Since early 2011, nearly a dozen class actions have been brought against Mortgage Electronic Registration Systems, Inc. (MERS) by county recorders alleging that MERS violated state recording laws by failing to formally record "loan transfers," which deprived the county recorders of associated fees. Many of those actions have faltered or even failed. On October 19, 2012, the U.S. District Court for the Eastern District of Pennsylvania delivered a rare blow to MERS in Montgomery County Recorder of Deeds v. MERS Corp. The court denied the defendants' motion to dismiss and found that Pennsylvania's recordation statute dictates that all mortgage assignments and transfers must be recorded with the county recorder's office, and the recorders have standing to pursue their claims against MERS.

The Montgomery County Recorder of Deeds brought a class action against MERS alleging that the MERS process improperly bypasses the statutorily created and mandatory recording system, which harms the recorder by depriving it of recording fees. Based on that allegation, the recorder brought claims for negligent and/or willful violation of Pennsylvania's recordation statute, civil conspiracy, and unjust enrichment, and a claim seeking declaratory and injunctive relief compelling defendants to record all loan assignments with the recorders' offices. MERS moved to dismiss, arguing that Pennsylvania's recordation statute was permissive and not mandatory, and the recorder lacked standing to pursue its claims against MERS.

The court denied that motion in part (it dismissed the conspiracy claim), and held that Pennsylvania's recordation statute was mandatory and that the recorder had standing to pursue its claims against MERS. The court's second finding has the deepest implications. It significantly broadened the scope of standing by holding that "Pennsylvania law permits any person in any manner interest in a conveyance, such as a mortgage assignment, to bring a quiet title action ... to compel the person with the appropriate documents in his or her possession to record them." The immediate effect of that holding is matched only by the potential long-term implications of the court's first holding, which reflects a deep misunderstanding of the MERS process and the distinction between the assignment of beneficial interests to a loan and the assignment of mortgage rights. While the standing issue will certainly motivate the next portion of that action, the mandatory recordation issue—if not corrected—could prove the most troublesome.