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A shorthanded Pennsylvania Supreme Court has ruled that state law does not impose a mandatory duty to record mortgages or mortgage assignments in a county office for the recorder of deeds.

With Justices Max Baer, Debra Todd and Sallie Updyke Mundy all recused from the matter, the remaining members of the high court ruled 3-1 in Merscorp v. Delaware County, Pennsylvania, Recorder of Deeds to affirm a ruling by the Commonwealth Court en banc in favor of Merscorp, a private electronic registry of real estate transfers. The ruling tossed out a lawsuit filed by Delaware, Chester, Bucks and Berks counties and their respective recorders of deeds (referred to collectively by the Supreme Court as “the recorders”).

The Commonwealth Court's May 2017 ruling actually adopted a 2015 holding by the U.S. Court of Appeals for the Third Circuit, in a case brought in Montgomery County, that said Merscorp's recording system did not violate Pennsylvania law.

The Commonwealth Court's ruling in the state court case reversed a decision from the Delaware County Court of Common Pleas that denied Merscorp's preliminary objections.

The dispute centered on whether Merscorp's business model violates Section 351 of Title 21 (Deeds and Mortgages), which is titled, “Failure to record conveyance,” and states, “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 … shall be recorded in the office for the recording of deeds in the county where such lands, tenements, and hereditaments are situate.”

The recorders had argued that the phrase “shall be recorded” mandated recording, but Justice Kevin Dougherty, writing for the majority, said that interpretation was incorrect.

“Contrary to the recorders' preferred reading, the words 'shall be recorded' in Section 351 must not be read in isolation to require every conveyance (or mortgage or mortgage assignment) be recorded, but rather viewed in context to provide a mortgagee with instructions in the event it intends to safeguard its interest by recording in the county,” Dougherty said. “The process of recording a conveyance, as it has developed in this commonwealth, is essentially a service purchasers and mortgage holders have a right to accept or decline. Although the recorders emphasize a consequence of Merscorp's failure to record is a loss by the counties of attendant recording fees, there is nothing in Section 351 to support the conclusion that the purpose of recording is revenue generation. Instead, our precedent has long recognized the purpose of recording is to protect the purchaser or mortgage holder's bona fide status and 'to give public notice in whom the title resides; so that no one may be defrauded by deceptious [sic] appearance of title.'”

Dougherty added that, by not recording a conveyance or ownership interest, the mortgagee assumes the risk of losing its status and being deprived of property rights.

“An additional penalty for failing to record is beside the point,” said Dougherty, who was joined in the majority by Chief Justice Thomas Saylor and Justice David Wecht.

Justice Christine Donohue filed a 29-page dissenting opinion arguing that the majority's interpretation of Section 351 “represents a pursuit of the 'spirit' of the statute instead of appropriately relying on its plain meaning.”

“Assessing Section 351 as clear and unambiguous—and without the 'implicit “if”' that the majority has inserted—the directive that deeds and conveyances 'shall be recorded' in the office of the county recorder plainly states that these interests must be recorded,” Donohue said.

Donohue also took issue with the majority's characterization of Pennsylvania's recording system as “a service purchasers and mortgage holders have a right to accept or decline.”

“The purpose of the recording system is 'to furnish a permanent record of all titles and muniments of real estate,' and to prevent fraud by providing public notice as to who holds title to real estate,” Donohue said, quoting language from the state Supreme Court's 1842 ruling in McCaraher v. Commonwealth.

“The majority's conclusion is antithetical to the reason for having a public system of recording; it would render the recording system completely ineffectual and useless, as it would be incomplete and fail to 'give public notice in whom the title resides' or work to prevent fraud 'by deceptious appearance of title,'” Donohue added.

Counsel for the counties, Joshua Snyder of Boni, Zack & Snyder in Bala Cynwyd, did not respond to a request comment.

Counsel for Merscorp, Robert Brochin of Morgan, Lewis & Bockius in Miami, referred comment to his client. A spokesperson for Merscorp did not respond to a request for comment.

(Copies of the 55-page opinion in Merscorp v. Delaware County, PICS No. 19-0532, are available at http://at.law.com/PICS.)