Opinion
111,433.
04-03-2015
DEUTSCHE BANK NATIONAL TRUST COMPANY as Trustee for WAMU Mortgage Pass Through Certificates, Appellee, v. Elliot M. KAPLAN; Jeanne T. Kaplan; Appellants, John Doe (Real Name Unknown); Mary Doe (Real Name Unknown); Tightwad Bank f/k/a Reading state Bank; Kansas Department of Revenue; Bank of America, N.A.; United States of America; Department of Treasury, Internal Revenue Service; and Eric Holder, Attorney General; Appellees.
Adam J. Gasper and James F.B. Daniels, of McDowell, Rice, Smith & Buchanan, P.C., of Kansas City, MO, for appellants. Thomas E. Nanney, of Bryan Cave, of Kansas City, MO, for appellees.
Adam J. Gasper and James F.B. Daniels, of McDowell, Rice, Smith & Buchanan, P.C., of Kansas City, MO, for appellants.
Thomas E. Nanney, of Bryan Cave, of Kansas City, MO, for appellees.
Before ARNOLD–BURGER, P.J., PIERRON and BUSER, JJ.
MEMORANDUM OPINION
PER CURIAM.
In this mortgage foreclosure action, Elliot M. Kaplan and Jeanne T. Kaplan appeal the district court's granting of summary judgment in favor of Deutsche Bank National Trust Company. The Kaplans claim there were multiple factual issues improperly decided by the court. They also contend the district court erred in finding the note and mortgage were effective and that Deutsche was the holder of both of those instruments. We affirm.
Facts
On February 28, 2003, Elliot executed a fixed/adjustable rate note in the amount of $850,000 from Reading State Bank. On the same date and pursuant to the same loan number, Elliot and Jeanne, as husband and wife, executed a mortgage securing repayment of the note signed that same day. The mortgage granted a security interest in the residential property located at 2620 West 171st Street in Stillwell. The mortgage was recorded with the Johnson County register of deeds on March 5, 2003. The Kaplans do not contest their respective signatures on either the note or the mortgage.
The original note contains a special endorsement from Reading State Bank to Washington Mutual Bank, FA, (WMB) without recourse. WMB endorsed the note without recourse in blank. It is undisputed that at the summary judgment hearing, Deutsche Bank National Trust Company (Deutsche) had possession of the original note and mortgage. The Kaplans do not contest their default on the loan.
On April 2, 2010, U.S. Bank filed a petition in Johnson County District Court to foreclose the note and mortgage executed by the Kaplans. The Kaplans were in default as of December 2009 and owed $752,535.51 plus interest. The Kaplans raised the same defenses in the U.S. Bank lawsuit that they raise in the present case, i.e., absence of the note, separation of note and mortgage, etc. However, on October 4, 2010, U.S. Bank agreed to dismiss the lawsuit without prejudice. At the summary judgment hearing in the present case, counsel for the Kaplans stated the U.S. Bank lawsuit never proceeded to summary judgment so no determination was entered whether U.S. Bank was the holder of the note and/or a beneficiary of the mortgage.
On April 14, 2011, Deutsche filed a petition in Johnson County District Court to foreclose the note and mortgage executed by the Kaplans. The same attorneys who filed the case on behalf of U.S. Bank filed a nearly identical lawsuit on behalf of Deutsche. Deutsche claimed ownership of the note and mortgage pursuant to an assignment of mortgage executed on July 15, 2010, by Margaret Dalton, vice president of JPMorgan Chase Bank, National Association, successor in interest to Washington Mutual Bank f/k/a Washington Mutual Bank, FA. The assignment was filed with the Johnson County Register of Deeds on July 23, 2010, and stated:
“That JPMorgan Chase Bank, National Association, successor in interest to Washington Mutual Bank f/k/a Washington Mutual Bank, FA for value received, did, on March 20, 2003, sell, assign, transfer, set over, and convey unto Deutsche Bank National Trust Company as Trustee for WAMU Mortgage Pass Through Certificates, WAMU 2003–AR5, a corporation whose address is 7255 Baymeadows Way, Jacksonville, Florida 32256 without recourse representation or warranty, all rights, title and interest of, in and to that certain Mortgage, and the promissory note secured thereby, executed by Elliot M. Kaplan and Jeanne R. Kaplan, husband and wife, to Reading State Bank dated March 5, 2003, A.D., and duly filed for record in the office of Register of Deeds of Johnson County, Kansas, in Book 8721 at Page 417, together with the note, debts, and claims secured by said Mortgage and the covenants contained there, [legal description of 2620 W. 171st Street, Stillwell, Kansas, 66085].”
Other defendants in the case included Tightwad Bank f/k/a Reading State Bank, Kansas Department of Revenue, United States Treasury (IRS), and Bank of America. Tightwad held a second lien, based on another mortgage, with a balance due of $160,741.17 as of February 25, 2013. The IRS held a third lien on the property in the amount of $457,269.26 as of July 1, 2011.
The parties filed competing motions for summary judgment. After a hearing on the motions, the district court granted summary judgment in favor of Deutsche. In its journal entry, the court commented on each of the contested facts raised by the Kaplans. First, the court stated the fact that Elliot executed a promissory note to Reading State Bank for $850,000 was uncontroverted and whether Reading was Deutsche's predecessor in interest was a legal conclusion to be reached by the court. Second, the court stated the Kaplans did not contest their execution of the mortgage to Reading and whether the mortgage was intended to secure the $850,000 promissory note executed only by Elliot was a legal question of contract interpretation for the court. Third, the court stated it was uncontested that Deutsche possessed the original note and mortgage because it produced those instruments at the summary judgment hearing and whether Deutsche was the holder of the instruments was a legal conclusion for the court. Fourth, the court found that whether the mortgage was intended to secure the promissory note because it had been executed by both of the Kaplans was a legal question. Fifth, the court found the testimony of Ronaldo Reyes, from Deutsche, was “the testimony of a single person at Deutsche Bank and that he [did] not make any factual statements other than the fact that he [did] not know or [was] not aware of certain things.” Finally, the court found the previous foreclosure action involving U.S. Bank was immaterial.
Regarding the legal questions in the case, the district court concluded the mortgage executed by both Kaplans was clearly intended to secure the promissory note executed solely by Elliot. The court also held that even if the note and mortgage split at some point in time, any separation was cured when Deutsche became the holder of both the note and mortgage. The next legal conclusion reached by the court was a finding that Deutsche was the valid holder of both the note and mortgage. The court reached this conclusion based on the unchallenged fact that Deutsche was in possession of the original promissory note endorsed in blank and the mortgage that secured the note. The court held the Kaplans' chain of custody arguments were irrelevant because of the in blank endorsement and thus the only issue was who had possession of the instrument.
The Kaplans appeal. We affirm.
The Kaplans first argue there were genuine issues of material fact and the district court made improper factual findings in granting summary judgment to Deutsche. We disagree. Judge Droege ruled correctly
When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. K.S.A.2013 Supp. 60–256(c)(2). The district court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to the conclusions drawn from the evidence. Waste Connections of Kansas, Inc. v. Ritchie Corp., 296 Kan. 943, 962, 298 P.3d 250 (2013).
When challenging the moving party's factual contentions, the nonmoving party must “concisely summarize the conflicting testimony or evidence and any additional genuine issues of material fact” with precise references to the relevant portion of the record. Supreme Court Rule 141(b)(1)(C)(i) (2014 Kan. Ct. R. Annot. 257). Accordingly, allegations, uncertainty, and “[m]ere speculation [are] insufficient to avoid summary judgment.” Seitz v. Lawrence Bank, 36 Kan.App.2d 283, 290, 138 P.3d 388, rev. denied 282 Kan. 791 (2006). Furthermore, an issue of fact is not genuine unless it has legal controlling force as to the controlling issue. A disputed question of fact which is immaterial to the issue does not preclude summary judgment. In other words, if the disputed fact, however resolved, could not affect the judgment, it does not present a genuine issue for purposes of summary judgment. Northern Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 934, 296 P.3d 1106, cert. denied 134 S.Ct. 162 (2013) ; Carr v. Vannoster, 48 Kan.App.2d 19, 21, 281 P.3d 1136 (2012).
The Kaplans argue Deutsche has failed to provide any evidence that it is in possession of the original note and thus can be considered the holder of the note and mortgage. The Kaplans argue Deutsche's citation to authority for its statement of facts on this point in its summary judgment motion is a citation to its unverified, untried, and wholly unproven petition. The Kaplans state they in no way admitted this fact and thus Deutsche has failed in its burden of proof under K.S.A.2013 Supp. 60–256.
The Kaplans also argue the district court improperly dismissed all of Reyes' many admissions as the testimony of merely one person at Deutsche and of no binding significance on Deutsche itself. Reyes was deposed by videoconference in Irving, California, on December 5, 2012. He appeared at the deposition as the corporate representative of Deutsche. Reyes admitted he did not know whether Deutsche held the promissory note, he did not know when or how Deutsche acquired possession of the promissory note, that no one had sent the documents to Deutsche's counsel, and he did not know if counsel had possession of the note. The Kaplans contend Reyes' admissions were given as Deutsche's corporate representative and should be treated as admissions against Deutsche.
Deutsche responds that Reyes' testimony does not create a genuine issue of fact where the undisputed evidence was presented that Deutsche had possession of the note, Elliot did not dispute his signature on the note, and whether Deutsche was holder of the note was a legal question for the district court. Deutsche also points to Reyes' testimony that on the closing date of the trust, the Kaplans' loan was included in the involved trust. An affidavit from the Federal Deposit Insurance Corporation provided:
“2. On September 25, 2008, Washington Mutual Bank, formerly known as Washington Mutual Bank, FA (“Washington Mutual”), was closed by the Office of Thrift Supervision and the FDIC was named receiver.
....
“4. Pursuant to the terms and conditions of a Purchase and Assumption Agreement between the FDIC as receiver of Washington Mutual and JPMorgan Chase Bank, National Association (“JPMorgan Chase”), dated September 25, 2008 (the “Purchase and Assumption Agreement”), JPMorgan Chase acquired certain of the assets, including all loans and all loan commitments, of Washington Mutual.
“5. As a result, on September 25, 2008, JPMorgan Chase became the owner of the loans and loan commitments of Washington Mutual by operation of law.”
In its response brief, the Kaplans argue it was error for the district court to discount Reyes' testimony in its entirety. They contend this ruling would have been erroneous at trial and was inappropriate at summary judgment. The Kaplans again rely on the fact that Reyes was Deutsche's representative sent to the deposition. He testified concerning information known by Deutsche—he was Deutsche. The Kaplans conclude that whatever Reyes claimed to know represented the quantum of knowledge of Deutsche itself and conversely what Reyes professed not to know must be regarded as unknown by Deutsche. The Kaplans argue that while Reyes believed Deutsche was in possession of the note, he also testified to not knowing where the note was or how Deutsche's counsel came into possession of it or who would have given it to counsel. The Kaplans argue it was entirely possible that another trust (MALT 2004–1) and its trustee (U.S.Bank) were the true holders of the note and mortgage because the same was claimed by the attorneys when they sued the Kaplans on behalf of U.S. Bank.
The Kaplans argue that since the same lawyers filed the same lawsuit for U.S. Bank, it proves counsel did not receive the note from Deutsche because at one time it held or claimed to hold possession for and on behalf of someone else. Therefore, the Kaplans argue since the note was never transferred pursuant to K.S.A. 84–3–203(a), then Deutsche does not have the right to enforce the instrument.
The Kaplans argue it is impossible for Deutsche to have acquired the note and mortgage from JPMorgan Chase Bank as successor in interest to WMB on March 20, 2003, because JPMorgan Chase did not and could not have acquired these instruments prior to September 25, 2008, when the FDIC placed WAMU in receivership and sold certain, but not all, of its loans and loan commitments to JPMorgan Chase.
The next summary judgment burden of proof issue challenged by the Kaplans is the evidence they presented that JPMorgan Chase Bank, Deutsche's assignor of the mortgage, acknowledged its regular practice of submitting false assignments and that Margaret Dalton masqueraded as an officer of a dozen lending institutions when executing other assignments of the same legal effect. The Kaplans argue the district court erred in concluding all this evidence was immaterial.
Deutsche contends the affidavit from Lynn E. Szymoniak [the fraud attorney who examined all of Dalton's assignments] actually supported Deutsche's position because it states that most often Dalton signed in her capacity as vice president of JPMorgan Chase, N .A., and each time she signed on behalf of JPMorgan she actually signed acting as attorney-in-fact or under limited power of attorney for the other entities. Also, Deutsche argues Dalton signing as vice president of Mortgage Electronic Registration Systems (MERS) is not surprising because MERS was created by an association of banks whose bank officers serve as MERS officers. See Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 491 (Minn.2009) (Summary of MERS business and how MERS instructs its members to have someone on their own staff become a certified MERS officer with authority to sign on behalf of MERS.).
With this in mind, we should first ask whether the Kaplans executed a note and mortgage and whether the mortgage and note have become separated and thus unenforceable.
The Kaplans argue that although the mortgage purports to secure a promissory note executed by both of the Kaplans, jointly, as husband and wife, Deutsche has not offered proof of such a note. Consequently, they claim the mortgage is unenforceable because it has become separated from the note.
The main purpose of a mortgage is to insure the payment of the debt for which it provides security; and foreclosure is allowed when necessary to carry out that objective. See Bank of America, N.A. v. Inda, 48 Kan.App.2d 658, 664, 303 P.3d 696 (2013). Promissory notes and mortgages are contracts between the parties, and the ordinary rules of construction applicable to contracts apply to them. Carpenter v. Riley, 234 Kan. 758, 763, 675 P.2d 900 (1984). Recently, this court has entertained a number of appeals from foreclosure actions and explained that in order to grant summary judgment in a mortgage foreclosure action, “the trial court must find undisputed evidence in the record that the defendant signed a promissory note secured by a mortgage, that the plaintiff is the valid holder of the note and the mortgage, and that the defendant has defaulted on the note.” 48 Kan.App.2d at 664.
The Kaplans argue that under the best case scenario, Deutsche is or claims to be the holder of a note executed by Elliot, individually, and the holder of a mortgage executed by both Elliot and Jeanne as husband and wife. They claim the mortgage by its unmistakable terms purports to secure only a note dated February 28, 2003, and signed not by Elliot individually, but by both Elliot and Jeanne jointly as husband and wife. The Kaplans state neither Deutsche nor its assignor JP Morgan Chase has presented such a note. Consequently, the Kaplans claim Deutsche cannot prove the elements of its case and summary judgment should have been denied.
The district court concluded the mortgage executed by both Kaplans was clearly intended to secure the promissory note executed solely by Elliot. The court found:
“The mortgage provided by Deutsche Bank secures the promissory note provided by Deutsche Bank as a matter of law. The only difference between the documents is that Elliot Kaplan alone signed the promissory note and both the Kaplans signed the mortgage. The mortgage refers to a promissory note signed by the Kaplans. However, both documents unmistakably refer to each other and, at the time of contracting, both parties intended the mortgage in question to secure the promissory note in question. Both documents refer to the same loan number, were executed on the same date, have the same lender, have the same property address, have the same loan number, have the same maturity date, and have the same details of the adjustable interest rate. Additionally, the mortgage contemplates that one may sign the mortgage without signing the promissory note. Taking into account all of these details, the Court finds that there is no ambiguity in the promissory note and mortgage, and that the mortgage provided by Deutsche Bank secures the promissory note provided by Deutsche Bank.”
The court held that even if the note and mortgage had split at some point in time, it had been cured when Deutsche became the holder of both the note and mortgage.
In Kansas, a note is a negotiable instrument which is subject to Article 3 of the Kansas Uniform Commercial Code (UCC), K.S.A. 84–1–101 et seq. K.S.A.2013 Supp. 84–3–104. Under K.S.A. 84–3–301, a “[p]erson entitled to enforce” an instrument can be any of the following:
“(a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to K.S.A. 84–3–309 or 84–3–418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.”
“ ‘Holder’ “ means a “person in possession of a negotiable instrument that is payable either to bearer or to an identified person [who] is the person in possession.” K.S.A.2013 Supp. 84–1–201(b)(21)(A).
“ ‘[A] person who is a holder remains a holder although that person has made an assignment of a beneficial interest therein.’ [Citation omitted.] ‘Consequently, the payee in possession of a note is the holder and may bring suit on the note even though the payee had already assigned the note as “the holder of an instrument whether or not he is the owner may ... enforce payment in his own name.’ “ [Citation omitted.]” In re Martinez, 455 B.R. 755, 763 (Bankr.D.Kan.2011).
Further, the UCC specifically provides for “blank endorsements.” Under K.S.A. 84–3–205(b), like in this case, a note can be endorsed “in blank,” which means that the “instrument becomes payable to [the] bearer and may be negotiated by transfer of possession alone until specially endorsed.”
Here, the mortgage contemplated that someone might execute the mortgage without having also signed the promissory note. The mortgage specifically provided, “any Borrower who co-signs this Security Instrument but does not execute the Note ... is co-signing this Security Instrument only to mortgage, grant and convey the co-signer's interest in the Property under the terms of this Security Instrument.” Deutsche states that due to Jeanne's marital ownership interest in the property covered by the mortgage, she was required to sign the mortgage to grant a complete lien as security for payment of Elliot's promissory note. See Jenkins v. Simmons, 37 Kan. 496, 15 P. 522 (1887) ; Kansas Constitution, Art. 15, § 9 (“homestead ... shall not be alienated without the joint consent of husband and wife”); Mid Kansas Federal Sav. and Loan Ass'n of Wichita v. Binter, 197 Kan. 106, 111, 415 P.2d 278 (1966) (a mortgage lien cannot be created upon a homestead without the joint consent of the husband and wife).
The Kaplans argue Deutsche has failed to prove the promissory note has been physically delivered to it for the purpose of giving it the right to enforce the instrument and that it has and retains possession of that instrument. The Kaplans also argue that if Deutsche cannot show that it is the holder and attempts to show that it is a nonholder in possession with rights of a holder, Deutsche still must prove that the note has been delivered to it by a person other than the issuer of the note for purpose of giving Deutsche the right to enforce the instrument.
Deutsche argues the Kaplans' arguments are contrary to the undisputed, unrebutted evidence. First, Deutsche produced the original note at the summary judgment hearing and counsel stated he had provided the original note at every deposition. Deutsche argues the Kaplans have admitted the authenticity of the note and the evidence is sufficient that Deutsche has possession. See 84–3–308 (the authenticity of the instrument is admitted unless denied in the pleadings). Deutsche cites O'Keeffe v. First Nat'l Bank, 49 Kan. 347, 349–50, 30 P. 473 (1892), where the court stated, “We think the proof offered was sufficient. The note and mortgage were in possession of the bank, and were produced by it at trial ... The possession of the note, and its production at the trial, furnished prima facie evidence of ownership in the bank.”
Deutsche agrees with the district court that the Kaplan's chain of custody argument regarding the note is irrelevant. Because the note is endorsed in blank, it becomes payable to the bearer and may be negotiated by transfer of possession alone until specially endorsed. See K.S.A. 84–3–205(b). Deutsche argues the Kaplans are trying to force it to prove too much. The term “person entitled to enforce” includes the holder of a promissory note, K.S.A. 84–3–301, and “holder” is defined as the person “in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.” K.S.A.2013 Supp. 84–1–201(b)(21)(A).
Deutsche states the need to prove the “purpose” of delivery typically arises with respect to a nonholder in possession of a note. See K.S.A. 84–3–301(b). Deutsche cites In re Veal, 450 B.R. 897, 912 (9th Cir.2011), where the court stated: “Without holder status and the attendant presumption of a right to enforce, the possessor of the note must demonstrate both the fact of the delivery and the purpose of the delivery of the note to the transferee in order to qualify as the ‘person entitled to enforce.’ “ However, once the note was endorsed in blank, any person or entity with possession of it was entitled to enforce the note. K.S.A. 84–3–301. Deutsche agrees with the district court that it could have stolen the note after it was endorsed in blank without recourse and still be the holder entitled to enforce it.
The Kaplans' chain of custody argument was irrelevant because of the blank endorsement and the only issue was who had possession of the instrument. The note in this case had a blank endorsement from Washington Mutual FA, without recourse. Because the note is endorsed in blank, it becomes payable to the bearer and may be negotiated by transfer of possession alone until specially endorsed. See K.S.A. 84–3–205(b). Physical possession of a note with a blank endorsement is prima facie evidence that a lender is the holder of the note.
The Kaplans argue the district court's finding of bare possession is contrary to the UCC. The Kaplans maintain that since the note is not payable to Deutsche, then Deutsche must prove not only that it has possession, but that it is payable to the bearer under K.S.A. 84–1–201(b)(21)(A). The Kaplans argue that even if possession is sufficient, Deutsche must still prove the note was properly endorsed, the endorsement was made for the purpose of transferring the note, and had blank endorsements of the kind that would make the instrument payable to the bearer and make the note negotiable by transfer of possession alone. K.S.A. 84–3–204, 84–3–205. The Kaplans argue the presumption of authenticity of signatures does not apply when the validity of signatures is denied in the pleadings. The Kaplans argue the presumption will be dispelled if they make a sufficient showing of the grounds for denial of the validity of the endorsements. However, the Kaplans' arguments are contrary to the specific provisions in the UCC providing for “in blank” endorsements and the resulting consequence. See K.S.A. 84–3–205, 84–3–301, 84–3–308.
The court's decision in Bank of America v. Inda, 48 Kan.App.2d 658, is quite relevant to the present case. In Inda, the bank holding the note and mortgage on the defendant's home brought an action to foreclose after the defendant defaulted on the note. Only the defendant signed the note, but the defendant and his wife executed the mortgage. The note was endorsed in blank. The defendant challenged the bank's standing to foreclose alleging the bank did not own the note. The bank acknowledged it had sold its beneficial interest in the note to a third party but argued it had standing to foreclose based simply on its holding of both the note and the mortgage. In addition to producing the assignment of the mortgage (to show its interest in the note), the bank provided the district court with the original note showing the last endorsement was in blank.
The district court in Inda ultimately granted summary judgment to the bank, reasoning that the bank, as the holder of the note, had the authority to enforce both the note and the mortgage. On appeal, the Inda court affirmed because the bank, as the undisputed holder of the blank endorsed note, had the authority under K.S.A. 84–3–301 to enforce the note even though it had sold the beneficial interest in the underlying debt. 48 Kan.App.2d at 666–67.
Pursuant to the above UCC provisions and caselaw, Deutsche was entitled to enforce the note against Elliot upon a showing that (1) the note was made payable to Deutsche or was endorsed in blank, and (2) Deutsche remained in possession of the note. We agree with the district court's analysis in this case. The promissory note and mortgage unmistakably refer to each other. Both documents refer to the same loan number, were executed on the same date, have the same lender, have the same property address, have the same maturity date, and have the same details of the adjustable interest rate. Further, the Kaplans have not presented any evidence they made payments on any note other than the one presented in this case. Additionally, they have not offered an alternative explanation of what the mortgage secured if it did not intend to secure repayment of the note in this case. The Kaplans have not provided evidence or testimony that they both actually executed a joint note referenced by the mortgage.
Consequently, Deutsche is the holder of the note because Deutsche presented the original note to the district court, which showed the previous endorsements, with the last endorsement made in blank. Moreover, as previously stated, a person may be entitled to enforce an instrument even though the person is not the owner of the instrument. K.S.A. 84–3–301 ; See also In re Martinez, 455 B.R. at 763 (the fact that a holder is not the owner who is entitled to keep the proceeds for his or her own personal use does not affect the holder's right as holder to sue on the instrument); K.S.A. 84–3–205 (Kansas comment, 1996, a bearer instrument endorsed in blank under subsection b, “can be further negotiated by a thief”). Therefore, Deutsche had the authority under the UCC to enforce the note.
We next ask whether Deutsche is the holder of the note and mortgage.
The Kaplans argue the two transactional mechanisms by which Deutsche claimed to have become the holder of the note and mortgage and the chain of title to the note were mutually exclusive and neither survives even casual scrutiny.
The Kaplans argue the chain of title in this case is seriously questionable. First, there are 13 recorded and acknowledged instances of perjury in the assignment of mortgages on the part of Margaret Dalton. Second, JPMorgan Chase entered a Consent Order with the Board of Governors of the Federal Reserve System that it had falsified affidavits that purported to be effective on a date at least 7 years before JPMorgan Chase acquired anything to assign in this case. Third, Deutsche admitted it had no evidence to show whether or how JPMorgan Chase acquired the Kaplan mortgage from the FDIC. Fourth, if Deutsche did acquire the Kaplan mortgage from JPMorgan Chase pursuant to the assignment executed by Dalton, it could not have acquired the mortgage as one of the assets deposited by WAMU into trust on or after April 1, 2003. Fifth, there is no proof the original endorsee, WAMU, ever transferred Elliot's purported note to WAMU Mortgage Securities Corp. Sixth, the Kaplans already had been sued once by the same lawyers professing to represent a different purported owner/holder of this note and mortgage—U.S. Bank.
The district court concluded that Deutsche was the valid holder of both the note and mortgage. The court reached this conclusion because Deutsche was in possession of a promissory note endorsed in blank and the assignment of the mortgage that secured the note:
“The face of the note itself shows two separate endorsements. First, it is specially endorsed to Washington Mutual Bank, FA from Reading State Bank. Next, it is endorsed in blank from Washington Mutual Bank, FA. When a note is endorsed in blank, it then becomes payable to the bearer of the instrument and ‘may be negotiated by transfer of possession alone until specially endorsed.’ Moreover, ‘a person may be a person entitled to enforce the instrument even though the person ... is in wrongful possession of the instrument.’ Once the promissory note in question was endorsed in blank, any person or entity with possession of it was entitled to enforce the instrument. It is uncontroverted that Deutsche Bank has possession of both the promissory note and mortgage.”
We agree.
It is true, as our Supreme Court explained a few years ago, that if “a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.”Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 540, 216 P .2d 158 (2009). But it is equally true that “a promissory note and the mortgage securing it are, as a general rule, inseparable.” U.S. Bank NA v. McConnell, 48 Kan.App.2d 892, 906, 305 P.3d 1 (2013), rev. denied 298 Kan. –––– (October 28, 2013). The court observed that “it has been the law since 1899 that the note follows the mortgage. In other words, if one holds the mortgage, it necessarily follows that one also holds the note that the mortgage secures.” 48 Kan.App.2d at 898. In fact, our statutory scheme provides that assignment of a mortgage carries the debt securing the mortgage with it. K.S.A. 58–2323 (“The assignment of any mortgage as herein provided shall carry with it the debt thereby secured.”); 48 Kan.App.2d at 898. Moreover, the holder of a note—the person either to whom the note is endorsed or who is in possession of that note—is entitled to enforce the note even if he or she is not its owner or is in wrongful possession. K.S.A. 84–3–301 ; K.S.A.2013 Supp. 84–1–201(b)(21) ; Inda, 48 Kan.App.2d at 665–66.
The Kaplans acknowledge the rule that the note follows the mortgage and vice versa. However, they argue the rule cannot apply where they have shown that Deutsche could not have acquired the mortgage from the purported assignor on the date claimed in the acquisition. The Kaplans argue the endorsements on the note are simply rubber stamps with no evidence of authority; JPMorgan had no interest/ownership of the Kaplan note or mortgage to assign when the purported assignment to Deutsche was made; and the Federal Reserve Consent Order proved JPMorgan was prosecuting foreclosures without confirming proper endorsements.
Deutsche argues the Kaplans are specifically excluded from using the Federal Reserve Consent Order as evidence to defeat summary judgment or for any other legal advantage. The order specifically states, “Nothing in this Order, expressed or implied, shall give to any person or entity, other than the parties hereto, and their successors hereunder, any benefit or any legal or equitable right, remedy or claim under this Order.” See Rocha v. Bank of America, 2011 WL 6020169, *5 (D.Minn.2011) (unpublished opinion) (“The plain language of the consent order between BAC and the federal agencies [including the Federal Reserve] provides that the order does not confer any legal rights or establish any legal claims on behalf of anyone who is not a party to the agreement. Individual borrowers were not parties to the agreement and therefore, the consent order does not create a cause of action for Rocha to obtain an audit of her loan with BAC through this Court.”).
Under Kansas mortgage law, because Deutsche was the holder of the note, Deutsche was also the holder of the mortgage. Generally, the mortgage follows the note. See Kurtz v. Sponable, 6 Kan. 395, 397 (1870) (stating that “[u]nder our laws, the mortgage is but appurtenant to the debt; a mere security; and, under ordinary circumstances, whoever owns the debt, owns the mortgage”); see K.S.A.2013 Supp. 84–9–203(g). Kansas law contains no special formalities in order to create a mortgage. See Assembly of God v. Sangster, 178 Kan. 678, 680, 290 P.2d 1057 (1955) (“All that is necessary is that there be a debt and that the instrument creates a lien on real property as security for the payment of the debt.”); K .S.A. 58–2303 (describes the minimal elements needed for a Kansas mortgage). Therefore, a perfected claim to the note is equally perfected as to the mortgage. See Federal Land Bank of Wichita v. Krug, 253 Kan. 307, 314, 856 P.2d 111 (1993).
Deutsche claimed ownership of the note and mortgage pursuant to an assignment of mortgage executed on July 15, 2010, by Margaret Dalton, vice president of JPMorgan Chase Bank, National Association, successor in interest to Washington Mutual Bank f/k/a Washington Mutual Bank, FA. Deutsche furnished the district court with an assignment of the mortgage registered with the Johnson County Register of Deeds. Deutsche has sufficiently proven that it was the successor to the mortgage; therefore, it had the authority to enforce the mortgage. Further, the previous lawsuit concerning this note and mortgage was dismissed without prejudice. No determination was ever made as to whether U.S. Bank was the holder of the note.
Thus, because the record conclusively establishes that Deutsche was the holder of the note executed by Elliot, that the Kaplans' mortgage was assigned and recorded in favor of Deutsche, and that Elliot was in default on the note, Deutsche was entitled to summary judgment on its mortgage foreclosure action as a matter of law. Furthermore, we have examined all the issues raised by the Kaplans and reject them. Any disputed issue of fact raised by the Kaplans was immaterial to the legal issues of whether Deutsche was the holder of the note and mortgage and had the legal authority to enforce those instruments.
Affirmed.