Connecticut Supreme Court Affirms Judgment of Trial Court; Rules in Favor of Legislature's Right to Triple Mortgage Recording Fees for MERS

Electronic Records

Recently, the Connecticut Supreme Court affirmed a trial court’s judgment upholding the Connecticut legislature’s right to impose increased mortgage recording fees on the Mortgage Electronic Registration Systems (MERS). Merscorp Holdings, Inc. v. Malloy No. 19376 (Conn. Dec. 2015). In June 2013, the state’s legislature amended the statute governing the state’s public land records system by creating a two tiered fee structure for a mortgage nominee operating a national electronic database to track residential mortgage loans. The state’s amendment ultimately demanded a $159 fee for the first page of a document MERS files and a $5 fee for each additional page filed; in contrast, the recording fee for transactions not involving MERS is $53 for the first page and $5 for each additional page. In 2013, MERS sued Connecticut on the grounds that the amendment violated the due process and equal protection provisions of the state and federal constitutions. As a registry conducting business nationwide, MERS further contended that the state violated the dormant commerce clause of the federal constitution by discriminating against interstate commerce. The trial court ruled in favor of the state, and MERS appealed the case. The Connecticut Supreme Court conducted a rational basis review test and determined that the state’s distinctions in fees “are rationally related to legitimate public interests and, therefore, do not offend the equal protection provisions of the state or federal constitution.” The court further concluded that the state did not violate the dormant commerce clause of the federal constitution: “[W]e cannot say that imposing higher front-end and back-end fees on MERS transactions in order to compensate for the reduced number of recorded mortgage assignments imposes an undue burden on MERS or, by extension, interstate commerce.” For reasons similar to its dismissal of MERS’ appeal under equal protection and commerce provisions, the Court also rejected the challenge that the state violated their substantive due process rights.