DIRT DEVELOPMENT for March 9, 2010
Daniel B. Bogart Donley and Marjorie Bollinger Chair in Real Estate Law
Chapman University School of Law, Orange, California

MORTGAGES; FORECLOSURE; STANDING: Ownership and possession of note confer standing to foreclose mortgage even if mortgage arguably has been unlawfully assigned. 

Chase Home Finance, LLC v. Fequiere, 2010 WL 653239 (Conn. Ct. App. March 2, 2010)

The mortgagor borrowed $240,000 from BNC Mortgage in August of 2005. In return, she executed and delivered a promissory note to BNC, and secured the note with a mortgage that she executed and delivered to MERS. The mortgage recited specifically that the subject property was mortgaged to MERS and its assigns "as nominee for [BNC Mortgage, Inc.] and [its] successors and assigns."

MERS later assigned the mortgage to Chase Home Finance ("Chase"). The mortgage assignment was recorded. In conjunction with the assignment, BNC endorsed the mortgagor's promissory note in blank to Chase. As of the time of the foreclosure and litigation, the promissory note was in Chase's physical possession.

Chase began its foreclosure in September of 2008. The mortgagor failed to show at the judicial foreclosure and the court issued a default order for strict foreclosure. The Connecticut court set the "first law date" as May 19, 2009. On May 8 the mortgagor filed a motion to open to foreclosure. The mortgagor claimed she did not receive notice of the summons and complaint for the foreclosure. The court opened foreclosure; this acted as an extension for the law day to July 28, 2009.

On May 19, the mortgagor made her broadside attack on the foreclosure, filing a motion to dismiss for lack of subject matter jurisdiction.

"Specifically, the defendant asserted that the plaintiff [Chase] lacked standing to bring the action because MERS, the original mortgagee as nominee for BNC Mortgage, Inc., did not have proper title to the mortgage and, therefore, its purported assignment of the mortgage to the plaintiff was ineffective." The mortgagor also argued that the "trust for which the plaintiff claimed to be trustee was not an enforceable "express trust" as required by [state statute] § 52-106. The result of this alleged impropriety, according to the defendant, also deprived [mortgagee] of standing to bring its foreclosure action."

The trial court ultimately held against the mortgagor, denying the motion to dismiss. The court of appeals affirmed the trial court.

At the outset, the court in Fequiere determined that Chase did have standing to bring the foreclosure action. According to the court, "standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke jurisdiction of the court unless he has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy." Quoting Wilcox v. Webster Ins., Inc., 982 A.2d 1053 (2009). The court cited Fleet National Bank v. Nazreth, 818 A.2d 69 (Conn. Ct. App. 2003 and stated that standing is not a "technical rule intended to keep aggrieved parties out of court." Rather, it is a "practical" rule designed to limit vexatious non justiciable cases.

The defendant argued that MERS assignment to Chase was invalid (and therefore Chase had no interest in the property) because MERS did not have the authority to assign the mortgage to anyone other than the "nominator," BNC. The court responded by essentially asking "so what?" According to the court "even if we were to assume arguendo that the assignment of the mortgage from MERS to [Chase] was invalid, the defendant's claims fails." Citing Connecticut statute § 49-17, a party holding the promissory note secured by the mortgage is allowed to foreclose the mortgage even if it is not assigned. "The statute codifies the common law principle of long standing that the 'mortgage follows the note' pursuant to which the only the right owner of the note has the right to enforce the mortgage. It was "undisputed" that Chase possessed the note. The endorsement of the promissory note in blank, coupled with Chase's ability to produce the note, established prima facie that they were holder. The mo
rtgagor failed to show that Chase was not the holder.

The court also rejected the mortgagor's argument that Chase lacked standing because the structured asset investment loan trust was not a valid and enforceable trust. The idea here was that, under state law, a trustee can sue on behalf of the trust without joining in the lawsuit all the persons that trustee represents. If Chase was not a valid trust, then presumably, it would be necessary to join beneficiaries or not sue to foreclose at all.

The court tossed this argument out very quickly, stating simply that mortgagor "has not offered any evidence or directed our attention to anything in the record that contradicts the plaintiff's assertions that the SAIL trust is a valid and enforceable express trust."

Reporter's Comment 1: Judge Samuel Bufford, bankruptcy judge for the Central District of California, authored a piece (disseminated on Dirt) titled "Where's the Note, Who's the Holder: Enforcement of Promissory Note Secured by Real Estate." His piece contains a the mortgage law equivalent of Cuba Gooding, Jr.'s line "show me the money!" in the Tom Cruise movie, Jerry Maguire. Judge Bufford tells parties seeking to foreclose: show me the note. Judge Bufford has backed up his demand that any party wishing leave to foreclose on property in bankruptcy proffer the note, with a judicial order to that effect. However, Fequiere is a case in which Chase was able to do just that. In addition, there was a recorded the assignment. This is therefore not one of the cases in which assignments were not made or notes were lost or placed in the hands of entities not party to the foreclosure.

Reporter's Comment 2: The court really did not answer the question of whether the assignment of the mortgage from MERS to Chase was valid; rather the court said that whether the assignment was valid would not change the result. The question remains whether the court believed that the only party to whom MERS could assign was its nominator. The reporter realizes he lacks the experience of many of the readers on this subject, but he would have liked to know whether there was other language in the original mortgage or ancillary documentation spelling out the rights and limitations of MERS to assign. This case does demonstrate the implications of a transfer of the note: even if the mortgage assignment is missing or ineffective, the court held that the right to foreclose followed the note.

Editor’s Comment 1: This case circumvents the issue raised in Bellistri v. Ocwen Loan Servicing, LL:C, 284 S.W.3d 619 (Mo. App. 2009), which held that MERS had no ability to transfer ownership of the loan becasue it did not control the note, and recorded ownership of the mortgage “as nominee” meant nothing. Since, by that analysis, the assignment meant nothing, there was no point in notifying MERS of prior tax foreclosures, even if the statutes require notice to parties of record.   MERS is attacking that decision in federal court on the point that it was entitled to notice of any proceeding in which recorded interest holders are entitled to notice, so that it could pass on the information to its principals.  The lower court decision that MERS lacked authority to transfer note ownership when it didn’t hold the note may still stand.

Editor’s Comment 2: In the recent decision in Chase Home Finance, LLC v. Fequiere
119 Conn.. App. 570, --- A.2d ----, 2010 WL 653239 (3/2/10), the foreclosing mortgagee had possession of the note, but a challenge was made, similar to Bellestri, that MERS , the record owner of the mortgage, lacked the ability to assign the mortgage.  The court held that the question of whether MERS had the possession of the note is moot, since transfer of the note automatically transfers the rights under the mortgage insofar as the right to foreclose is concerned.

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