Deutsche Bank National Trust Company, as trustee of any specific residential mortgage-backed security (RMBS) at issue, et al.
Walker County et al.
from Walker Circuit Court (CV-12-900436)
Bank National Trust Company ("Deutsche Bank");
MERSCORP, Inc., and Mortgage Electronic Registration Systems,
Inc. (hereinafter referred to collectively as
"MERS"); and CIS Financial Services, Inc.
("CIS"), the defendants below (all hereinafter
referred to collectively as "the defendants"),
petitioned this Court for permission, pursuant to Rule 5,
Ala. R. App. P., to appeal the trial court's denial of
their motions seeking to dismiss the claims of the
plaintiffs-- Walker County and Rick Allison, in his official
capacity as judge of probate of Walker County (hereinafter
referred to collectively as "the
plaintiffs")--seeking class-based relief on behalf of
themselves and all other similarly situated Alabama counties
and judges of probate. For the reasons discussed below, we
reverse and remand.
and Procedural History
the record presently before us describes as a
"substantively identical prior pending action,"
this Court explained the pertinent factual background
surrounding the underlying dispute as follows:
"At issue is a particular aspect of the
mortgage-securitization process. The process begins when a
borrower secures a note to pay a lender by executing a
mortgage on the real property the borrower, or mortgagor,
purchases with the loan from the lender, or mortgagee. The
mortgage is recorded in the probate office of the county in
which the property is located. See §§ 35-4-50,
35-4-51, 35-4-62, 35-4-90, Ala. Code 1975 ('the recording
statutes'). Loans between borrowers and lenders compose
the primary mortgage market.
"The note associated with the mortgage is a negotiable
instrument, however, under Article 3 of the Uniform
Commercial Code, and as such it can be bought and sold. When
loans between borrowers and lenders are pooled and sold on
the secondary mortgage market, investors benefit by receiving
a low-risk investment and borrowers benefit by receiving
loans at lower interest rates. Such is the process of
"'The process of "securitization" can be
described as the process of distributing risk by aggregating
debt instruments in a pool, then issuing new securities
backed by the entire pool. This reduces the risk of
investors' loss from default on any one debt instrument.
For mortgage loans, investment banks take pools of real
property loans and then use the cash flows from the loan
payments to pay the bondholders secured by the underlying
mortgage loans. In the residential context, the process of
securitization can be boiled down to the pooling of various
residential mortgage loans and issuing securities backed by
the mortgage loans.
"'The general process of creating a residential
mortgage-backed securitization (RMBS) is to first have a
lender or lenders originate various mortgage loans to
borrowers. Next, the originating lenders transfer these loans
to a free-standing entity, known generally as a SPV,
specifically created for the securitization. As an
independent entity, the SPV is protected from any bankruptcy
or insolvency proceedings of the originating lender. The SPV
aggregates the mortgage loans into pools and issues
securities to investors, with the proceeds from the
securities being used to pay the originating lender for
selling the loans. Thereafter, the investors of these
securities receive the proceeds from, and the credit risks
of, the mortgage loans in the underlying pool. In many cases,
the originating lender will continue to collect the loan
payments from the borrowers as they become due and will
simply pass the collected monies onto the investors. The
investors are protected, by the laws governing assignments,
from certain origination and servicing risks assumed by the
originating lenders and servicers, and therefore the
investors can accept a lower interest rate and yield on the
"Derrick M. Land, Residential Mortgage
Securitization and Consumer Welfare, 61 Consumer Fin.
L.Q. Rep. 208, 209 (2007) (footnotes omitted).
"The rights and obligations of the parties in the
above-described securitization process typically are set
forth in a pooling and servicing agreement ('PSA').
The PSA also explains the role of the trustee that holds the
residential mortgage-backed securities ('RMBS'). ...
"Although the development of the secondary mortgage
market benefited both investors and mortgagors, the
'recording process became cumbersome to the mortgage
industry, particularly as the trading of loans
increased.' Cervantes v. Countrywide Home Loans,
Inc., 656 F.3d 1034, 1039 (9th Cir. 2011). This is where
MERSCORP and MERS entered the process. MERS was created to
streamline the mortgage process through the use of electronic
documentation. 'MERS is a private electronic database,
operated by MERSCORP, Inc., that tracks the transfer of the
"beneficial interest" in home loans, as well as any
changes in loan servicers.' Cervantes, 656 F.3d
at 1038. 'Officially launched in 1997, [MERS] is a
corporation owned by its members who are typically also users
of the MERS system. It is funded by membership and
transaction fees that members pay for use of the system.'
Robert E. Dordan, Mortgage Electronic Registration
Systems (MERS), Its Recent Legal Battles, and the Chance for
A Peaceful Existence, 12 Loy. J. Pub. Int. L. 177, 181
(2010). 'MERS does not solicit, fund, service, or
actually own any mortgage loans.' Christopher L.
Peterson, Foreclosure, Subprime Mortgage Lending, and the
Mortgage Electronic Registration System, 78 U. Cin. L.
Rev. 1359, 1361 (2010). Instead, when a mortgage is executed,
the borrower and the lender designate MERS as mortgagee
'acting solely as nominee for the Lender and Lender's
successors and assigns.' 'The loan is then assigned
to a seller for repackaging through securitization for
investors. Instead of recording the assignment to the seller
or the trust that will ultimately own the loan, however, the
originator pays MERS a fee to record an assignment to MERS in
the county records.' Peterson, 78 U. Cin. L. Rev. at
1370. 'The benefit of naming MERS as the nominal
mortgagee of record is that when the member transfers an
interest in a mortgage loan to another MERS member, MERS
privately tracks the assignment within its system but remains
the mortgagee of record.' Jackson v. Mortgage Elec.
Registration Sys., Inc., 770 N.W.2d 487, 490 (Minn.
2009). Thus, '[t]he MERS system is designed to allow its
members, which include originators, lenders, servicers, and
investors, to assign home mortgage loans [on the secondary
market] without having to record each transfer in the local
land recording offices where the real estate securing the
mortgage is located.' Id."
Ex parte MERSCORP, Inc., 141 So.3d 984, 986-88 (Ala.
2013) (footnotes omitted).
Bank serves as trustee for numerous residential
mortgage-backed security ("RMBS") trusts containing
mortgages for properties located in Walker County and other
Alabama counties (hereinafter referred to collectively as
"the counties"). In this case, the plaintiffs
initiated the underlying litigation against Deutsche Bank
"seeking to recover the benefit [Deutsche Bank
allegedly] received by relying on the real property recording
systems of the Counties without compensating the Counties for
that benefit." The complaint alleged:
"In connection with the creation of various [RMBS]
trusts that purportedly hold mortgage loans on properties
located in the Counties, [Deutsche Bank] 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. ... The
Defendants, however, did not record, or cause to be recorded,
certain mortgage assignments at the time the trusts were
created, nor did they pay the accompanying fees, which are
preconditions for enjoying the enumerated benefits and are
required by statute. Rather, Deutsche Bank transferred notes
to the trusts they administered and recorded the change in
note ownership only in the records of [MERS].... Transfers
within the MERS system are insufficient to perfect the
mortgage for the transferee and incapable of satisfying the
requirement that conveyances be recorded."
according to the plaintiffs, Deutsche Bank had represented
"to the public and to RMBS investors that the RMBS
trusts had the benefit of perfected mortgages, a benefit
that[, according to the plaintiffs, ] could only be obtained
by properly using the Counties' services for recording
assignment." More specifically, the plaintiffs alleged
that Alabama law requires mortgage assignments to be
recorded; therefore, they maintained, the above-described
system used by Deutsche Bank avoids the proper recording of
mortgage assignments, along with the payment of the requisite
filing fees, and has resulted in lost income to county
governments. Based on those claims, the plaintiffs'
complaint included, in addition to a request for class
certification,  counts alleging unjust enrichment, a count
seeking declaratory and injunctive relief regarding the legal
status of all affected mortgages, and a count seeking a
declaration establishing the proper party in interest to
foreclosure notes in RMBS trusts administered by Deutsche
of an answer, and following an initial stay pending this
Court's resolution of the appeal in Ex parte
MERSCORP, supra, Deutsche Bank sought dismissal of
the plaintiffs' complaint. Among other grounds, Deutsche
Bank generally argued that, by means of their complaint, the
"[p]laintiffs seek compensation for services never
rendered, and an order requiring [Deutsche Bank] to perform
acts that are mandated neither by law nor by contract."
More specifically, and contrary to the plaintiffs'
allegations, Deutsche Bank maintained that under Alabama law
there is no mandatory duty to record mortgage assignments.
Bank and MERS jointly filed in the trial court a renewed
motion to dismiss the plaintiffs' amended complaint again
alleging, among other grounds, that Alabama law did not
impose a duty to record mortgage assignments--the premise on
which, Deutsche Bank and MERS maintained, the plaintiffs'
entire case was based. CIS separately filed a substantively
similar request also seeking dismissal of the complaint. The
plaintiffs argued in response that Alabama law required all
real-property transactions, including mortgage assignments,
to be recorded.
further filings by the parties and following a hearing, the
trial court entered an order denying the defendants'
pending dismissal motions. In its order, the trial court
initially agreed with the position that "all of
Plaintiffs' claims in this case are premised upon whether
there is a duty to record mortgage assignments under Alabama
law." The trial court held that Ala. Code 1975, §
35-4-50, required mortgage assignments to be recorded. The
defendants moved the trial court to certify its order for an
interlocutory appeal, which the trial court did. The
defendants then petitioned this Court for permission to
appeal, which we granted.
"This Court has stated the following with regard to
permissive appeals pursuant to Rule 5(a), Ala. R. App. P.:
"'In the petition for a permissive appeal, the party
seeking to appeal must include a certification by the trial
court that the interlocutory order involves a controlling
question of law, and the trial court must include in the
certification a statement of the controlling question of law.
Rule 5(a), Ala. R. App. P. In conducting our de novo review
of the question presented on a permissive appeal, "this
Court will not expand its review ... beyond the question of
law stated by the trial court. Any such expansion would usurp