufficient Facts Showing the Securitization Trustee Has Possession of the Documents Sought to be Recorded ..................32

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4. Plaintiff Does Not Need to Join Landowners as Necessary and Indispensable Parties .........................................................................................34

F. Plaintiff’s Requested Declaratory Judgment that U.S. Bank Holds Unperfected MERS Mortgages and Requested Injunctive Relief to Compel Recordation of Corrective Mortgage Assignments is Sound ...................37

1. Transfer of the Note Requires Recordation of a Mortgage Assignment for the Accompanying Mortgage to be Perfected .............................................37 2. Pennsylvania Law Requires that a Mortgage be Properly Recorded, by Identifying the Actual Record Owner, to Impart Constructive Notice ................................................................................................................39 3. MERS Mortgages Are Improperly Recorded for Defendant’s Purposes and Fail to Provide Constructive Notice for Subsequent Noteholders .............40 4. Principles of Agency Law Prove the Validity of Plaintiff’s, Not Defendant’s, Position ........................................................................................42 5. Even Assuming, Arguendo, that the MERS Model is Valid, Trust Depositors are not MERS’ Members ................................................................44

G. Defendant Lacked Authority to Foreclose in MERS’ Name and Following an Assignment from MERS, Necessitating Declaratory Relief to Assist in Clearing Title and Correcting Plaintiff’s Land Records ........................................45

1. MERS has Never Been a Real Party in Interest Able to Foreclose, or Able to Assign a Right to Foreclose, and Therefore Such Foreclosures Failed to Convey Title ......................................................................................45 2. Defendant’s Failure to Recite All Assignments in Foreclosure Complaints Violated Pa. R.C. P. 1147(a)(1), Rendering Foreclosures it Conducted Wrongful .........................................................................................45 3. Because Defendant Lacked Authority to Foreclose, Purchasers of Foreclosed Properties from Defendant Lack Clear Title, Necessitating the Declaratory and Injunctive Relief Plaintiff Calls for ..................................47

V. CONCLUSION ..........................................................................................................................49

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TABLE OF AUTHORITIES

CASES

Bain v. Metro. Mortg. Group, Inc., 285 P.3d 34 (Wash. 2012) .................................................... 41 Bank of N.Y. v. Silverberg, 86 A.D.3d 274 (N.Y. App. Div. 2011) .............................................. 25 Barren v. Dubas, 295 Pa. Super. 443 (1982) ................................................................................ 34 Bell v. Twp. of Spring Brook, 30 A.3d 554 (Pa. Commw. Ct. 2011) ............................................ 10 Bellistri v. Ocwen Loan Servicing, Inc., 284 S.W.3d 619 (Mo. Ct. App. 2009) .......................... 25 Bevilacqua v. Rodriguez, 460 Mass. 762 (2011) ................................................................... passim Borough of Wilkinsburg v. Horner, 88 Pa.Cmwlth. 594, 490 A.2d 964 (1985) ........................... 35 Brennan v. Shore Brothers, 380 Pa. 283 (1955) ........................................................................... 28 Brown v. Simpson, 1834 WL 3218 (Pa. 1834) ............................................................................... 15 Bruker v. Burgess and Town Council of Borough of Carlisle, 376 Pa. 330 (1954) ...................... 28 Cheesman v. Yurkanin, 73 Pa. D. & C. 378, (Ct. Com. Pl. Luzerne County 1950) ..................... 31 Columbia Gas Transmission Corp. v. Diamond Fuel Co., 464 Pa. 377 (1975) ..................... 34, 35 Com. v. Bank of Am., N.A., 2012 WL 6062747 (Mass. Super. Dec. 3, 2012) .............................. 47 Com. v. Sontarelli, 791 A.2d 1254 (Pa.Cmwlth 2002) ................................................................. 11 Com. v. Baker, 690 A.2d 164 (Pa. 1997) ...................................................................................... 13 County of Wash., Pa. v. U.S. Bank Nat. Ass'n, 2012 WL 3860474 (W.D. Pa. Aug. 17, 2012) ……………………………………………………………....7, 26, 31 Cranberry Park Associates v. Cranberry Township Zoning Hearing Board, 751 A.2d 165 (Pa. 2000) .................................................................................................................................. 11 Custer v. Glessner, 68 Pa. Super. 60 (1917) .................................................................................. 15 Eaton v. Federal Nat'l Mortg. Ass'n, 969 N.E.2d 1118 (Mass. 2012) .......................................... 24 Estey Co. v. Dick, 41 Pa. Super. 610 (1910) .................................................................................. 48 First Citizens Nat’l Bank, v. Sherwood, 583 Pa. 466 (2005) .......................................................... 39 Franklin T'hip v. Commw. Dept. of Envtl. Res., 500 Pa. 1, 452 A.2d 718 (1982) ........................ 14 Fumo v. City of Philadelphia, 601 Pa. 322, 972 A.2d 487 (2009) ............................................... 14 Grace Bldg. Co. v. Parchinski, 78 Pa. Commw 187, 467 A.2d 94 (1983) ................................... 31 Hanson v. Berenfield, 24 Pa. D. & C 2d 361 (1961) .................................................................... 28 Hartzfeld v. Green Glen Corp., 380 Pa. Super. 513 (1989) .......................................................... 34 Hendricks v. U.S. Bank, N.A, No. 10-849-CH, June 6, 2011 (Mich. Washtenaw Co. Trial Ct.)...19 In re Gebco Inv. Corp., 641 F.2d 143 (3rd Cir.1981) .................................................................... 23 In re Idicula, 484 B.R. 284 (Bankr. S.D.N.Y. 2013) .................................................................... 26 In re Lampe, 665 F.3d 506 (3d Cir.2011) ..................................................................................... 21 In re Lippold, 457 B.R. 293 (Bankr. S.D.N.Y. 2011) ................................................................... 26 In re T.J., 559 Pa. 118, 125-26, 739 A.2d 478 (1999) .................................................................. 14 Ind. Mortg. Co. v. MSTC Inv. Inc., 2008 WL 7414679(Pa. Com. Pl. Dec. 17, 2008) .................... 40 Indymac Bank, FSB v. Bey, 2002 WL 31082395 (Pa. Com. Pl. Sept. 12, 2002) .......................... 28 Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W. 2d 487 (Minn. 2009) ........................... 7 Johnson v. Am. Standard, 607 Pa. 492, 8 A.3d 318 (2010) .......................................................... 14

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JP Morgan Chase Bank v. Zellin, 82 Pa. D. & C.4th 460 (Com. Pl. 2007) .................................. 19 Juarez v. Select Portfolio Servicing, Inc., 2013 WL 500868 (1st Cir. Feb. 12, 2013) ................. 25 Kelter v. American Bankers' Finance Co., 306 Pa. 483, 492, 160 A. 127 (1932) ........................ 26 Koch v. First Union Corp., 2002 WL 372939 (Pa. Com. Pl. Jan. 10, 2002) ................................ 20 Landmark Nat'l Bank v. Kesler, 289 Kan. 528 (2009) ................................................................... 37 Lerner v. Lerner, 954 A.2d 1229 (Pa. Super. Ct. 2008) ............................................................... 32 MacKubbin v. Rosedale Memorial Park, Inc., 413 Pa. 637, 198 A.2d 856 (1964) ...................... 31 Mancine v. Concord-Liberty Sav. and Loan Ass'n, 299 Pa. Super. 260 (1982) .............................. 17 McCaraher v. Commonwealth, 1842 WL 4901 (Pa. 1842) .......................................................... 16 Mechanicsburg Area School District v. Kline, 494 Pa. 476, 431 A.2d 953 (1981) ...................... 36 Montgomery County Recorder of Deeds v. MERSCORP, ---F.Supp.2d---, 2012 WL 5199361

(E.D.Pa. 2012).................................................................................................................... passim Mortgage Elec. Registration Sys., Inc. v. Nebraska Dept. of Banking & Fin., 270 Neb. 529, 704 N.W.2d 784 (2005) ......................................................................................................... 24, 38 Mortgage Elec. Registration Sys., Inc. v. Saunders, 2010 ME 79, 2 A.3d 289 (Me. 2010) ............ 44 Mortgage Elec. Registration Sys., Inc. v. Sw. Homes of Ark., 2009 Ark. 152, 301 S.W.3d 1 (2009) .................................................................................................................................. 40, 43 Naranjo v. SBMC Mortg., 2012 WL 3030370 (S.D. Cal., July 24, 2012) .................................... 24 Ninth Dist. Prod. Credit Ass’n v. Ed Duggan, 821 P.2d 788 (Colo. 1991) ................................... 23 Nudi v. Pine Township, 92 Pa.Cmwlth. 32, 498 A.2d 55 (1985) .................................................. 35 Nw. Sav. Ass’n v. Womer, 72 Pa. D. & C.2d 231 (Pa. Com. Pl. 1976) ......................................... 30 Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358 (3d Cir. 1996) ................................................. 39 Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124 (1958) ................................................. 46 Pines v. Farrell, 577 Pa. 564 (2003) ....................................................................................... passim Pocono Pines Corp. v. Pa. Game Comm’n, 464 Pa. 17 (1975) .................................................... 34 Podolak v. Tobyhanna Twp. Bd. of Supervisors, 37 A.3d 1283 (Pa. Commw. Ct. 2012) ............ 32 Prouty v. Marshall, 225 Pa. 570 (1909) .................................................................................. passim Reichley v. North Penn School District, 113 Pa.Cmwlth. 528, 537 A.2d 391 (1988) .................. 35 Residential Funding Co. v. Saurman, 490 Mich. 877, 803 N.W. 2d 693 (2011) ........................ 19 Rinegard-Guirma v. Bank of America, N.A., 2010 WL 3945476 (D. Or. Oct. 6, 2010) ........ 25, 37 Rummings v. Bd. of Prob. & Parole, 18 Pa. D. & C.4th 278 (Com. Pl. 1992) ............................. 20 S. Fayette Twp. v. Com., 73 Pa. Cmwlth. 495 (1983) .................................................................... 17 Salter v. Reed, 15 Pa. 260 (1850)) ................................................................................................. 17 Schaeffer v. Frey, 403 Pa. Super. 560 (1991) ................................................................................. 14 Schenck v. K.E. David, Ltd., 446 Pa.Super. 94, 666 A.2d 327 (1995 ........................................... 21 Schott v. Westinghouse Elec. Corp., 259 A.2d 443 (1969) ............................................................ 27 Sherrer v. Lamb, 319 Pa. Super. 290, 294, 466 A.2d 163 (1983)................................................. 29 Siskos v. Britz, 567 Pa. 689 (2002) ............................................................................................... 28 Stone Crushed Partnership v. Kassab Archbold Jackson & O’Brien, 908 A.2d 875 (Pa. 2006) 12 Sylvester v. Beck, 406 Pa. 607 (1962) ............................................................................................ 43 Sw. Homes of Ark., 2009 Ark. 152 (2009) ..................................................................................... 42

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U.S. Bank Nat. Ass'n v. Baber, 2012 OK 55, 280 P.3d 956 (Okla. 2012) .................................... 25 U.S. Bank Nat. Ass'n v. Ibanez, 458 Mass. 637 (2011) .................................................................. 26 U.S. Bank Nat. Ass'n v. Kimball, 2011 VT 81, 190 Vt. 210, 27 A.3d 1087 (2011) ...................... 26 U.S. Bank v. Mallory, 982 A.2d 986 (Pa. Super. Ct. 2009) .......................................................... 46 U.S. Bank, Nat. Ass'n v. Moore, 2012 OK 32, 278 P.3d 596 (Okla. 2012) .................................. 25 United States v. Lavin, 942 F.2d 177 (3d Cir. 1991) ...................................................................... 48 Walker County, Ala. v. U.S. Bank National Association, CV-2012-000046.00 (Cir. Ct. of Walker Co., Alabama) (Aug. 27, 2012) ...................................................................... 3 Wells Fargo Bank, N.A. v. Lupori, 2010 PA Super 205, 8 A.3d 919 (Pa. Super. Ct. 2010)... 24, 45 White v. Young, 409 Pa. 562 (1963) .............................................................................................. 28 Wm. Penn Parking Garage, Inc. v. City of Pittsburgh, 464 Pa. 168, 346 A.2d 269 (1975) ......... 14 Zerr v. Commonwealth, 131 Pa. Commw. 317 (1990) ................................................................ 34

STATUTES

1 Pa.C.S. § 1903(a) ....................................................................................................................... 12 1 Pa.C.S.A § 1921(a) .................................................................................................................... 39 13 Pa. Stat. § 1201(35) ................................................................................................................. 38 13 Pa. Stat. § 9102 ......................................................................................................................... 38 13 Pa. C.S.A. § 9203(a) ................................................................................................................. 38 13 Pa. C.S.A. § 9203(b) ................................................................................................................ 38 13 Pa. Stat. § 9203(g) .................................................................................................................... 39 13 Pa. Stat. § 9308(e) ............................................................................................................... 38, 39 16 Pa. Stat. § 9731 ......................................................................................................................... 15 16 Pa. Stat.§ 9853 .......................................................................................................................... 17 21 Pa. Stat. § 351 .................................................................................................................... passim 21 Pa. Stat. §§ 381, 385, 386, 387, 390, 391, 400, 401, 451 ........................................................ 13 212 Pa. Stat. § 351 (2011) ................................................................................................... 4, 37, 39 42 Pa. C. S. § 8152 ........................................................................................................................ 19 53 Pa. Stat. §§7102, 7103 .............................................................................................................. 18 Act of April 1, 1863, P.L. 188, §1 ......................................................................................... 28, 32 Ark. Code Ann. § 14-15-404 (Supp. 2007) .................................................................................... 42 Pa. Stat. § 621-622 ........................................................................................................................... 4 UCC 102(a)(14) .............................................................................................................................. 6 UCC 8-102(a)(5) ............................................................................................................................. 6

OTHER AUTHORITIES

2 Standard Pennsylvania Practice 2d § 11:6 ................................................................................. 30 4 Goodrich-Amram 2d § 1061(a):2 .............................................................................................. 29 Goodrich-Amran §1006 (1975 Suppl) .......................................................................................... 30 2A C.J.S. Agency § 129 (2003) ...................................................................................................... 43 76 C.J.S. Registers of Deeds § 10(b); ............................................................................................. 15 Adam J. Levitin, Susan M. Wachter, Explaining the Housing Bubble, 100 Geo. L.J. 1177

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(2012) .......................................................................................................................................... 5 Black’s Law Dictionary 1375 (6th Ed. 1990) ............................................................................... 12 C. L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title Theory, 53 Wm. & Mary L. Rev. 111, 128 (Oct. 2011) .............................................. 6 W.Warren, Cutting Off Claims of Ownership Under the Uniform Commercial Code, 30 U. Chi. L. Rev. 469, 470 (1963) ..................................................................................................... 48 J. F. Dolan et al., Core Concepts of Commercial Law: Past, Present, and Future: Cases and Materials 2 (Thompson West, 2004) ......................................................................................... 48 R.K. Arnold, Yes, There is Life on MERS, 11 Prob. & Prop. 32, 36 (1997) ..................................... 4 Webster’s Third New International Dictionary 2085 (1993) ........................................................ 12

RULES

Pa. R. C. P. 17(a)..................................................................................................................... 24, 26 Pa. R. C. P. 1006 ..................................................................................................................... 30, 31 Pa. R. C. P. 1018 ........................................................................................................................... 20 Pa. R. C. P. 1028(a)(5) .................................................................................................................. 34 Pa. R. C. P. 1061 ..................................................................................................................... 27, 28 Pa. R. C. P. 1061(b)(2) ................................................................................................................. 28 Pa. R. C. P. 1061(b)(3) ............................................................................................................ 27, 28 Pa. R. C. P. 1062 ........................................................................................................................... 29 Pa. R. C. P. 1065 ........................................................................................................................... 30 Pa. R. C. P. 1147 (a)(1) ........................................................................................................... 45, 46 Pa. R. C. P. 1705 ........................................................................................................................... 29 Pa. R. C. P. 2179 ..................................................................................................................... 29, 30

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I. INTRODUCTION

Defendant U.S. Bank National Association (“U.S. Bank”) has lodged preliminary

objections in this class action against it brought by the County of Washington, Pennsylvania, (the

“County”), on its own behalf and on behalf of and all other similarly situated Pennsylvania

Counties (collectively, the “Counties”). The essence of the County’s case is simple: U.S. Bank

must record mortgage assignments when mortgage notes are conveyed to it in the securitization

process because Pennsylvania statutory and equitable law require it.

Pennsylvania statutory law requires Defendant to record mortgage assignments in the

securitization process. Under the conspicuous heading “NECESSITY OF RECORDING AND

COMPULSORY RECORDING,” 21 Pa. Stat. § 351 states that “all . . . conveyances . . . shall be

recorded in the [relevant] office for the recording of deeds.” The Pennsylvania Supreme Court has

said that a mortgage assignment is a conveyance that must be recorded. Pines v. Farrell, 577 Pa.

564, 576 (Pa. 2003). The Eastern District of Pennsylvania just months ago found that there is a

statutory duty to record as well, rejecting identical arguments to the contrary presented by

Defendant here. See Montgomery County Recorder of Deeds v. MERSCORP, ---F. Supp. 2d---,

No. 11-6968, 2012 WL 5199361 (E.D. Pa. Oct. 19, 2012). Defendant acts as trustee for

residential mortgage backed security (“RMBS”) trusts in which it has represented that all rights to

mortgage loans have been conveyed to it. Yet, Defendant has not recorded, or caused to be

recorded, mortgage assignments for such loans on mortgaged properties in Washington County

and throughout the Commonwealth of Pennsylvania. U.S. Bank is in plain violation of the law,

must make corrective recordations of mortgage assignments, and pay the County the necessary

recording fees.

The law of equity also requires Defendant to record the mortgage assignments. U.S. Bank

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at the time its RMBS trusts were created did not hold perfected mortgages, yet represented that it

possessed all the rights to certain mortgage loans attached to the properties deposited in the trust,

free and clear of any encumbrance. With these representations, it attracted investors to its RMBS

trusts because it could claim that its mortgages have priority over other competing liens on the

mortgaged properties, the right to foreclose on non-performing mortgages, favorable tax treatment,

insulation from the bankruptcy of other entities in the mortgage loans’ chain of title, and other

benefits. U.S Bank, however, did not record, or cause to be recorded, all mortgage assignments at

the time the trusts were created, nor did it pay the accompanying fees, which is to say, U.S. Bank

failed to perfect its interest in these mortgages and misled its investors about the perfection of these

mortgages. Rather, U.S. Bank merely transferred notes to the trusts it administered and recorded

the change in note ownership only in the records of Mortgage Electronic Registration Systems, Inc.

(“MERS”), a private corporation created for the express purpose of circumventing the payment of

mortgage assignment fees to county governments. Transfers within the MERS system are

insufficient to perfect the mortgage for the transferee. Absent a recording of a mortgage’s

assignment with the County Recorder of Deeds, the mortgage is unperfected in the hands of the

transferee.

In short, U.S. Bank failed to use the County’s recording services for the assignments

necessary for the securitization, yet it represented to the public and to RMBS investors that the

RMBS trusts had the benefit of perfected mortgages, a benefit that could only be obtained by using

the County’s services for recording assignment. U.S. Bank has greatly profited by falsely claiming

that it has obtained a benefit that only the County can provide; the County is willing to grant U.S.

Bank that benefit, but requires that U.S. Bank follow Pennsylvania law and pay for it like any other

citizen. Because it has not, U.S. Bank has unjustly received a benefit that it should not be allowed

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to retain. See Montgomery County, 2012 WL 5199361, at * 12 (finding claim stated for unjust

enrichment); See Walker County, Ala. v. U.S. Bank Nat’l Ass’n, No. 2012-000046.00 (Cir. Ct. of

Walker County, Alabama) (Aug. 27, 2012), attached hereto as Exhibit 1 (denying Defendant’s

motion to dismiss nearly identical complaint that contained unjust enrichment claim).

U.S. Bank registers the following preliminary objections to Plaintiff’s Second Amended

Complaint (“SAC”): (1) there is no statutory duty to record mortgage assignments; (2) Plaintiff

lacks standing for its requested declaratory and injunctive relief; (3) Plaintiff has named the wrong

Defendant; (4) there is no claim for unjust enrichment because Defendant has received no benefit;

(5) Plaintiff fails to state a claim for quiet title because it lacks venue for putative class members,

because it did not adequately describe the land implicated, because Plaintiff has not alleged the

trustee has possession of the mortgage assignments sought to be recorded, and because necessary

and indispensable parties have not been joined; (6) the requested declaration, and accompanying

injunctive relief for corrective recordations of mortgage assignments, that MERS mortgages held

by Defendant are unperfected in the securitization process absent recorded mortgage assignments

to Defendant should be dismissed because they lack legal support; (7) the requested declaratory

relief that Defendant was not the real party in interest to prosecute foreclosures either in its name or

in MERS’ name lacks legal support. For the reason which follow, each of these arguments fail,

and all of U.S. Bank’s preliminary objections should be overruled.

II. FACTS A. The Pennsylvania Recording Laws and the Statutory Duty to Record As early as the 17th Century, American colonies passed property recordation statutes,

requiring a mortgagee (a lender who receives a mortgage as security for its loan) to record

mortgages and assignments of the mortgages or risk losing its ability to enforce the mortgage lien

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against a subsequent purchaser for value. See SAC, ¶ 9. Pennsylvania adopted its first recording

act in 1717, and it remains in force today. Id. at ¶ 10. Pennsylvania law dictates that mortgages

must be recorded within six months after they have been originated and that priority is determined

according to the date of recording. Pa. Stat . §§ 621-622. Mortgage assignments must be in

writing and filed with a county recorder of deeds. Id. The fee for recording assignments “shall be

governed by the fee bill in effect in the county in which such assignment is recorded.” Id. at §§

623-624. In Washington County, the base fee is currently $52.50 per assignment. SAC, at ¶ 17.

Pennsylvania law requires that “all deed, conveyances, contracts, and other instruments of

writing . . . shall be recorded in the office for the recording of deed in the county where such lands

. . . ” are located. 212 Pa. Stat. § 351 (2011) (emphasis added). A mortgage assignment is a

conveyance that must be recorded. Pines, 577 Pa. at 576 ; Montgomery County, 2012 WL

5199361, at * 5 (“[W]e conclude that ‘all . . . conveyances . . . shall be recorded,’ 21 Pa. Stat.

§351, means that all conveyances shall be recorded.”). Defendant disagrees with this

interpretation and its arguments will be addressed below. See infra IV.A.

B. The Mortgage Electronic Registration Systems, Inc.

Unlike the Commonwealth’s recording system, which was established by and for the

people of Pennsylvania, “MERS is owned and operated by and for the mortgage industry.”

[Former MERS’ CEO] R.K. Arnold, Yes, There is Life on MERS, 11 Prob. & Prop. 32, 36 (1997).

MERS was created in the mid-1990s by the mortgage industry to facilitate the growing

industry practice of selling residential mortgages for securitization in complex investment vehicles

known as residential mortgage backed securities (“RMBS”), which are generally issued by

specially-created RMBS trusts.1 While RMBS have existed in their modern form since 1971 and

1 Defendant offers a rather charitable description of the positive impact of private mortgage securitization. See Brief In Support of the Preliminary Objections of U.S. Bank National Association to Plaintiff’s Second Amended

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were a robust market before the advent of MERS, the financial institutions involved in

securitization sought to add greater profitability to the securitization process. One way this was

accomplished was through the creation of MERS, which was formed for the express purpose of

avoiding fees traditionally due to county recorders of deeds when sales or assignments of

mortgages were made. See SAC, ¶¶ 32-35. In recent filings, MERS has affirmed that it exists to

“eliminate the need for frequent, recorded assignments of subsequent transfers.” Id. at ¶ 34.

Through MERS, RMBS trusts, including those for which Defendant U.S. Bank acts as

Trustee, circumvent county recording requirements. Id. at ¶ 39. RMBS trusts do not make loans

directly to consumers. Instead, they purchase loans that are originated by other financial

institutions. RMBS trusts and originating lenders are united through their common membership in

MERS. That is, MERS is used to facilitate the transfer of the mortgage (but not the promissory

note) to the trust through the following method. Id. At the loan’s origination, the originating

lender takes possession of the note,2 becoming holder of the note, and the borrower and lender

designate MERS (as the lender’s “nominee”) to also serve as the “mortgagee” in the mortgage,

which is publicly recorded. Id. The secured interest of the lender (and lender’s successors and

assigns) is, thus, allegedly held by MERS. Id. If the borrower were to default on the loan, MERS,

as the mortgagee, is allegedly authorized to foreclose on the home. Id. The loan information from

the mortgage is allegedly registered by the MERS member lender on the MERS system. Id. When

the note is sold, usually with an eye toward its eventual securitization, the note is transferred from

Complaint, pp. 2-3, Jan. 14, 2013 (“Def. Br.”). Plaintiff has suffered an injury entitling it to relief under Pennsylvania law and is not here to put securitization on trial or litigate the recent financial crisis. Nevertheless, it bears mention that some commentators have reached a contrary conclusion about the desirability and impact of the private mortgage securitization industry. See, e.g., Adam J. Levitin, Susan M. Wachter, Explaining the Housing Bubble, 100 Geo. L.J. 1177, 1181 (2012) (“The primary cause of the housing bubble was the shift from regulated, government-sponsored securitization to unregulated, private securitization as the principal method of funding mortgage loans.”). 2 Defendant asserts that its mortgage notes are negotiable instruments. See Def. Br., p. 2. No note is in the record, however, and, thus, discovery is needed to ascertain the veracity of Defendant’s factual statement.

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the original lender by an endorsement and delivery and MERS members are allegedly required to

update the MERS system to reflect the change in ownership. Id. Whether MERS records

accurately reflect these changes in ownership is uncertain. See Id. at ¶¶ 38, 46-51. According to

MERS, so long as the note has been transferred to a MERS member, the transaction allegedly does

not need to be recorded because, under the terms of the mortgage, MERS remains the original

mortgagee, as the nominee for the new “beneficial owner” of the note (the original lender’s

“successor and/or assign”). Id. at ¶ 39.

MERS bears some resemblance to the Depository Trust Company (the “DTC,” also known

as CeeDee & Co.), which is the record holder of most public securities in the United States and

operates as a clearinghouse for most of the securities industry. The DTC, however, operates under

the statutory framework of UCC Article 8.3 There is no equivalent statutory framework that

confines MERS; indeed there is no statutory authorization for MERS whatsoever, as was pointed

out by county recorders at the time of MERS formation. One recorder, for example, appropriately

contrasted the openness and reliability of the public record with the closed and incomplete nature

of MERS:

I am the official custodian of that database and everything that goes in there is required by Kentucky statutes that says this is what goes in that database that I am officially responsible for, and I'm held accountable for that. If what I am officially responsible for is the assignments then my next door neighbor is going to come in to see his record of assignment . . . . Now, I can provide him access to that . . . . This should be public record and all of a sudden it is no longer a public record. It's an inconclusive file. It went in this black hole called a clearinghouse.

C. L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System's Land Title

Theory, 53 Wm. & Mary L. Rev. 111, 128 (Oct. 2011) (quoting R. Jackson, Clerk, Jefferson Cty.,

Ky., Statement at National Association of Counties Legislative Conference: Mortgage Assignment

Issue Meeting 25 (Mar. 4, 1994)).

3 DTC is a “clearing corporation” under UCC 8-102(a)(5) and a “securities intermediary” under 8-102(a)(14).

7

The unreliability of Defendant’s records in the wake of the mortgage industry’s reliance on

MERS, rather than county recording offices, was highlighted earlier in this litigation. Defendant

removed Plaintiff’s Complaint to federal court and Plaintiff moved for remand. In the lengthy

jurisdictional battle, Defendant was unable to produce adequate admissible evidence to show that

the amount-in-controversy would meet the minimum for the action to remain in federal court. The

Western District of Pennsylvania, in granting Plaintiff’s Motion to Remand, characterized

Defendant’s records related to purported transfers as “spotty” and “unreliable,” adding that

“[t]here is no guarantee of trustworthiness, to say the least.” County of Wash., Pa. v. U.S. Bank

Nat. Ass'n, No. 11-1405, 2012 WL 3860474 (W.D. Pa. Aug. 17, 2012) report and

recommendation adopted, 2012 WL 3860438 (W.D. Pa. Sept. 5, 2012). The mortgage finance

industry, including Defendant, has popularized use of in the mortgage securitization process, even

though the MERS’ system has not been incorporated in state statutory schemes, with the exception

of Minnesota.4

C. U.S. Bank Did Not Record Assignments, Yet Claimed the Benefits of Doing So

The Washington County Recorder of Deeds provides a service of promulgating legally

sufficient public notice of real property liens in exchange for a fee. SAC, ¶ 14. This service is

known as “perfecting.” Id. While an unperfected mortgage is enforceable by the mortgagee

against the borrower, it is not enforceable against a subsequent good faith purchaser for value or

other subsequently perfected liens. Id. That is, with perfected loans, the mortgagee has priority

over all other lienholders to seize the underlying collateral in the event of default to satisfy the debt

it is owed. These loans, in turn, can be securitized by major investment banking trustees, such as

Defendant, who attract investors by marketing the securities on their ability to enjoy favorable tax

4 Defendant’s brief references Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W. 2d 487 (Minn. 2009). See Def. Br., p. 6.The case is of no import here, however, because use of MERS is authorized by statute in Minnesota.

8

treatment, insulation from the bankruptcy of other entities in the mortgage loans’ chain of title, and

other benefits. See Id. at ¶¶ 20-25. When Defendant oversees mortgage-backed securities trusts as

a trustee, it is able to charge premium prices to investors for its services. Id. at ¶ 23. At the root of

Defendant’s profit from overseeing MBS trusts, then, are the services of the county recorder.

In order for RMBS trusts to be properly formed and to enjoy the benefits of securitization,

there must be two “true sales” of the mortgage loans, which means that all rights to the mortgage

loans are transferred to the trust so that no upstream entity in the chain of title could claim control

of the assets in the event of bankruptcy. Id. at ¶¶ 20-28. The first sale must be to an RMBS trust

depositor and another from the trust depositor to the RMBS trustee. Id. at ¶¶ 22-25. To satisfy the

requirement of two true sales, all mortgage assignments from the originating lender to the

depositor to the trustee must be recorded. Id. at ¶¶ 26-31. Here, Defendant represented that all

rights had been so transferred. Id.

The contracts used by U.S. Bank to create trusts, known as Pooling and Service

Agreements or PSAs, contain express language to ensure that all rights to the mortgage loans have

been transferred to the trust, so that the transaction is considered a true sale and, accordingly,

bankruptcy-remoteness is achieved and the trust maximizes its ratings. Id. at ¶ 26. The express

language also ensures that the mortgage loan is secured, so that REMIC tax status is achieved. Id.

at ¶¶ 26-31. For example, the PSA for the trust that issued U.S. Bank’s MORTGAGE ASSET-

BACKED PASS THROUGH CERTIFICATES SERIES 2005-EFC3 contains the standard

definition of “mortgage loan”:

Mortgage Loans: Such of the mortgage loans transferred and assigned to U.S. Bank pursuant to Section 2.01 as from time to time are held or deemed to be held as a part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified Substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, each related Mortgage Note, Mortgage and

9

Mortgage File and all rights appertaining thereto. See Mortgage Asset-Backed Pass Through Certificates Series 2005-EFC3, p. 36 of 1830, attached

as Exhibit A to SAC (hereinafter referred to as “PSA”) (emphasis added) (SAC, at ¶ 26).

The PSA for MORTGAGE ASSET-BACKED PASS THROUGH CERTIFICATES

SERIES 2005-EFC3 also contains boilerplate warranties made by the Depositor:

(a) The Depositor, concurrently with the execution and delivery hereof, does hereby assign to U.S. Bank without recourse all the right, title and interest of the Depositor in and to (i) the Mortgage Loans . . . .

. . . The Depositor hereby represents and warrants to U.S. Bank for the benefit of the Certificate holders that as of the Closing Date (or, if otherwise specified below, as of the date so specified): (i) the information set forth in Exhibit G-1 and Exhibit G-2 hereto with respect to each mortgage Loan or The Mortgage Loans, as the case may be, is true and correct in all material Respects at the respective date or dates which such information is furnished; (ii) immediately prior to the conveyance of the Mortgage Loans to U.S. Bank, the Depositor had good title to, and was the sole owner of, each Mortgage Loan free and clear of any pledge, lien, encumbrance or security interest (other than rights to servicing and related compensation) and such conveyance validly transfers ownership of the Mortgage Loans to U.S. Bank free and clear of any pledge, lien, encumbrance or security interest ….

Id. at ¶ 26 (emphasis added).

The representations of the depositor are given integrity by the trustee, who investors are led

to believe is an independent and objective entity co-sponsoring the representations by closely

reviewing the trust’s mortgage file and serving the trust’s interests. The trustee acknowledges

receipt in the PSA of the mortgage loans in accordance with the depositor’s representations of

conveying perfected mortgages. See PSA, at p. 67 (SAC, at ¶ 27). Further, the trustee is charged

with promptly reviewing each Mortgage File in the trust “to ascertain that all required documents

… have been executed and received.” Id. at pp. 67-68 (SAC, at ¶ 27). Finally, if the trustee finds a

material defect in its review of the mortgage file then the trustee is to compel the depositor to

10

repurchase the defective mortgage loans. Id. p. at 68 (SAC, at ¶ 27).

Despite its representations, Defendant did not record or cause to be recorded all mortgage

assignments and, without having done so, held only unperfected mortgages. SAC, at ¶¶ 28-31.

Transfers recorded solely within the MERS system are ineffective to give the transferee perfection

in the mortgage; perfection is obtainable only through a proper filing with the Washington County

Recorder of Deeds, which is the sole and definitive set of property records for the County.

Accordingly, Defendant should not have received the benefits of a perfected mortgage, including

the benefits that flow from securitization.

III. LEGAL STANDARD

A demurrer can only be sustained when the complaint clearly is insufficient to establish

the pleader's right to relief. Bell v. Twp. of Spring Brook, 30 A.3d 554, 557, n.7 (Pa. Commw.

Ct. 2011). A preliminary objection in the nature of a demurrer admits as true all well-pled

material, relevant facts and every inference fairly deducible from those facts. Id. Conclusions or

averments of law are not considered to be admitted as true by a demurrer. Id. Since the

sustaining of a demurrer results in a denial of the petitioner's claim or a dismissal of the suit, a

preliminary objection in the nature of a demurrer should be sustained only in cases that clearly

and without a doubt fail to state a claim upon which relief may be granted. Id. If the facts as

pleaded state a claim for which relief may be granted under any theory of law, there is sufficient

doubt to require the preliminary objection in the nature of a demurrer to be rejected. Id.

IV. ARGUMENT

A. There is a Statutory Duty to Record Mortgage Assignments

The Defendant argues that the Plaintiff’s claims should be dismissed because 21 Pa. Stat.

§ 351 does not impose a mandatory duty to record. This is false. The statutory language at issue

11

could not be any clearer:

All deeds, conveyances, contracts, and other instruments of writing wherein it shall be the intention of the parties executing the same to grant, bargain, sell and convey any lands, tenements, or hereditaments situate in this Commonwealth, upon being acknowledged by the parties executing the same or proved in the manner provided by the laws of this Commonwealth, shall be recorded in the office for the recording of deeds in the county where such lands, tenements, and hereditaments are situate. Every such deed, conveyance, contract, or other instrument of writing which shall not be acknowledged or proved and recorded, as aforesaid, shall be adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of any judgment, duly entered in the prothonotary’s office of the county in which the lands, tenements, or hereditaments are situate, without actual or constructive notice unless such deed, conveyance, contract, or instrument of writing shall be recorded, as aforesaid, before the recording of the deed or conveyance or the entry of the judgment under which such subsequent purchaser, mortgagee, or judgment creditor shall claim. Nothing contained in this Act shall be construed to repeal or modify any law providing for the lien of purchase money mortgages.

Id. (emphasis added). A mortgage assignment is a conveyance that must be recorded. Pines, 577

Pa. at 576.

The statutory interpretation of the word “shall” is a road well-traveled. The Defendant

would have this Court believe that the General Assembly’s use of the term “shall” in this

provision was merely intended to indicate an option. It would have this Court read the “shall” as

a “may.” Such a reading would flout the rules of statutory construction and the well-established

jurisprudence of this Commonwealth. Contrary to the Defendant’s assertion, the term “shall” is

consistently recognized as signifying a statutory mandate. See e.g. Com. v. Sontarelli, 791 A.2d

1254, 1260 (Pa. Commw. 2002) (“By definition, the word ‘shall’ is mandatory; in ordinary

usage, the word ‘shall’ means ‘must’ and is inconsistent with the concept of discretion.”);

Cranberry Park Assoc. v. Cranberry Twp. Zoning Hearing Bd., 751 A.2d 165, 167 (Pa.

2000)(“…the word ‘shall’ denotes a mandatory, not permissive instruction.”)

Pursuant to the Statutory Construction Act, “[w]ords and phrases shall be construed

12

according to their common and approved usage.” 1 Pa. Cons. Stat. § 1903(a). In the case of

“shall,” this means it should be interpreted as signifying a mandate. See e.g. Webster’s Third

New International Dictionary 2085 (1993) (listing the first definition of shall: “1a: will have to;

must.”); Black’s Law Dictionary 1375 (6th Ed. 1990) (“As used in statutes, contracts, or the like,

this word is generally imperative or mandatory . . . . The word in ordinary usage means ‘must’

and is inconsistent with a concept of discretion.”).

The Federal District Court for the Eastern District of Pennsylvania just recently

considered this very issue, and determined that the term “shall” imposed a mandatory duty to

record. Montgomery County, 2012 WL 5199361, at * 5. The Montgomery County action is

nearly identical to this one, with the only significant difference being that Montgomery County

was proceeding directly against MERS, whereas these claims are being asserted against an

RMBS Trustee. In its Motion to Dismiss the action, Defendant MERS asserted the same

arguments currently being advanced by U.S. Bank, including “no duty to record.” In denying the

Motion to Dismiss, the court stated that the defendant’s attempts to read “shall” as “may” “is not

permissible,” and that “’all . . . conveyances . . . shall be recorded,’ 21 Pa. Stat. § 351, means that

all conveyances shall be recorded.” Id.

The Defendant would have this Court disregard the Montgomery County decision on the

basis that as a federal decision it is not binding precedent. While it is true that Federal District

Court decisions interpreting state law are not binding on this Court, it is equally true that such

decisions are generally regarded as persuasive authority. See e.g. Stone Crushed P’ship v.

Kassab Archbold Jackson & O’Brien, 908 A.2d 875, 883-887 (Pa. 2006). The analysis and

decision of the Eastern District in Montgomery County is thorough and sound, and serves as

good guidance to any court on this issue.

13

The Defendant also argues that there have been some rare instances when courts in

Pennsylvania have interpreted “shall” as meaning “may.” In support, the Defendant cites Com. v.

Baker, 690 A.2d 164, 166-167 (Pa. 1997), in which the Pennsylvania Supreme Court stated that

“it is the intent of the legislature which governs” the interpretation issue. While it is

acknowledged that there are some rare instances in which “shall” could be interpreted as “may,”

the Baker Court itself recognized that “statutory provisions containing the word ‘shall’ are

usually considered to be mandatory,” and indeed interpreted “shall” as being mandatory in its

own holding.

Even if this were one of those rare instances in which “shall” was used ambiguously, the

analysis of legislative intent urged by the Defendant reveals that it was intended to be mandatory

in this case. As explained by the Montgomery County Court:

Even were the Defendants’ interpretation of the statute permissible, the Legislature clearly expressed its intent to make recording of conveyances compulsory in other ways. Those statutes which permit recording of certain types of documents all appear under the heading “INSTRUMENTS SUBJECT TO RECORD.” See 21 Pa. Stat. §§ 381, 385, 386, 387, 390, 391, 400, 401, 451. In contrast, 21 Pa. Stat. § 351, which makes recording of certain types of documents compulsory, appears under the heading “NECESSITY OF RECORDING AND COMPULSORY RECORDING.” Accordingly, we conclude that “all . . . conveyances . . . shall be recorded,” 21 Pa. Stat. §351, means that all conveyances shall be recorded. Even were an alternate reading permissible, the Legislature’s organization of the statutes respecting recording of different categories of documents shows that it intended precisely this result. Dismissal on the basis is unwarranted.

Montgomery County, 2012 WL 5199361, at * 5.

B. Plaintiff Has Standing for its Requested Declaratory and Injunctive Relief

Defendant’s attacks on Plaintiff’s standing for its declaratory and injunctive relief counts

fall short. See Def. Br., pp.24-29, 33. In general, the standard for standing is that a person who

is not adversely affected in any way by the matter he seeks to challenge is not aggrieved and,

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accordingly, lacks standing to obtain judicial resolution of the dispute. See Wm. Penn Parking

Garage, Inc. v. City of Pittsburgh, 464 Pa. 168, 190 (1975). A party can demonstrate that it has

been aggrieved if it can establish that it has a substantial, direct and immediate interest in the

outcome of the litigation. Fumo v. City of Phila., 601 Pa. 322, 336 (2009). The interest is direct

if there is a causal connection between the asserted violation and the harm complained of; it is

immediate if that causal connection is not remote or speculative. Johnson v. Am. Standard, 607

Pa. 492, 510 (2010).

This general inquiry has been “refined” in the context of a government agency or political

subdivision, such a county, bringing suit. See In re T.J., 559 Pa. 118, 125-126 (1999). In such

circumstances, when a government body has been invested with certain functions, duties, and

responsibilities, it has “an implicit power to be a litigant in matters touching upon its concerns.”

Id. (citing Franklin T’hip v. Commw. Dept. of Envtl. Res., 500 Pa. 1 (1982). Franklin Township

is the paradigmatic example. There, the Pennsylvania Supreme Court found that the statutory

responsibilities of local government to protect and enhance the quality of life of its citizens

conferred standing to challenge state agency’s issuance of permit for solid waste disposal within

local government’s boundaries. See id. at 8-9.

Here, the County satisfies both the general and refined standing inquiries. It is an

aggrieved party with standing because the harm allegedly suffered not only touches on areas of its

statutorily-designated duties but is also of such severity that Plaintiff has a substantial, direct and

immediate interest in the outcome of the litigation. See id. at 8-9.

1. Plaintiff has standing because the injury it alleges touches on statutorily-designated areas of its concern

The county recorder “is obligated to protect the public . . . in preserving the integrity of the

official records of his [or her] office.” Schaeffer v. Frey, 403 Pa. Super. 560, 567-568 (1991)

15

(quoting 76 C.J.S. Registers of Deeds § 10(b)); see also Custer v. Glessner, 68 Pa. Super. 60, 61

(1917) (“The recorder of deeds in each of the several counties of the Commonwealth is and has

been, almost since our beginning, an important county officer. He is elected by the people of the

county . . . [His records] are the history of the transactions of the people of the county affecting the

titles to land.”). The recorder serves the public by recording deeds and similar instruments

presented at his or her office in a “fair book,” noting the day in which the instrument was brought

into the office, and indexing the records by the name of the grantor and the name of the grantee.

See 16 Pa. Stat. § 9731.

Further, the recording acts are intended to discourage secrets liens and trusts and protect the

rights of potential purchasers of properties that may have such hidden liens against them. See

Brown v. Simpson, 2 Watts, 233, at * 10 (Pa. 1834) (“Secret liens or trusts are not to be encouraged

upon any species of property whatever; but in no case can such a thing prevail as to real estate

against an innocent purchaser of it for a full and valuable consideration without notice, unless our

recording acts are to be overturned and set aside.”). In the absence of a system maintained by the

recorder in which the public can take notice and rely, “no one would be safe in purchasing real

estate, or in loaning upon the strength of it, as security.” Prouty v. Marshall, 225 Pa. 570, 574

(1909).

Defendant thinks otherwise of the recorder, calling its duties purely ministerial and likening

the position to that of an archivist, “a preserver of historic documents” who is not to “make sure

what she has recorded has the effect intended by the parties to the document.” See Def. Br., p. 28.

In reality, however, the county recorders’ office is more analogous to a database of health records –

if the records are incomplete, inaccurate, or non-existent, the database decreases in value and may

be virtually worthless. There is a strong public interest in maintaining accurate land records.

16

Further, county recorders’ role is not purely “ministerial” in the sense that the county recorders

have a duty to maintain clear, accessible land records and can be held personally liable for failing

to comply with this duty. See McCaraher v. Commw., 1842 WL 4901, at * 27 (Pa. 1842)

(affirming penalty imposed on recorder for failure to faithfully execute his duties in part because

of the significance of the office, which “may be said to form the pivot on which all our titles to

real estate turn.”).

2. Plaintiff has standing because Defendant’s conduct has impaired the County’s recording system and deprived it of fees and the County has a duty to protect itself and the public from this harm

At the core of the claims for declaratory and injunctive relief is Plaintiff’s allegation that

Defendant received the full benefit of the county recorder’s imprimatur even though it did not

pay the full costs for this benefit. The requested relief would set the record straight, definitively

clarifying (1) whether Defendant can use a privatized system, MERS, rather than the recording

offices of Plaintiff, to perfect mortgage loans, and if not, whether Defendant should be ordered to

cause corrective assignments to be recorded since it has already claimed the benefits of holding

perfecting mortgages; (2) whether Defendant can leverage the false designation of MERS as

“mortgagee” in Plaintiff’s recording office to foreclose in MERS’ name or foreclose following a

fraudulent, belated assignment from MERS when MERS has never been a noteholder.

Plaintiff’s factual allegations, which at the demurrer stage are to be fully credited, are that

Defendant’s conduct in relation to these claims have, among other things, directly deprived it of

significant mortgage assignment fees, corrupted its land records, and placed clouds on the

property of the county’s citizens, depressing the county’s tax revenue and necessitating

significant services, time and expense from the Counties to determine ownership of properties.

See SAC, Nature of the Action; ¶¶ 53, 68-80, 90. Similar to Franklin Township, the county has a

17

responsibility to preserve the integrity of its recorder’s official records and to enhance the quality

of life of its citizens by safeguarding the revenue it is entitled to collect and disperse on services

for its citizens.

Defendant goes to great lengths to argue that the recording acts are intended to only benefit

“subsequent bona fide mortgagees and purchasers.” Def. Br., pp. 26-27. Defendant is wrong. The

recording acts are also intended to benefit potential mortgagees and other interested parties or, in

other words, the public at-large. Indeed, the entry of recorded instruments in the aforementioned

indexes by the recorder is notice to “all persons” of the recording of the documents. 16 Pa. Stat. §

9853; Prouty, 225 Pa. at 573 (stating that “[t]he object of the recording acts is to give notice to the

world” of ownership rights to, and incumbrances on, real estate); Mancine v. Concord-Liberty Sav.

and Loan Ass'n, 299 Pa. Super. 260, 264 (1982) (stating that the primary object of recording deeds

as stated by the Supreme Court is “to give public notice in whom the title resides so that no one

may be defrauded by deceptious appearances of title.”) (quoting Salter v. Reed, 15 Pa. 260, 263

(1850)).

Both the harm suffered, and Defendant’s argument on lack of standing, are similar to those

presented in S. Fayette Twp. v. Com., 73 Pa. Cmwlth. 495, 501 (1983). There, a township alleged

that it had not received its share of a tax levied on foreign fire insurance companies and sought a

mandamus order to compel state officials to insure the companies’ compliance with the relevant

statute and also requested an impoundment of foreign fire insurance premiums on funds to be paid

to certain municipalities, until the reporting companies complied with the statute. Id. at 499-500.

State officials argued that the statute indicated “that the municipality has no discretion in

withholding the funds and is thus merely a conduit for the funds” and, further, that fireman’s

associations, not the municipality, were the only party who suffered an injury. Id. at 501. The

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Commonwealth Court disagreed, finding that the township was not “representing itself as the

fiduciary of the public interest with no express or implied mandate to do so,” but rather, acting

pursuant to its statutorily prescribed responsibility to offer fire protection to its residents, which

conferred standing. Id. Here, too, the court should reject Defendant’s argument that the harm is

indirect and that the purported ministerial nature of the country recorder’s job prohibits the county

from filing suit, and find instead that Plaintiff is acting within its rights to remedy an injury it has

suffered, particularly as to its recorder who has been inhibited from faithfully executing her job.

3. Plaintiff has standing because its priority rights as a creditor confer standing to challenge the perfection of MERS mortgages Defendant represents as perfected

Defendant argues that the County needs to be a party to the mortgage loan or a third party

beneficiary to challenge the perfection of loans held by Defendant. See Def. Br., pp. 24-25. This

is wrong. Defendant’s conduct has obscured Plaintiff’s priority rights as a tax lien creditor and

code violation creditor, thereby causing injury. Plaintiff has a sufficient stake in the outcome of

this case because the declaration that the MERS mortgages accompanying notes deposited in

Defendant’s trusts are unperfected will clarify the nature of its priority rights.

Under state statutes such as the Municipal Claims and Tax Liens Act (MCTLA), taxes on

real property by counties are a first lien on such real property (though subordinate to the lien of

taxes imposed by the Commonwealth). 53 Pa. Stat. §§7102, 7103. Counties can make tax claims

and recover unpaid taxes by conducting judicial sales on the underlying properties. A judicial sale

can divest a mortgage, even if the mortgage is recorded before a tax becomes a lien, if the tax lien,

by law, has priority. See JP Morgan Chase Bank v. Zellin, 82 Pa. D. & C.4th 460, 464 (Pa. Com.

Pl. 2007) (“By statute, with certain exceptions, a mortgage lien on real estate which is prior to all

other liens upon the same property is unaffected by a judicial sale of the property.”) (citing 42

19

Pa. Cons. Stat. § 8152). Thus, if Plaintiff makes a tax claim and seeks to conduct a judicial sale on

property in which Defendant has a note accompanying a mortgage on the same property, then it is

critical to know whether Defendant has a perfected mortgage in the property. If Defendant does

not have a perfected mortgage – because mortgage assignments were never recorded from an

originating lender to depositor to the Defendant – then Plaintiff’s sale will divest the mortgage. If,

however, Defendant does have a perfected mortgage, then the sale will not divest the mortgage and

the sale conducted by Plaintiff will yield much less money.

Because debtors who struggle to pay their taxes are likely to default on their loans as well,

it is far from speculative that Plaintiff will compete for priority with RMBS trusts such as those

overseen by Defendant. Indeed, in at least one instance, a debtor with a note attached to a

mortgage deposited in Defendant’s trust has been in foreclosure proceedings in the same year as

Plaintiff has sought to enforce a municipal lien. See Exhibit 2, hereto (mortgage assignment from

LaSalle Bank to Defendant as successor trustee related to property in Washington County); Exhibit

3, hereto (list of actions against debtor specified in prior Exhibit. Note that case type number

“041” is for municipal liens and case type number “026” is for foreclosures).5 Further, local

government units in Pennsylvania have competed with RMBS trustees for priority in similar

instances before. See, e.g., JP Morgan Chase Bank, 82 Pa. D. & C.4th at 463 (finding that bank

trustee’s mortgage was divested by sheriff’s sale held by school district to satisfy unpaid school

taxes and stating that “in reaching this conclusion the importance of promptly recording a

mortgage to preserve its priority and of correctly identifying the underlying statute pursuant to

5 Incidentally, U.S. Bank, as successor trustee, had a foreclosure sale declared void that was conducted in connection with a mortgage loan purportedly deposited in this trust. See Hendricks v. U.S. Bank, N.A, No. 10-849-CH, June 6, 2011 (Mich. Washtenaw Co. Trial Ct.). See Exhibit 4, hereto. The debtor prevailed on his argument that Defendant failed to comply with the terms of the PSA. Id. at * 5-6. The Michigan Supreme Court’s subsequent decision in Residential Funding Co. v. Saurman, 490 Mich. 877 (2011) does not disturb the Hendricks’ court’s ruling as to compliance with the PSA.

20

which a tax sale is held cannot be overemphasized.”). Clearly, then, Plaintiff has a concrete and

particularized interest in clarifying whether MERS mortgages held by Defendant are perfected.

C. Plaintiff Has Named the Correct Defendant

Defendant protests that Plaintiff has named the Defendant in its individual capacity,

rather than in “its capacity as a trustee” and that this alleged misnomer merits dismissal of the

Complaint in its entirety. Def. Br., pp. 8-9. Defendant’s argument fails. It is abundantly clear

from the Complaint that Plaintiff has sued Defendant for conduct related to its role as a trustee of

various RMBS trusts. See, e.g., SAC at ¶ 6 (“U.S. National Bank Association is the Trustee for

numerous trusts containing mortgage loans located in Washington County and other Counties in

Pennsylvania, including MORTGAGE ASSET-BACKED PASS THROUGH CERTIFICATES

2005-EFC3,” which was attached to the Complaint). The naming of U.S. Bank, together with

the detailed descriptions of Defendant’s conduct as Trustee and the attachment of a PSA

describing Defendant’s representations as trustee, has put Defendant (in its capacity as trustee)

on “notice of the existence of the claim” and afforded it the “opportunity to muster and preserve

evidence,” which is all that is required by Pa. R.C.P. 1018 for identification of a proper

defendant. Koch v. First Union Corp., No. 100727, 2002 WL 372939 (Pa. Com. Pl. Jan. 10,

2002) (quoting Rummings v. Bd. of Prob. & Parole, 18 Pa. D. & C.4th 278, 279-280 (Pa. Com.

Pl. 1992).6

D. Plaintiff States a Claim for Unjust Enrichment

Defendant lodges a lone, narrow objection to Plaintiff’s unjust enrichment claim,

6 Defendant’s insinuation that Plaintiff can only sue Defendant in its role as trustee for an individual trust, rather than over a set of trusts, is also misguided. Defendant has admitted that it uses a single “Trustee ID number,” rather than separate ID numbers, in MERS’ internal records for the trusts it administers. See SAC, at ¶ 53. Defendant’s conduct demonstrates that it is a unitary actor in relation to the trusts it oversees, and should be held accountable as such.

21

conceding, in the process, that all but one element of the claim has been met. See Def. Br.,

pp.10-12. Defendant alleges that Plaintiff did not confer a benefit on Defendant. See id. It is

clear, though, that Defendant reaped the full benefits of Plaintiff’s recording system even though

it made false statements to avoid paying the full costs of the system. On nearly identical

allegations, the Eastern District of Pennsylvania found that a claim for unjust enrichment was

stated by the Montgomery County recorder.

[T]he Plaintiff has successfully pleaded that the Defendants have enjoyed the full benefits of the recording system without paying the full value for these benefits in the form of the fees properly due for each transfer of the beneficial interest of a mortgage. (See Compl. ¶¶ 26–29, 41–45.) She has further successfully alleged that the Defendants did so in violation of a statutory command to record such assignments. See id.; Section IV.A supra. Because a plaintiff may recover when “it would be inequitable for the defendant to retain the benefit without paying full value for it,” In re Lampe, 665 F.3d 506, 520 (3d Cir.2011) (citing Schenck v. K.E. David, Ltd., 446 Pa. Super. 94, 666 A.2d 327, 328 (1995)) (emphasis added), these allegations state a viable unjust enrichment claim.

Montgomery County, 2012 WL 5199361, at * 12. Here, the benefits received by Defendant,

though it was not entitled to them, include: (1) compliance with 21 Pa. Stat. § 351, (2) profit

generated from the formation of trusts that it oversaw on the basis that they held perfected

mortgages, and (3) the ability to conduct foreclosures.

1. Defendant benefited from claiming compliance with a statute that it violated

Defendant received the benefit of compliance with a state statute, even though it violated

the statute. In the securitization process, mortgage loans are typically conveyed at least three

times, and must be conveyed at least two times. See SAC, at ¶¶ 22-31. By law, these

conveyances must be recorded with the county recorder as mortgage assignments, and mortgage

assignment fees must be paid. See id., at ¶¶ 16-17. Defendant, however, did not record, or cause

to be recorded, these mortgage assignments, nor did it pay assignment fees. See id., at ¶ 31.

Defendant’s flouting of the law enabled it to retain funds that belonged to the county.

22

2. Defendant benefited in its role as an RMBS trustee by using the county recorder to claim that it held perfected mortgages when it did not

It is self-evident that U.S. Bank has profited by acting as an RMBS trustee. Defendant

does not run a charity, after all. Cf. Montgomery County, 2012 WL 5199361, at * 12, n. 18

(“The Defendants' actions on this point speak louder than their arguments before this Court. If

recording conveyed no benefits, then MERS would not exist.”). That is, Defendant claimed the

benefit of representing that its trusts held perfected mortgages, allowing it to reap profits from its

role as trustee, but did not make the recordings necessary to lawfully make such representations.

See SAC at ¶¶ 16, 28-31. Mortgage securitization is a highly structured process in which certain

preconditions are necessary to the formation of an RMBS trust. Specifically, there must be at

least two “true sales,” which entails the transfer of all rights to perfected mortgages, to ensure the

essential features (including bankruptcy-remoteness and favorable tax treatment) of an RMBS

that render investment in it attractive relative to other options. See id., at ¶¶ 22-25. The high

value of the trusts created by these features has enabled Defendant to charge premium prices to

investors for its services as Trustee, a tangible benefit if there were any. See id., at ¶ 23. Put

simply, the fruits (profits) from Defendant overseeing RMBS trusts stem from the poisoned tree

of running a deceptive scheme on the county and its recorder.

Defendant now argues, however, through selective excerpts, that it made no

representations about the perfection of mortgages and, accordingly, received no benefit. See

Def. Br., pp. 4-5, 10-14. Rather, Defendant argues, it was the Depositor who made the

representations and sold the certificates and, further, that the PSA purportedly disclaims the

trustees’ responsibility concerning the mortgage loans and MERS. See id. Not so. Investors are

attracted to RMBS trusts because of the representations made in the PSAs and because the

representations are co-sponsored and given integrity by the trustee.

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That is, the trustee, who investors are led to believe is an independent and objective entity,

acknowledges receipt in the PSA of the mortgage loans in accordance with the depositor’s

representations of conveying perfected mortgages. See PSA, at p. 67. Further, the trustee is

charged with promptly reviewing each Mortgage File in the trust “to ascertain that all required

documents … have been executed and received.” Id. at 67-68. Finally, if the trustee finds a

material defect in its review of the mortgage file – including, presumably, the absence of perfected

mortgages that form the basis for the RMBS trusts – then, the trustee is to compel the depositor to

repurchase the defective mortgage loans. Id. at 68. These duties are why the Trustee is paid and

nothing in the PSAs that Defendant points to can disclaim this reality. Without the assurances that

the trustee supplies to securitization about reviewing mortgage files to ensure the presence of

perfected mortgages, investors would look elsewhere. Here, however, Defendant made the

representations of holding perfected mortgages necessary to attract the investors, receiving the

benefits of acting as an RMBS trustee, but did not record the necessary mortgage assignments nor

pay the necessary fees. On such facts, a claim for unjust enrichment is stated. See Montgomery

County, 2012 WL 5199361, at * 12; cf. In re Gebco Inv. Corp., 641 F.2d 143, 148 (3rd Cir. 1981)

(finding under Pennsylvania law that an unjust enrichment claim was stated when “the

subcontractors were not paid and their efforts increased the value of the mortgaged property”);

Ninth Dist. Prod. Credit Ass’n v. Ed Duggan, 821 P.2d 788, 797-798 (Colo. 1991).

3. Defendant benefited by using the county recorder to prosecute foreclosures when it lacked the authority to do so

Finally, Defendant benefited by prosecuting foreclosures when it lacked the legal authority

to do so by leveraging the false designation of MERS as “mortgagee” in county records to paper

over Defendant’s lack of authority. On behalf of its trusts, Defendant prosecuted foreclosures in

the name of MERS, or after fraudulently directing an assignment from MERS, even though MERS

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has never had the right to foreclose. Pennsylvania law requires that the plaintiff in a civil action,

including a foreclosure proceeding, be the real party in interest. See Pa. R. Civ. P. 17(a); Wells

Fargo Bank, N.A. v. Lupori, 2010 Pa. Super. 205, 8 A.3d 919, 922, n.2 (Pa. Super. Ct. 2010).

Yet, MERS has never been the real party in interest because it has never been a noteholder, which

would entitle it to the benefits of a foreclosure. See SAC, at ¶ 69; Mortgage Elec. Registration

Sys., Inc. v. Neb. Dept. of Banking & Fin., 270 Neb. 529, 533 (2005) (“MERS argues that it does

not own the promissory notes secured by the mortgages and has no right to payments made on

the notes.”). For years, U.S. Bank prosecuted foreclosures by naming MERS as the plaintiff in

foreclosure proceedings until adverse precedent prompted MERS to change its membership rules

and prohibit its members from prosecuting in its name, which is telling enough. See SAC, at ¶ 71.

Defendant’s new method is equally faulty. See id. at ¶ 72. Now, when U.S. Bank wishes

to foreclose, it has an employee become a “MERS official” by filling out a short website form,

causes a mortgage assignment from MERS (signed by the latest MERS official who is, actually, a

U.S. Bank official) to U.S. Bank to be recorded, which Defendant presents as a self-authenticating

public record to prosecute foreclosures against bewildered homeowners. See id. at ¶¶ 47-49, 72.

One critical flaw (of many)7 in this method is that if MERS never had the right to foreclose

(because it has never been a noteholder) then it has no right of foreclosure to assign to Defendant.

See id. at ¶ 75; Eaton v. Fed. Nat'l Mortg. Ass'n, 969 N.E.2d 1118, 1134 (Mass. 2012) (finding

7 Two other crippling flaws stick out. First, these mortgage assignments were made and recorded after the closing date set forth in Defendant’s trusts, which prohibits entry of any documents in the mortgage file after the date has passed. See SAC, at ¶ 75; Naranjo v. SBMC Mortg., No. 11-2229, 2012 WL 3030370, at * 3 (S.D. Cal. July 24, 2012) (“The vital allegation in this case is the assignment of the loan into the WAMU Trust was not completed by May 30, 2006 as required by the Trust Agreement. This allegation gives rise to a plausible inference that the subsequent assignment, substitution, and notice of default and election to sell may also be improper. Defendants wholly fail to address that issue . . . . This reason alone is sufficient to deny Defendants' motion with respect to this issue.” Second, even assuming, arguendo, that MERS held a right to foreclose, the original mortgage states that MERS is the nominee of the originating lender. See SAC at ¶ 72. No written document exists establishing an agency relationship among originating lenders, MERS, and Defendant that would allow Defendant to direct MERS to record a mortgage assignment without the originating lender’s permission, as Defendant has systematically done. See id., at ¶¶ 72-76.

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MERS assignment insufficient to confer power to foreclose); Bevilacqua v. Rodriguez, 460

Mass. 762, 772 (2011) (finding that because U.S. Bank lacked authority to foreclose in the first

instance it could not transfer property to subsequent purchaser); Rinegard-Guirma v. Bank of

Am., N.A., No. 10-1065, 2010 WL 3945476, at * 4 (D. Or. Oct. 6, 2010) (noting that “other

courts have held that MERS does not have authority to transfer the note” and finding that

homeowner was likely to succeed in challenge to securitization trustee's authority to foreclose);

Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 283 (N.Y. App. Div. 2011) (holding MERS lacked

authority to assign power to foreclose because it was not holder or assignee of the notes);

Bellistri v. Ocwen Loan Ser., Inc., 284 S.W.3d 619, 621 (Mo. Ct. App. 2009) (finding MERS's

attempt to transfer mortgage and “any and all notes secured by the mortgage” ineffective because

MERS was not the noteholder and there was no evidence that the noteholder authorized MERS

to transfer the note).

Plaintiff has alleged that Defendant would not have been able to present adequate evidence

to foreclose had it not manufactured these fraudulent mortgage assignments, which is consistent

with the many cases in which Defendant failed to present satisfactory evidence to show standing to

foreclose when pressed by judges. See SAC at ¶ 112; Juarez v. Select Portfolio Ser., Inc., No.

11-2431, 2013 WL 500868, at * 5-8 (1st Cir. Feb. 12, 2013) (finding that homeowner stated

claim for defendant’s failure to show standing to foreclose on basis of backdated assignment to

U.S. Bank); U.S. Bank Nat. Ass'n v. Baber, 2012 OK 55, 280 P.3d 956, 957-959 (2012) (finding

that Defendant had not presented adequate evidence of standing to foreclose and stating that it

“is a fundamental precept of the law to expect a foreclosing party to actually be in possession of

its claimed interest in the note, and to have the proper supporting documentation in hand when

filing suit ….”); U.S. Bank, Nat. Ass'n v. Moore, 2012 OK 32, 278 P.3d 596, 601-602 (2012),

26

reh'g denied (May 24, 2012) (same); In re Idicula, 484 B.R. 284, 287-289 (Bankr. S.D.N.Y.

2013) (finding that U.S. Bank lacked standing to foreclose); U.S. Bank Nat. Ass'n v. Kimball, 190

Vt. 210, 217-218 (2011) (finding that U.S. Bank lacked standing to foreclose and noting that

“[i]nitially, U.S. Bank's suit was based solely on an assignment of the mortgage by MERS.”);

U.S. Bank Nat. Ass'n v. Ibanez, 458 Mass. 637, 650 (2011) (finding that foreclosure sales were

invalid because Defendant could not present proof to show authority to foreclose); In re Lippold,

457 B.R. 293, 298-299 (Bankr. S.D.N.Y. 2011) (finding that U.S. Bank lacked standing to

foreclose).8 Plaintiff’s conclusion that Defendant would have grave difficulty in foreclosing but

for manufacturing fraudulent evidence is further supported by the sorry state of Defendant’s

records as a result of its use of MERS. See County of Washington, Pa., 2012 WL 3860474,

report and recommendation adopted, 2012 WL 3860438 (characterizing Defendant’s records

related to purported transfers as “spotty” and “unreliable,” adding that “[t]here is no guarantee of

trustworthiness, to say the least.”).

Defendant attempts to shrug off MERS’ lack of authority to foreclose, and lack of authority

to assign a right to foreclose, by selectively excerpting language purportedly granting such

authority from the form contract that homeowners sign with originating lenders. See Def. Br., pp.

7, 21. Pennsylvania law has long recognized that “[c]ourts will not be controlled by the

nomenclature the parties apply to their relationship.” Kelter v. Am. Bankers' Fin. Co., 306 Pa.

483, 492 (1932). Accordingly, Defendant cannot disclaim its legal responsibility to comply with

Pa. R. C. P. 17(a), requiring that foreclosures be prosecuted by the real party-in-interest, and the

state statute of frauds, requiring that purported agency relationships concerning real property be

8 Plaintiff has alleged that the mortgage notes were deposited in Defendant’s RMBS trusts. Defendant could present notes in foreclosure proceedings to assist it in prosecuting foreclosures. As the cases enumerated above show, however, notes, following deposit in the trusts, were later lost or destroyed, necessitating Defendant’s scheme to foreclose in MERS’ name or manufacture fraudulent evidence through improper use of Plaintiff’s recording office.

27

committed to writing. As such, Defendant’s argument is unpersuasive.

In short, U.S. Bank failed to use the County’s recording services for the assignments

necessary for the securitization, yet it represented to the public and to RMBS investors that it had

the benefit of perfected mortgages, a benefit that could only be obtained by using the County’s

services for recording assignment. U.S. Bank has greatly profited by falsely claiming that it has

obtained a benefit that only the County can provide; the County is willing to grant U.S. Bank that

benefit, but requires that U.S. Bank pay for it like any other citizen. Courts in Pennsylvania refuse

to sustain preliminary objections on unjust enrichment claims unless they are “free and clear

from doubt” that the law denies recovery. See, e.g., Schott v. Westinghouse Elec. Corp., 259 A.2d

443, 449 (Pa. 1969). On the facts set forth above and in the Second Amended Complaint, this

court cannot say “without doubt” that Plaintiff cannot establish an unjust enrichment claim. Thus,

Defendant’s preliminary objections should be overruled.

E. The Court Should Overrule the Objections for the Quiet Title Claim Plaintiff’s quiet title claim under Rule 1061 was brought in the appropriate venue,

sufficiently described the land at issue, alleged facts sufficient to show securitization trustee has

possession of the mortgage assignments that the County seeks to have recorded, and joined all

necessary and indispensable parties.

Plaintiff’s quiet title claims were appropriately brought under Pennsylvania Rule of Civil

Procedure 1061 (“Rule 1061”). One of the purposes of actions to quiet title under Rule

1061(b)(3) is “to compel an adverse party to file, record . . . or admit the validity, invalidity or

discharge of, any document, obligation or deed affecting any right, lien, title or interest in land.”

Pa. R.C.P. 1061(b)(3). Rule 1061 is extremely broad in scope, unifying into one procedure all of

the diverse procedures by which clouds on title were formerly tried and to adjudicate title

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disputes when an action in ejectment is not appropriate. Bruker v. Burgess and Town Council of

Borough of Carlisle, 376 Pa. 330, 334 (1954); White v. Young, 409 Pa. 562 (1963). Although a

plaintiff has neither possession nor an immediate right to possession, the plaintiff may

nonetheless sustain an action under either Pa. R.C.P. 1061(b)(2) or (b)(3). Brennan v. Shore

Bros., 380 Pa. 283, 286 (1955). An Action to Quiet Title is appropriate by a party not in

possession, and not seeking possession, but who wishes to determine all rights in the land.

Siskos v. Britz, 567 Pa. 689, 699 (2002). When a case involves a cloud on property, but not a

possessory interest, an action may be maintained under Rule 1061. Indymac Bank, FSB v. Bey,

No. 3200, 2002 WL 31082395 (Pa. Com. Pl. Sept. 12, 2002). Rule 1061 does not require

plaintiff to be in possession of the land in order to maintain the action. Hanson v. Berenfield, 24

Pa. D. &C.2d 361, 373 (1961). Furthermore, an action to compel recordation is permitted by any

person “in any manner interested” in the documentation of the transaction to be recorded. Act of

April 1, 1863, P.L. 188, §1, repealed in part by 42 Pa. Cons. Stat. § 20002 (a)[414].

Here, the Plaintiff, although lacking a possessory interest in the land in question, qualifies

as a person “in any manner interested” in the recordation of the documentation of the transaction

to be recorded. U.S. Bank’s failure to record mortgage assignments has affected the pecuniary

interests of Washington County by depriving the County of the fees due for recording. U.S.

Bank’s failure to record mortgage assignments has also harmed the accuracy, completeness and

integrity of Pennsylvania’s land title system, which is tracked at the County level. Plaintiff

therefore has a direct pecuniary interest affected by the status of the relevant documents as

recorded, or, in the instant case, left unrecorded. See Montgomery County, 2012 WL 5199361, at

*10 (finding pecuniary interest was affected by the failure to record mortgage assignments).

This Court should not dismiss Plaintiff’s quiet title claim. The Quiet Title Action is the

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appropriate way for the County to seek to compel the Securitization Trustee to record mortgage

assignments for mortgage loans deposited into RMBS trusts for which the Securitization Trustee

acts as trustee.

1. This court is an appropriate venue for Plaintiff’s quiet title claim

Defendant asserts that this Court is not an appropriate venue to consider the claims

Plaintiff asserts on behalf of other counties within Pennsylvania. Defendant makes these

assertions based on the language in Pennsylvania Rule of Civil Procedure 1062 (“Rule 1062”),

which states that an action to quiet title “may be brought in and only in a county in which the

land or a part of the land is located.”

Preliminarily, Defendant’s venue argument is an improper and premature attack on

Plaintiff’s class allegations. Pa. R. C. P. 1705 could not be clearer: “Issues of fact with respect to

the Class Action Allegations may not be raised by preliminary objections but shall be raised by

the answer.” See also Sherrer v. Lamb, 319 Pa. Super. 290, 294 (1983) (“[T]he lower court

should not have concerned itself with the preliminary objections to the class action allegations at

all.”). The issue of the location of mortgaged properties outside of Washington County that are

subject to Plaintiff’s Complaint is one of fact and, thus, cannot be raised by preliminary

objection. Defendant will have ample opportunity to raise this objection at the class certification

stage and the court should delay adjudication until that time.

Even assuming, arguendo, that Defendant’s argument can be considered at this stage, this

Court can find venue proper under the broader venue rules, Pennsylvania Rule of Civil

Procedure 1006 regarding Venue and Change of Venue (“Rule 1006”) and Pennsylvania Rule of

Civil Procedure 2179 (“Rule 2179”), which are applicable to an action to quiet title by virtue of

the rule requiring conformity with civil actions. See 4 Goodrich-Amram 2d § 1061(a):2.

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Together these rules define the appropriate venue for cases against corporations. Rule 1006

states that, “[a]ctions against the following defendants . . . may be brought in and only in the

counties designated by the following rules . . . corporations and similar entities, Rule 2179. Rule

2179 states that “a personal action against a corporation or similar entity may be brought in and

only in…the county where its registered office or principal place of business is located; a county

where it regularly conducts business; the county where the cause of action arose; a county where

a transaction or occurrence took place out of which the cause of action arose, or a county where

the property or a party of the property which is the subject matter of the action is located

provided that equitable relief is sought with respect to the property.” Under Rule 1006, failure to

make a payment in a county is an “occurrence,” permitting use of that county’s court as an

appropriate venue. Nw. Sav. Ass’n v. Womer, 72 Pa. D. & C.2d 231, 233-234 (Pa. Com. Pl.

1976). See also 2 Standard Pennsylvania Practice 2d § 11:6. There is no question that venue is

appropriate for the properties that are located in the County of Washington, Pennsylvania.

Plaintiff urges this Court to use the broader interpretation of venue under Rules 1006 and

2179 to expand venue to cover all counties in Pennsylvania. Rule 1006 was designed to prevent

the hardships and expenses of bringing multiple actions, in multiple counties, that could result in

inconsistent verdicts. See Goodrich-Amran §1006 (1975 Suppl.). Finding insufficient venue as

to the 66 other counties in Pennsylvania will only lead to judicial inefficiency and unfairness.

2. Plaintiff’s quiet title claim sufficiently describes the property

Although U.S. Bank has already identified the property in question, Defendant asserts

that the County failed to sufficiently describe the land at issue in the quiet title claim as required

by Rule 1065. This rule requires that “[t]he plaintiff shall describe the land in the complaint.”

To support its allegation, Defendant cites cases in which the party seeking to quiet title was

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unable to describe the metes and bounds of the land at issue, which prohibited the court from

quieting title. MacKubbin v. Rosedale Mem’l Park, Inc., 413 Pa. 637 (1964) (inability to

describe boundaries of cemetery plots); Grace Bldg. Co. v. Parchinski, 78 Pa. Cmwlth. 187, 192

(1983) (documents insufficient to identify boundaries of strip of land purchased in a tax sale);

and Cheesman v. Yurkanin, 73 Pa. D. & C.378, 379 (Pa. Ct. Com. Pl. Luzerne County 1950)

(inability to describe premises conveyed in an execution sale). This case is distinguishable; a

description of the metes and bounds of the land is unnecessary to determine the property

involved.

Here, as the complaint states, Plaintiff seeks to quiet title on property when assignments

of mortgages were made for “mortgage loans deposited in RMBS trusts for which Defendant acts

as trustee.” See SAC at ¶ 99. The need to quiet title on these properties arises from Defendant’s

failure to publicly record assignments on the properties, as required under Pennsylvania law.

The Complaint’s description of the property was sufficient enough for Defendant to present

evidence to the U.S. District Court for the Western District of Pennsylvania regarding both the

number of mortgages and the number of assignments on those mortgages. See Affidavit of Irina

Palchuk in Support of U.S. Bank’s Opposition to Plaintiff’s Motion to Remand at ¶¶ 2-7,

attached hereto as Exhibit 5; County of Washington, Pa., 2012 WL 3860474 (W.D. Pa. Aug. 17,

2012). In fact, Defendant produced all of the recorded mortgages it believed to be subject to the

Complaint, and each recorded mortgage contains a detailed description of the relevant properties.

See, e.g., Exhibit C to SAC, at p. 18 (providing detailed description of property). Additional

specificity about the properties in question has been obscured by Defendant’s behavior. The

Court should not dismiss Plaintiff’s quiet title claim on this ground. Dismissal would reward

Defendant for its ongoing violations of the recording laws.

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3. Plaintiff has alleged sufficient facts showing the securitization trustee has possession of the documents sought to be recorded

Defendant asserts that Plaintiff must allege facts that show the Securitization Trustee, i.e.

U.S. Bank, has possession of the mortgage assignments that the County seeks to have recorded.

Defendant states that the County must allege in the Complaint facts showing that U.S. Bank has

possession of the alleged assignments or that those assignments exist as documents. To support

these claims Defendant points to the language of Section 2 Act of April 1, 1863, P.L. 188, §1,

repealed in part by 42 Pa. Cons. Stat. § 20002(a)[414] (“1863 Act”),9 and Pennsylvania court

rules requiring notice of the Plaintiff’s claims and facts essential to support the claim. Lerner v.

Lerner, 954 A.2d 1229, 1235 (Pa. Super. Ct. 2008) (“Pennsylvania is a fact-pleading state; a

complaint must not only give the defendant notice of what the plaintiff’s claim is and the

grounds upon which it rests, but the complaint must also formulate the issues by summarizing

those facts essential to support the claim”).

To resolve preliminary objections that Plaintiff has insufficiently stated facts to support

their claims, courts consider whether the complaint cites facts sufficiently specific for the

defendant to prepare defense. Podolak v. Tobyhanna Twp. Bd. of Supervisors, 37 A.3d 1283 (Pa.

Commw. Ct. 2012). Courts must examine and accept as true all material facts set forth in the

pleading and all inferences reasonably deducible therefrom. Id. at 1287. The County has alleged

facts showing that U.S. Bank has or had possession of the mortgage assignments that the County

9 Section 2 the Act provides: That the courts of common pleas of this commonwealth shall have the power, upon petition and affidavit, setting forth that the petitioner believes that any person, or persons, has in his, or their possession, any such bargains of sales, deeds, conveyances, or other instruments of writing, that the petitioner is the present owner of the premises, or that he is interested in such bargains, deeds, conveyances, or other instruments of writing, and that six months’ notice has been given to the defendants, or person, or persons, in whose possession the same is, or are alleged to be, to deliver up, or record the same, to grant a rule upon such person to show cause why the same should not be delivered up, or recorded; upon the hearing of said rule, unless the defendant, or defendants, in the same show, to the satisfaction of the court, why the same should not be delivered or recorded, the said court are hereby authorized and required to decreed and direct the said defendant, or defendants, to deliver up, or record, such bargain of sale, deeds or conveyances, or other instruments, in said petition described. . . .

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seeks to have recorded and that would allow the Defendant to prepare their defense. For

example, the Complaint states:

“Defendant represented at the time these trusts were created that they possessed all the rights to certain mortgage loans attached to these properties, free and clear of any encumbrance.” See SAC, Nature of Facts, p. 3.

“U.S. Bank transferred notes to the trusts it administered and recorded the change in note ownership only in the records of Mortgage Electronic Registration Systems, Inc. (“MERS”). . . .” See SAC, Nature of Facts, p. 3-4.

“[U]se of MERS has obscured the Counties’ priority rights as creditors and undermined the integrity of their deed records. . . .” SAC, Nature of Facts, p. 3-4.

“There are two documents in particular that need to be properly transferred to the trust – a promissory note and the mortgage. The promissory note is the loan contract – it is the I.O.U. containing the borrower’s promise to repay the money lent. The mortgage is the document conferring the right to enforce the promise to pay through foreclosure. The term ‘mortgage loan’ generally refers to the mortgage and note together, although colloquially the term ‘mortgage’ is often used to refer to both the mortgage and the note. As a title theory state for recordation purposes, in which a mortgage is a conveyance of property, Pennsylvania does not sanction the separation of the note from the mortgage.” SAC, ¶21.

“The trusts are formed pursuant to, and are governed by, contracts called Pooling and Servicing Agreements (“PSAs”), which are crafted to ensure that the benefits of mortgage securitization flow to the trusts. In order for a trust to be bankruptcy-remote, there must be a ‘true sale’ of the mortgage loans, which means that all rights to the mortgage loan are transferred to the trust so that no other entity in the chain of title could claim control of the assets in the event of bankruptcy.” SAC, ¶23.

“The PSAs contain express language to ensure that all rights to the mortgage loans have been transferred to the trust, so that the transaction is considered a true sale and, accordingly, bankruptcy-remoteness is achieved and the trust maximizes its ratings. The express language also ensures that the mortgage loan is secured, so that REMIC tax status is achieved.” SAC, ¶24.

“[t]he PSA for MORTGAGE ASSET-BACKED PASS THROUGH CERTIFICATES

SERIES 2005-ECF3 contains the standard definition of ‘mortgage loan’: Such of the mortgage loans transferred and assigned to the Trustee pursuant to Section 2.01 as from time to time are held or deemed to be held as part of the Trust Fund, the Mortgage Loans originally so held being identified in the initial Mortgage Loan Schedule, and Qualified substitute Mortgage Loans held or deemed held as part of the Trust Fund including, without limitation, each related mortgage Note, Mortgage and Mortgage File and all rights appertaining thereto. . . .” SAC, ¶26.

34

“The PSA for MORTGAGE ASSET-BACKED PASS THROUGH CERTIFICATES

SERIES 2005-ECF3 contains a section in which the Trustee acknowledges acceptance of assignment to it of the Mortgage Loans. . . .” SAC, ¶27.

“Defendant is a MERS member and uses a single ‘Trustee ID Number’ to have

transactions recorded in MERS’ internal records that are related to all of the RMBS trusts that U.S. Bank administers.” SAC, ¶52.

4. Plaintiff does not need to join landowners as necessary and indispensable

parties Defendant alleges, pursuant to Pennsylvania Rule of Civil Procedure 1028(a)(5) (“Rule

1028”) that the County has failed to join necessary and indispensable parties to its quiet title

action. Namely, Defendant seeks to add the owners of the parcels of land with mortgages loans

that were assigned and became “mortgage loans deposited in RMBS trusts for which Defendant

acts as trustee.” Defendant argues that the landowners’ interests in their properties will be

directly affected by the resolution of the County’s claims. To support their allegations,

Defendants cite Pennsylvania necessary party cases that are facially distinguishable. In the cited

cases, courts identified an interest of the missing party that was at issue in the litigation and

could be compromised by an adjudication without the party. These cases involved easements,

adverse possession, disputed conveyances, or other competing claims of exclusive rights to the

same property interest.10 These allegations demonstrate that Defendant misses the point of this

quiet title action. The primary effect of the quiet title claim will be to cause corrective mortgage

assignments to be recorded so that a proper chain of title will be restored for the subject

properties. It defies reality to believe that a landowner’s interest will be directly and adversely 10 Barren v. Dubas, 295 Pa. Super. 443 (1982) (absent party claims interest in land on which Plaintiff seeks to impose an easement); Pocono Pines Corp. v. Pa. Game Comm’n, 464 Pa. 17 (1975) (absent party reserved mineral rights and reversionary interest in land over which Plaintiff sought exclusive title); Columbia Gas Transmission Corp. v. Diamond Fuel Co., 464 Pa. 377 (1975) (absent party was fee simple owner of land over which disputed easement traversed); Zerr v. Commw., 131 Pa. Cmwlth. 317 (1990) (absent party held mineral rights in strips of land “which could be lost forever” if Plaintiffs prevailed in quiet title claim); Hartzfeld v. Green Glen Corp., 380 Pa. Super. 513 (1989) (absent lot owners had rights under deed covenants to use strip of beach that was the subject of plaintiff’s competing adverse possession claim).

35

affected by a court order authorizing such injunctive relief. Accordingly, such landowners are

not indispensable parties.

A party is indispensable when his rights are so connected with the litigated claims that no

relief can be granted without infringing upon those rights. Reichley v. N. Penn School Dist., 113

Pa. Cmwlth. 528 (1988); Columbia Gas Transmission Corp. v. Diamond Fuel Co., 464 Pa. 377,

379(1975) (an indispensable party is one whose rights are so directly connected with and

affected by litigation that he must be a party of record to protect such rights.). An indispensable

party must be made a party to the lawsuit in order to protect those rights. Nudi v. Pine Twp., 92

Pa. Cmwlth. 32 (1985). Among the factors courts consider to determine whether a party is

indispensable are:

1. Whether the absent party has a right or interest related to the underlying claim; 2. If so, the nature of that right or interest; 3. Whether that right or interest is essential to the merits of the issue; and 4. Whether justice can be afforded without violating the due process rights of the absent parties.

Mechanicsburg Area School Dist. v. Kline, 494 Pa. 476 (1981); Borough of Wilkinsburg v.

Horner, 88 Pa. Cmwlth. 594 (1985). In this case, while the landowners have an interest in the

property in question, their property rights are separate from the interests of the County and its

Recorder of Deeds, not essential to the merits of the issue of recording assignments, and justice

can be afforded without violating their due process rights. The subsequent conveyances of

mortgage notes, for purposes of securitization, that occurred after the current landowner were

deeded the property do not have a substantive effect on the nature and extent of the landowners

property rights or obligations under the mortgage. Success on the merits of this case can only

benefit the landowners, as they will possess quiet title to their property, at no direct expense, and

will more easily be able to transfer their property interests. Additionally, current landowners do

36

not have a direct pecuniary interest in the recording fees that Plaintiffs seek. There is no need to

name the current landowners as parties to Plaintiff’s quiet title claim.

Defendant argues that the declaration that it holds unperfected mortgages could adversely

affect landowners because “such an impairment of the lender’s security interest in the land may

lead the lender to accelerate the mortgage debt or take other actions to collect the debt.” See Def.

Br. at 18. This assertion is pure factual speculation and should not be credited, particularly at the

preliminary objection stage. A more likely outcome from Plaintiff’s declaration and injunction

for corrective assignments is to clear title to landowners’ property, increasing value and

improving prospects for resale. Defendant makes a similar objection to Plaintiff’s declaration

that Defendant lacked standing to prosecute foreclosures in MERS’ name or following a

recorded mortgage assignment from MERS, arguing that the present owners would be adversely

impacted by such a determination. See Def. Br., pp. 17-18. This argument, too, falls short

because (a) the landowners who purchased property at foreclosure sales from Defendant already

lack clear title and the declaration does not change that reality, (b) the accompanying injunctive

relief from Count IV, seeking recordation of the missing assignments, can only ameliorate these

landowners’ current adverse condition by assisting in clearing title, and (c) the landowners

arguably do not have an ownership interest at stake because title never successfully passed to

them. See Bevilacqua, 460 Mass. at 763 (finding that purchaser of property following foreclosure

sale by U.S. Bank on MERS mortgage lacked standing to bring quiet title action because U.S.

Bank lacked authority to convey title to purchaser).

This Court should therefore not dismiss the Plaintiff’s quiet title claims for failure to

identify indispensable parties.

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F. Plaintiff’s Requested Declaratory Judgment that U.S. Bank Holds Unperfected MERS Mortgages and Requested Injunctive Relief to Compel Recordation of Corrective Mortgage Assignments is Sound

Defendant has represented that MERS Mortgages accompanying notes deposited in its

trusts are perfected, and reaped the benefits of these representations, but has not recorded the

requisite mortgage assignments for the representations to be truthful. Accordingly, Plaintiff seeks

a declaration that MERS Mortgages accompanying notes deposited in its Trusts are not perfected

and requests injunctive relief to compel recordation of corrective mortgage assignments. The relief

sought is valid and Defendant’s preliminary objections to Plaintiff’s Count III should be

overruled.

1. Transfer of the note requires recordation of a mortgage assignment for the accompanying mortgage to be perfected

The issue at the center of this count is not whether the mortgage follows the note,11 as U.S.

Bank implies, but rather, whether the mortgage remains perfected on transfer of the note without

recording a mortgage assignment. No authority states that the mortgage remains perfected.

Pennsylvania law requires that “all deed, conveyances, contracts, and other instruments of

writing . . . shall be recorded in the office for the recording of deed in the county where such lands

. . . ” are located. 212 Pa. Stat. § 351 (2011) (emphasis added). Unrecorded conveyances “shall be

adjudged fraudulent and void as to any subsequent bona fide purchaser or mortgagee or holder of

any judgment, duly entered in the prothonotary's office . . . .” Id. A mortgage assignment is a

conveyance that must be recorded. See Pines, 577 Pa. at 576. Here, when notes were transferred to

11 Defendant’s attempt to gain the benefit of this longstanding doctrine is curious, considering that its use of MERS is premised on the idea that the mortgage and note are separated. Rinegard-Guirma v. Bank of Am., N.A., No. 10-1065, 2010 WL 3945476, at * 4-5 (D. Or. Oct. 6, 2010). MERS itself has represented that it “immobilizes the mortgage lien while transfers of the promissory notes and servicing rights continue to occur.” Mortg. Elec. Registration Sys., Inc. v. Neb. Dept. of Banking & Fin., 270 Neb. 529, 533 (2005). In other words, Defendant is now arguing that not only can an actor at once be principal and agent, but that an object can at once be immobilized and mobile. Cf Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 538 (2009) (stating that MERS defines its role “in much the same way that the blind men of Indian legend described an elephant-their description depended on which part they were touching at any given time”).

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the trust, but mortgage assignments to the trust were not recorded, the mortgages were unperfected.

Even if the mortgages followed the notes into the trust, then, the trust merely held unperfected

mortgages.

Defendant looks to the Uniform Commercial Code (“UCC”) for support to the contrary. A

close examination of the UCC, however, plainly shows that this support is illusory. 13 P.S. §

9308(e), part of Pennsylvania’s adoption of the UCC, merely states that perfection (again, the

creation of priority rights) against third parties in the note means perfection of the security interest

in the sale of the mortgage. In other words, the buyer of the promissory note has priority in the

mortgage instrument vis-à-vis other claimants, such as a creditor of the seller who attempts to levy

on the note and mortgage. This, however, does not mean that the buyer of a promissory note has

priority in the underlying collateral (here, the home) vis-à-vis other mortgagees.

Defendant’s pitfall in reaching a contrary conclusion lies in its definition of “security

interest” in the colloquial sense as a “mortgage,” rather than as the “sale of a promissory note,” as

the statute provides. Specifically, since 2001, 13 P.S. § 1201(35) (in Article 1 of the UCC) has

defined “security interest” to include “any interest of . . . a buyer of . . . a promissory note in a

transaction that is subject to Division 9.” Along the same lines, 13 Pa. Stat. § 9102 defines a

“secured party” to include the buyer of a promissory note and defines “debtor” to include the seller

of a promissory note. 13 Pa. Cons. Stat. Ann. § 9203(a) provides that a “security interest” (read:

the interest of a buyer of a promissory note) “attaches to collateral when it becomes enforceable

against the debtor” by the secured party (read: the buyer of the promissory note). In other words,

the buyer of the note owns the property and could replevy it if it were detained or sue conversion

or trover if it were damaged. 13 Pa. Cons. Stat. Ann. § 9203(b) presents the four requirements for

the security interest to be enforceable: (1) the debtor (the seller of a promissory note) has rights in

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the collateral (i.e., owns the note), (2) the debtor has authenticated a security agreement (i.e., has

signed a sale document), (3) the security agreement (sale document) describes the collateral

concerned, and (4) the buyer has given value.

13 Pa. Stat. § 9203(g), which Defendant highlights, is triggered at this point and states that

attachment (read: enforceability) of a security interest (read: the sale) in a right to payment (read: a

note) secured by a security interest in real property, with an accompanying mortgage, is also the

attachment (read: sale) of the mortgage. Hence, at least under the UCC, the mortgage follows the

note. Yet, again, though, 13 Pa. Stat. § 9308(e) provides that perfection in the note means

perfection in the mortgage instrument (read: protection against a creditor of the seller of the note

who attempts to levy on the note and mortgage), and not perfection in the mortgage (read: priority

over other competing mortgages and liens).

To believe otherwise, and accept Defendant’s position that perfection in the mortgage

occurs automatically on transfer of the accompanying note, would be to render the statutory

requirement that all conveyances be recorded meaningless. See 212 Pa. Stat. § 351 (2011); cf

Mortg. Elec. Registration Sys., Inc. v. Sw. Homes of Ark., 2009 Ark. 152, 301 S.W.3d 1, 5 (2009).

This result cannot obtain under Pennsylvania’s codified principles of statutory construction. See

Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1374 (3d Cir. 1996) (referencing 1 Pa. Cons.

Stat. Ann. § 1921(a)).

2. Pennsylvania law requires that a mortgage be properly recorded, by identifying the actual record owner, to impart constructive notice

In Pennsylvania, a mortgage must be properly recorded to impart constructive knowledge.

See Prouty, 225 Pa. 570 (1909); First Citizens Nat’l Bank, v. Sherwood, 583 Pa. 466 (2005)

(finding that a mortgage properly recorded provides constructive notice). In other words, for a

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recording to impart constructive notice sufficient to perfect a party’s interest in the mortgage

(creating priority rights against third parties), the recording must be properly done. In Prouty, for

example, the Pennsylvania Supreme Court found that the mortgage was never correctly recorded

because “[t]he record of a mortgage given by S.J. Marshall is not notice to anyone seeking for

encumbrances against L.J. Marshall.” Prouty, 225 Pa. at 574. “From [Prouty] we follow the

proposition that a document must be properly recorded, by identifying the actual record owner, to

be constructive notice.” Ind. Mortg. Co. v. MSTC Inv., Inc., No. 07-6734-18-5, 2008 WL 7414679,

at * 1 (Pa. Com. Pl. Dec. 17, 2008) (finding that misspelling in mortgage of “D’Angelo

Construction Company, Inc” as “D’Angleo Construction Company, Inc.” did not provide

constructive notice) (Exhibit 6, hereto), affirmed by 987 A.2d 832 (Pa. Super. Ct. 2009), appeal

denied, 606 Pa. 665 (2010).

3. MERS Mortgages are improperly recorded for Defendant’s purposes and fail to provide constructive notice for subsequent noteholders

Because under Pennsylvania law instruments must be properly recorded and “record is

notice of just what it contains, no more and no less,” Prouty, 225 Pa. at 577, an examination of

MERS mortgages is required to ascertain what notice they provide and whether their recordation is

proper.

Defendant and MERS desire for the mortgage to be read as follows. The document

designates MERS as “nominee” of an originating lender and its “successors and assigns.” This is

done so that when the accompanying note changes hands, MERS can act as the common agent to

the originating lender and subsequent noteholders who are MERS members, and take directions

from whoever the noteholder is at any given time. If MERS were merely designated as nominee in

the document, though, then the recording index would only show the originating lender’s name,

and the world would only be on notice that the originating lender held a claim on the property. The

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mortgage would be unperfected as to subsequent noteholders unless mortgage assignments were

recorded. To address this issue, MERS is also designated as “mortgagee” so that the county

recorder will denominate MERS as a “grantee” in its recording index, purportedly putting the

world on notice that all 5,000 MERS’ members could have a claim on the property. Thus, by

MERS’s logic, when any of the 5,000 members becomes a noteholder, they retain a “perfected”

mortgage, even though MERS cannot itself be sure which, if any, of its 5,000 members are actually

the noteholder or if they have sold the note to a non-member of MERS, but failed to report the sale

to MERS. See Bain v. Metro. Mortg. Group, Inc., 285 P.3d 34, 41 (Wash. 2012) (“Under the

MERS System, questions of authority and accountability arise, and determining who has

authority to negotiate loan modifications and who is accountable for misrepresentation and fraud

becomes extraordinarily difficult.”).

MERS Mortgages are not properly recorded for Defendant to represent that it holds

perfected mortgages in the securitization process because no recording puts the world on notice

that “U.S. Bank” has an interest in the mortgage.12 It is absurd to believe, as Defendant argues,

that the mere placement of “MERS” as grantee in the recording index purportedly supplies

constructive notice for all 5,000 MERS’ members. See Def. Br., p. 29 (stating that the public

should be on notice because “every mortgage where MERS is named as mortgagee discloses that it

is acting as mortgagee solely in a nominee capacity for the original lender and its successors and

assigns.”). This is all the more true considering that the Pennsylvania Supreme court and lower

courts have held that an instrument is not perfected when a single letter of the lienholder’s name is

12 A colorable argument can be made that MERS mortgages are improperly recorded and that they should be treated as if they were not recorded at all. The MERS System is irreconcilable with Pennsylvania’s status as a title theory state. In Pennsylvania, a mortgage is considered a conveyance of land for recordation purposes. Pines, 577 Pa. at 576. In other words, the mortgagee takes “legal” title to the secured property while the mortgagor retains a “beneficial” interest in the form of an equity of redemption. To say then, that, MERS holds legal title to the mortgage as Lender A’s agent while Lender A retains the “beneficial” interest suggests the division of an already divided interest. It is unprecedented under Pennsylvania law for division of legal title to secured property into “legal title to the legal title” and a “beneficial interest in the legal title.”

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transposed or wrongly transcribed. Here, Defendant’s strained reading of the mortgage that would

grant it perfection in MERS mortgages as one of 5,000 of MERS’ “successors and assigns” is leaps

and bounds from seeking the benefit of the doubt for a minor scrivener’s error, which the law does

not even countenance.

Indeed, in MERS mortgages such as Exhibit C to the Complaint, the list of potential

principals to MERS is not provided and U.S. Bank certainly is nowhere to be found on the

instrument. The Supreme Court of Arkansas clearly set forth why, in a state with a well-

established recording system such as Pennsylvania, recordation of mortgage assignments from one

MERS’ principal to another are necessary for the mortgage to remain perfected.

Finally, we note that Arkansas is a recording state. Notice of transactions in real property is provided by recording. See Ark. Code Ann. § 14-15-404 (Supp. 2007). Southwest is entitled to rely upon what is filed of record. In the present case, MERS was at best the agent of the lender. The only recorded document provides notice that Pulaski Mortgage is the lender and, therefore, MERS’s principal. MERS asserts Pulaski Mortgage is not its principal. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.

Sw. Homes of Ark., 2009 Ark. 152, 301 S.W.3d at 5, reh'g denied (Apr. 23, 2009). This position

should prevail here, particularly in light of Pennsylvania’s requirement that notice be proper and

that a recorded instrument is “notice of just what it contains, no more and no less.”

4. Principles of agency law prove the validity of Plaintiff’s, not Defendant’s, position

Defendant argues that the use of a “nominee” or “agent” in real estate transactions has long

been sanctioned. Perhaps. But, Pennsylvania law does not allow a single agent to simultaneously

follow directions from 5,000 principals, as the MERS system contemplates. In fact, in this context,

agency law dictates that MERS mortgages are not perfected for subsequent noteholders in the

securitization process, such as U.S. Bank, because the assignments have not been recorded with the

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County Recorder of Deeds. A mortgage assignment from the originating lender, with MERS as

nominee, to the subsequent noteholder (with MERS as its nominee, if the subsequent noteholder so

prefers) would be required for the mortgage to be perfected.

It is axiomatic that an agent is tethered to a specific principal and, further, that an agent

may only do what the principal may do and, conversely, may not do what the principal might not

do were the principal to act on its own behalf. See 2A C.J.S. Agency § 129 (2003); Sylvester v.

Beck, 406 Pa. 607, 610-611 (1962) (“There can be no doubt that an agent owes a duty of loyalty to

his principal and in all matters, affecting the subject of his agency, he must act with the utmost

good faith in the furtherance and advancement of the interests of his principal.”).

As a result, when a note changes hands from the originating lender to a subsequent lender,

MERS is not truly the same entity from beginning to end. Rather, it fundamentally changes

because it must align itself with the interests of the new principal – the new noteholder – once the

note changes hands. MERS must change hats from being the first principal’s agent to being the

second principal’s agent. Yet, throughout this transaction, the mortgage lists MERS as nominee

for the originating lender, albeit for the originating lender and its “successors and assigns,” and no

notice is supplied to the public that “MERS” is fundamentally changing its agency role as the

promissory note is exchanged behind the scenes.

Thus, the designation of MERS as “mortgagee,” in order to be indexed by the recorder as

“grantee,” is false and misleading to the extent that it has been exploited by MERS, and its

members such as Defendant, to provide notice of liens for MERS’ members other than the

originating lender (with MERS as its agent). No powers, including the imputation of constructive

notice to potential and competing lienholders, are somehow independently conferred on Defendant

merely by the designation of MERS as “mortgagee” in mortgages attached to notes that Defendant

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now holds. See Mortg. Elec. Registration Sys., Inc. v. Saunders, 2010 ME 79, 2 A.3d 289, 295

(2010) (“MERS's only right is the right to record the mortgage. Its designation as the ‘mortgagee of

record’ in the document does not change or expand that right; and having only that right, MERS

does not qualify as a mortgagee.”). After all, MERS is not “mortgagee” in the legal sense since it

has no interest in the accompanying note and thus, as discussed, supra, cannot act independently

from the principal that it is tethered to at any given time. See id.; SAC at ¶ 53.

Because only the originating lender is named on the mortgage and the identity of potential

subsequent MERS member transferees is concealed, the MERS mortgage is only notice as to the

originating lender. Consequently, mortgage assignments must accompany note transfers in order

for note transferees to hold a perfected mortgage.

5. Even assuming, arguendo, that the MERS model is valid, trust depositors are not MERS’ members

Assuming, arguendo, that the MERS’ system is held to be consistent with applicable law,

and mortgage assignments need not be recorded when the accompanying notes are transferred

among MERS members in order to maintain perfection of the mortgage, Defendant faces yet

another hurdle. Trust depositors, such as Residential Asset Management Products, Inc. (“RAMP),

an entity which served as a depositor for U.S. Bank’s trusts, are not MERS members. See PSA,

showing RAMP as depositor); “Member List Found,”

https://www.mersonline.org/mers/mbrsearch/validatembrsearch.jsp (omitting RAMP, as well as

other depositors, from comprehensive list of MERS members) (last accessed March 1, 2013);

SAC, at ¶¶ 44, 49. Under MERS’ own Membership Agreement, when a note is transferred to a

non-MERS member, a mortgage assignment out of the MERS system is to be recorded. See SAC

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at ¶ 44 (quoting MERS’ former Corporate Secretary). Even MERS’ loose understanding of agency

law has its limits.13

Yet, here, when notes were transferred from originating lenders to depositors to Defendant,

mortgage assignments were not recorded, even though the depositors were not MERS members.

See id. at ¶ 49. For example, the note accompanying the MERS mortgage attached to the

Complaint traveled, at a minimum, from originating lender EquiFirst to the Depositor, RAMP, and

then to Defendant. See id. at ¶¶ 61, 65. There are no recorded mortgage assignments for this

mortgage, even though RAMP is not a MERS member, and, thus, a mortgage assignment from the

originating lender to RAMP and then from RAMP to Defendant would have been required for the

interest in the mortgage to remain perfected. Id. at ¶¶ 64-65.

G. Defendant Lacked Authority to Foreclose in MERS’ Name and Following an Assignment from MERS, Necessitating Declaratory Relief to Assist in Clearing Title and Correcting Plaintiff’s Land Records

1. MERS has never been a real party in interest able to foreclose, or able to

assign a right to foreclose, and therefore such foreclosures failed to convey title

This argument is set forth in full above and should be considered fully incorporated by

reference. See supra III.D.3.

2. Defendant’s failure to recite all assignments in foreclosure complaints violated Pa. R. C. P. 1147(a)(1), rendering foreclosures it conducted wrongful

The Pennsylvania Rules of Civil Procedure require a foreclosure plaintiff to set forth in its

complaint “the parties to and the date of the mortgage, and of any assignments, and a statement

of the place of record of the mortgage and assignments.” Pa. R. C. P. 1147 (a)(1) (emphasis

added). It is beyond dispute that the words “any assignments” in this context require

13 While the depositor is often a subsidiary of the securitization sponsor, the legal separateness of the depositor from the deal’s sponsor and/or any loan originators is critical to the securitization being bankruptcy remote.

46

enumeration of all assignments in the chain of title leading to the foreclosing plaintiff. See

Wells Fargo, 8 A.3d at 921-922 (setting aside sheriff’s sale when “Wells Fargo's complaint

detail[ed] the assignment from First Franklin, A Division of National City Bank (“the Bank”) to

First Franklin Financial Corporation (“the Corporation”), but ma[de] no mention of any other

assignment.”); cf. Pines Plaza Bowling, Inc. v. Rossview, Inc., 394 Pa. 124, 145 A.2d 672, 677

(1958) (finding that the words “in any event” meant “in all events” in contract).

In securitization, mortgage loans are conveyed typically three times, and, by law at least

two times, before they reach Defendant. See SAC, at ¶¶ 22-31. These conveyances must be

recorded as mortgage assignments. See id. at ¶¶ 16-17. Defendant, however, did not record, or

cause to be recorded, these mortgage assignments and, therefore, could not aver in its foreclosure

complaints the complete chain of assignments, as required to prosecute the foreclosures. See id.,

at ¶ 31.

As stated above, Defendant has prosecuted foreclosures under two methods, and both

failed to satisfy Pa. R. C. P. 1147 (a)(1). First, the foreclosure complaints Defendant filed for

prosecutions in MERS’ name averred that there were no assignments – because that is

Defendant’s and MERS’ longstanding litigation positions – even though there were likely three,

and at least two, conveyances before reaching Defendant that should have been recorded.

Second, when Defendant foreclosed following recordation of a mortgage assignment from

MERS to Defendant, these violated the rule because the mortgage loans traveled a path of A-B-

C-D(efendant) rather than from MERS to Defendant, and, hence, all assignments were not set

forth.

The Superior Court’s decision in U.S. Bank v. Mallory, 982 A.2d 986 (Pa. Super. Ct.

2009), relied on heavily by Defendant, but which predates Lupori above, is consistent with

47

Plaintiff’s analysis. There, the court held that averring in a foreclosure Complaint that an

assignment is in the process of recording was satisfactory for the putative assignee to satisfy Pa.

R. C. P. 1147 (a)(1) and initiate foreclosure proceedings. Plaintiff here argues, however, that

while the foreclosure complaints may have averred one assignment from MERS to U.S. Bank,

they did not set forth the entire chain of title, as required by Pa. R. C. P. 1147 (a)(1). Because

the court in Mallory did not have the benefit of examining the foreclosure complaint side-by-side

with securitization documents it could not know that the foreclosing plaintiff had failed to put

forward all assignments. This court, who does have the benefit of seeing the complete nature of

Defendant’s scheme, should therefore not feel restrained from entering granting Plaintiff’s

requested declaratory relief.

3. Because Defendant lacked authority to foreclose, purchasers of foreclosed properties from Defendant lack clear title, necessitating the declaratory and injunctive relief Plaintiff calls For

Defendant argues that even if it, or MERS, lacked standing to conduct foreclosure sales,

such sales are final and cannot be challenged. A fair reading of Plaintiff’s complaint demonstrates

that Plaintiff’s request for declaratory and injunctive relief challenging MERS’s standing is not

aimed at setting aside completed foreclosures. Plaintiff is not seeking to open final judgments of

foreclosure.

The Complaint merely points out that if Defendant or MERS lacked authority to conduct

the sales, then the purchasers of the foreclosed properties may lack clear title. See Com. v. Bank of

Am., N.A., No. 11-4363-BLS1, 2012 WL 6062747 (Mass. Super. Dec. 3, 2012) (holding that

Massachusetts’ Attorney General stated claim against MERS and other defendants because their

foreclosure practices led to potential lack of clear title); Bevilacqua, 460 Mass. at 763 (finding

that purchaser of property following foreclosure sale by U.S. Bank on MERS mortgage lacked

48

standing to bring quiet title action because U.S. Bank lacked authority to convey title to purchaser

in the first instance). Lack of clear title follows as a consequence of the common law principle

nemo dat quod non habet. This principle, which means “he who hath not cannot give,” is the

bedrock principle on which all commercial law is built. See, e.g., J. F. Dolan, et al., Core Concepts

of Commercial Law: Past, Present, and Future: Cases and Materials 2 (Thompson West, 2004)

(“The First Rule of Conveyancing – Nemo Dat”); see also U. S. v. Lavin, 942 F.2d 177, 185-186

(3d Cir. 1991) (describing the principle as “hornbook commercial law”). It is well-established,

black letter law that the principle trumps the competing bona fide purchaser principle that protects

parties who take for value in good faith. See W.Warren, Cutting Off Claims of Ownership Under

the Uniform Commercial Code, 30 U. Chi. L. Rev. 469, 470 (1963) (stating that it is well-

established that a “good faith purchaser from a thief or a mere bailee took subject to claims of

ownership.”); Estey Co. v. Dick, 41 Pa. Super. 610, 613 (1910) (“It is clear, therefore, that the

bailee could not by a sale . . . have shaken or disturbed the title of the owner. It is equally certain .

. . a purchaser at sheriff’s sale would take no title as against the owner because the bailee could not

accomplish indirectly what she was unable to do directly.”).

Here, then, as in Bevilacqua, those who took title to properties at foreclosure sales

improperly obtained by Defendant, may have clouded title, thereby impacting both value and

salability. See SAC, ¶¶ 79-80. This in turn has spillover impacts on neighboring properties’

values. Id. If properties sell for reduced prices because of clouded title, it will depress neighboring

home values and ultimately county real estate tax assessments. Id. As a result of Defendant’s

conduct, the Counties have devoted, and will continue to devote, substantial services, time, and

expense in determining the ownership rights of parties laying claim to these properties. Id. To

avoid these costs, begin to clear title, and correct the chain of title in Plaintiff’s land records, the

49

court should declare that MERS, and U.S. Bank-administered trusts receiving assignments from

MERS, were not the parties in interest to prosecute foreclosures for notes in RMBS trusts

administered by U.S. Bank as Trustee.

V. CONCLUSION For the foregoing reasons, Defendant’s Motion to Dismiss should be denied.

Respectfully submitted, March 4, 2013 ROBERT PEIRCE & ASSOCIATES, P.C.

By: /s/ D. Aaron Rihn, Esquire D. AARON RIHN, ESQUIRE Pa. I.D. No.: 85752 Robert Peirce & Associates, P.C. 2500 Gulf Tower, 707 Grant Street Pittsburgh, PA 15219 (412) 281-7229

WHITFIELD BRYSON & MASON LLP

GARY E. MASON JASON S. RATHOD 1625 Massachusetts Ave., NW Suite 605 Washington, DC 20036 Phone: (202) 429-290

CUNEO GILBERT & LADUCA JONATHON W. CUNEO, ESQ. CHARLES LADUCA, ESQ.

507 C Street, N.E Washington, D.C. 20002

REICH AND BINSTOCK, LLP DEBRA BREWER HAYES 4265 San Felipe, Ste. 1000 Houston, TX 77027 Phone: (713) 622-7271

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CERTIFICATE OF SERVICE

The undersigned hereby certifies that the foregoing Plaintiff’s Brief in Opposition to the

Preliminary Objections of U.S. Bank National Association to Plaintiff’s Second Amended

Complaint was served by electronic mail to Defendant’s counsel of record and sent via first class

mail to the Court of Common Pleas of Washington County, Pennsylvania on this 4th day of

March, 2013.

By: /s/ D. Aaron Rihn, Esquire D. AARON RIHN, ESQUIRE