Opinion
DOCKET NO. A-2658-14T3
06-07-2016
BAC HOME LOANS SERVICING, L.P., f/k/a COUNTRYWIDE HOME LOANS SERVICING, L.P., Plaintiff-Respondent, v. GEORGE S. ELGHOSSAIN and MONA C. ELGHOSSAIN, Defendants-Appellants.
Ira J. Metrick argued the cause for appellants. Courtney J. Peterson argued the cause for respondent (Bryan Cave, L.L.P., attorneys; Ms. Peterson, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Lihotz, Fasciale and Higbee. On appeal from Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. F-20274-10. Ira J. Metrick argued the cause for appellants. Courtney J. Peterson argued the cause for respondent (Bryan Cave, L.L.P., attorneys; Ms. Peterson, on the brief). PER CURIAM
Defendants appeal from a June 8, 2011 order granting plaintiff's motion for summary judgment on its foreclosure claim; denying defendants' cross-motion for summary judgment seeking to dismiss the complaint with prejudice, void the mortgage, discharge the lis pendens, and award damages. Further, the order dismissed defendants' affirmative defenses with prejudice and returned the action to the Office of Foreclosure as an uncontested matter for entry of final judgment of foreclosure. We affirm.
On January 24, 2005, defendants obtained a loan, evidenced by a note, in the amount of $359,650 from New Millennium Bank (New Millennium). The loan was secured by a mortgage on a property owned by defendants. The allonge to the note contains a special indorsement to Countrywide Document Custody Services (CDCS). The mortgage was recorded with the Office of the Middlesex County Clerk in February 2005.
Defendants did not reside in the encumbered property.
On January 24, 2005, the note and mortgage were assigned by New Millennium to CDCS (Assignment I), which was recorded with the Office of the Middlesex County Clerk in February 2005. On February 24, 2005, CDCS assigned the note and mortgage to Countrywide Home Loans, Inc. (Assignment II), which was recorded with the Middlesex County Clerk on November 30, 2005. On March 22, 2010, Countrywide Home Loans, Inc. assigned the note and mortgage to BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P. (BAC) (Assignment III), which was recorded with the Middlesex County Clerk on March 31, 2010. In July 2011, BAC merged with Bank of America. As a result of Assignment III, BAC currently holds the note, allonge, and mortgage.
Bank of America is the successor by merger to BAC. For clarity, we refer to BAC as plaintiff.
It is undisputed that defendants defaulted on the note in November 2009. On March 31, 2010, plaintiff filed a foreclosure complaint.
Defendants contend BAC lacks standing to file suit or enforce the loan documents. The defense is based on an unrecorded assignment, a document plaintiff produced in discovery. The document assigns the note and mortgage from Countrywide Home Loans, Inc. to the Federal National Mortgage Association (Fannie Mae) and is dated the same day as the assignment from CDCS to Countrywide Home Loans, Inc.
On February 18, 2011, plaintiff filed a motion for summary judgment. On April 5, 2011 defendants filed a cross-motion for summary judgment dismissing the complaint with prejudice, voiding the mortgage, discharging the lis pendens and awarding damages. The judge heard argument on April 19, 2011, and directed the parties to submit additional materials regarding the role of the Fannie Mae with regards to the loan at issue; the judge scheduled additional oral argument.
In May 2011, both parties provided the court with supplemental certifications in support of their motions. The parties returned for additional oral argument on May 17, 2011. On June 8, 2011, the judge issued an order granting summary judgment in favor of plaintiff, supported by a letter opinion.
Final judgment was entered on December 30, 2014, in which the court granted plaintiff the sum of $457,095.08 together with interest on the principal sum due and costs of the action, including attorneys' fees, and ordered that the premises be sold to satisfy the debt. Defendants appealed the June 8, 2011 decision granting summary judgment in favor of plaintiff.
On appeal, defendants contend that there are genuine issues of material fact regarding plaintiff's standing to foreclose. Defendants' arguments center around the unrecorded assignment of the mortgage to Fannie Mae. Defendants argue because the loan was sold and assigned to Fannie Mae on February 24, 2005, and there is no evidence Fannie Mae transferred the note to BAC, Fannie Mae alone had standing to foreclose, not BAC. Specifically, defendants contend the loan was sold and assigned to Fannie Mae on February 24, 2005, and that there is no record of Fannie Mae transferring the note to BAC. Defendants contend the judge erred in concluding Assignment III was valid; that certifications submitted by plaintiff were not based on personal knowledge and should not have been considered by the court; that plaintiff failed to comply with Rule 4:64-1(b)(10); that the failure to disclose Fannie Mae's involvement constituted unclean hands; and that plaintiff committed discovery violations.
We review a summary judgment order de novo, applying the same standard governing the trial court, Oyola v. Xing Lan Liu, 431 N.J. Super. 493, 497 (App. Div.) (citations omitted), certif. denied, 216 N.J. 86 (2013), and according no deference to its legal conclusions, Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382-83 (2010) (citations omitted). Under that standard, summary judgment is appropriate where, considering the evidence in the light most favorable to the non-moving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
"As a general proposition, a party seeking to foreclose a mortgage must own or control the underlying debt." Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011) (quoting Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 327-28 (Ch. Div. 2010)). A plaintiff must establish ownership or control in order to have standing to proceed with a foreclosure action, otherwise the complaint must be dismissed. Ibid.
It is undisputed defendants incurred a debt on January 24, 2005, when they obtained a loan in the amount of $359,650 from New Millennium, secured by a mortgage. Defendants also acknowledge that the loan documents were assigned from Millennium Bank to CDCS, from CDCS to Countrywide Home Loans, and from Countrywide Home Loans to Fannie Mae via the unrecorded assignment. The issue is whether BAC has established that it subsequently acquired ownership or control over the debt.
Where, as here, "a debt is evidenced by a negotiable instrument," Article III of the New Jersey Uniform Commercial Code (UCC) controls, N.J.S.A. 12A:3-101 to -605. Ibid. N.J.S.A. 12A:3-301 states:
"Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument pursuant to 12A:3-309 or subsection d. of 12A:3-418. 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.
In order to qualify as a "holder" of an instrument under the UCC, the enforcing party must be "the person in possession of a negotiable instrument that is payable either to the bearer or to an identified person that is the person in possession." N.J.S.A. 12A:1-201. When ownership of an instrument is transferred, the transferee may become a "holder" when the two elements of "negotiation" are satisfied: 1) transfer of possession to the transferee, and 2) indorsement by the holder. N.J.S.A. 12A:3-201; see also Ford, supra, 418 N.J. Super. at 598. An indorsement can either be a "special indorsement" or a "blank indorsement." N.J.S.A. 12A:3-205. A "special indorsement" is one "made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable." N.J.S.A. 12A:3-205(a). Conversely, "[w]hen indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed." N.J.S.A. 12A:3-205(b).
BAC has produced a copy of defendants' note indorsed in blank, attached to the certification of Keith Goforth, a litigation specialist for BAC, certifying BAC held the original document. This is sufficient to confer standing on BAC, as a "holder," to enforce the note. Defendants concede that BAC holds the original note. BAC also produced an unbroken chain of assignments from the note's inception to its taking possession in March 2010. Assignment III was properly recorded in the Middlesex County Office of the County Clerk.
However, defendants argue that plaintiff has presented inconsistent versions of the allonge. Defendants point to plaintiff's certification from Titi Alakija, a litigation specialist for BAC, which states "[t]he original [n]ote, with attached [a]llonge, is contained in BAC's collateral file. A true and correct copy of the [n]ote, with [a]llonge, is attached hereto as Exhibit A." The allonge attached to the certification contains only a special indorsement in favor of CDCS. However, the allonge submitted by Goforth contains two indorsements not included in Alakija's certification. One of the indorsements is a special indorsement to Countrywide Home Loans, the second is an indorsement in blank by Countrywide Home Loans.
Drawing all reasonable inferences in favor of defendants, as we must at the summary judgment stage, even if BAC is not a "holder," it may still enforce the note as it qualifies as a "non[-]holder in possession of the instrument who has the rights of a holder." N.J.S.A. 12A:3-301. Under this more lenient standard, a party may enforce the instrument so long as it was transferred by a "holder" with the intent that the transferee party have the right to enforce the note. N.J.S.A. 12A:3-203(a) (explaining "[a]n instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument"). Regardless of whether a "negotiation" takes place, such a transfer "vests in the transferee any right of the transferor to enforce the instrument." N.J.S.A. 12A:3-203(b). "If the transferee is not a holder because the transferor did not indorse, the transferee is nevertheless a person entitled to enforce the instrument under section 3-301 if the transferor was a holder at the time of transfer." UCC Comment 2 to N.J.S.A. 12A:3-203.
Defendants argue that there is a broken chain of title, and that Fannie Mae is the true owner of the instrument and BAC could only have acquired rights to the instrument through Fannie Mae, not through Countrywide Home Loans. Defendants contend that Countrywide Home Loans assigned the mortgage twice, once to Fannie Mae and later to BAC. This argument fails.
One's status as "holder" does not necessarily mean that person is also the owner. Comment 1 to N.J.S.A. 12A:3-203 elucidates this distinction:
Although transfer of an instrument might mean in a particular case that title to the instrument passes to the transferee, that result does not follow in all cases. The right to enforce an instrument and ownership of the instrument are two different concepts. A thief who steals a check payable to bearer becomes the holder of the check and a person entitled to enforce it, but does not become the owner of the check.Here, BAC has tracked the loan documents from their inception up to its taking possession of them. BAC provided proof of Assignments I to III, making clear that it was assigned the loan documents for the purpose of giving BAC the right to enforce it. Defendants have not disputed that Countrywide Home Loans was a "holder" of the note, regardless of whether they actually owned it; to wit, Countrywide Home Loans had possession and the note was specially indorsed to them. Thus, BAC, the transferee, is entitled to enforce the loan documents, even if it is not a "holder," because it obtained possession of the loan documents from a "holder" with the intent that BAC would enforce the mortgage.
Moreover, the chain of title discrepancies are resolved by consideration of the Fannie Mae guidelines. As Teresa Cowan, a Director, Servicing Management at Fannie Mae, explained, Fannie Mae operates in the secondary mortgage market; it does not make loans directly. BAC acted as a servicer for Fannie Mae, which is, in essence, an agency relationship. Fannie Mae's Servicing Guide sets forth the details of this relationship. Section 404.01 states that "[t]he originating lender must establish an individual file for each mortgage" sold to Fannie Mae. The servicer's mortgage file must include the loan number clearly marked on the outside of each file and, among other documents, "a copy of either the unrecorded assignment to Fannie Mae . . . or the original assignment to [the Mortgage Electronic Registration Systems (MERS)] (if the mortgage is registered with MERS and MERS is not named as nominee for the beneficiary), and copies of all required intervening assignments." This practice is further explained in Part B, Subpart 8, Chapter 6, which explains that "[l]enders must prepare an assignment of the mortgage to Fannie Mae for any mortgage that is not registered with MERS, although the assignment should not be recorded."
"MERS is a private corporation which administers a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Lenders participate as members of the MERS system. When mortgage loans are initially placed, the lenders will retain the underlying notes but can arrange for MERS to be designated as the mortgagees on the mortgages which become a part of the public record. In that context, the lenders are able to transfer their interests to others, without having to record those subsequent transactions in the public record." Bank of New York v. Raftogianis, 418 N.J. Super. 323, 332 (Ch. Div. 2010). --------
Plaintiff provided a certification from Donovan C. Nguyen, Vice President and Fulfillment Unit Leader in the Collateral and Compliance Correspondent Lending Division of BAC, who explained that "Fannie Mae is the investor . . . of the [l]oan and acquired . . . beneficial interests in the [l]oan in or around March of 2005." He explained "[t]he business records reflect that the [u]nrecorded [f]orm of [a]ssignment was never delivered nor intended to be delivered to Fannie Mae. It was held by BAC as a 'custody document' under Guideline Section 404.01." He explained that "in jurisdictions[] such as New Jersey, where the servicer must be the holder of the note in order to conduct the foreclosure, BAC is directed by Fannie Mae to take possession of the note, and thereupon becomes the holder of the note during the foreclosure proceedings." This accords with the guidelines, which require the servicer to protect Fannie Mae's interests by bringing an action in its own name to enforce the instrument.
Thus, there is no actual break in the chain of title. Rather, the mortgage and note were sold to Fannie Mae. Once that sale is made, the file must be prepared in accordance with the Fannie Mae guidelines. As this mortgage was not registered with MERS, the servicer is required to include in the file an unrecorded assignment to Fannie Mae. However, once foreclosure proceedings had become necessary, the loan documents were transferred to BAC in order to represent Fannie Mae's interests in the foreclosure proceedings. Thus, Fannie Mae continued to be the beneficial owner, but BAC was the servicer, acting as its agent, to enforce its rights. BAC has standing to enforce the loan documents.
Defendants also argue that the affidavits submitted by plaintiff are not based on personal knowledge. "A certification will support the grant of summary judgment only if the material facts alleged therein are based, as required by Rule 1:6-6, on personal knowledge." Ford, supra, 418 N.J. Super. at 599 (citation omitted). Rule 1:6-6 states:
If a motion is based on facts not appearing of record or not judicially noticeable, the court may hear it on affidavits made on personal knowledge, setting forth only facts which are admissible in evidence to which the affiant is competent to testify and which may have annexed thereto certified copies of all papers or parts thereof referred to therein."Hearsay may only be considered if admissible pursuant to an exception to the hearsay rule." New Century Fin. Servs., Inc. v. Oughla, 437 N.J. Super. 299, 317 (App. Div.) (citation omitted), certif. denied, 218 N.J. 531 (2014). "In evaluating a summary judgment record involving a challenge to the competency of affidavits on which the trial court relied," this court reviews "the evidentiary question for abuse of discretion and the court's legal determination de novo." Ibid. (citation omitted).
Defendants attack the certification and supplemental certification of Nguyen. Nguyen is a Vice President and Fulfillment Unit Leader in the Collateral and Compliance Correspondent Lending Division of BAC. He explained he is authorized to sign the certification on behalf of BAC, and that his knowledge is derived from true and correct copies of "BAC's records and information kept in the normal course of business." Nguyen certified that he regularly uses the records as part of his employment with BAC. He certified he is "familiar with BAC's standard business practices and policies relating to assignments of notes and mortgages, including the delivery and recording of such documents." Here, the certification is adequate and sets forth his basis of knowledge, identifies the source of his knowledge, and authenticates the attached documents. See Oughla, supra, 437 N.J. Super. at 317-18 ("An affiant must aver that the facts presented are on personal knowledge, identify the source of such knowledge, and must properly authenticate any certified copies of documents referred to therein and attached to the affidavit or certification.").
Defendants next attack the certification of Tiaquanda S. Turner, Assistant Vice President at Countrywide Home Loans. Turner certified that she was an employee of Countrywide Home Loans and that she signed the assignment to BAC on March 22, 2010. Defendants do not challenge her personal knowledge, but rather simply reargue the standing issue. Thus, we conclude defendants' argument as to Turner, and any remaining arguments about the certifications, are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Defendants next argue that plaintiff failed to comply with Rule 4:64-1(b)(10). Rule 4:64-1(b) governs the contents of a mortgage foreclosure complaint, and provides that "[i]n an action in the Superior Court to foreclose a mortgage, the complaint shall state: . . . if the plaintiff is not the original mortgagee or original nominee mortgagee, the names of the original mortgagee and a recital of all assignments in the chain of title." Here, the complaint recites the details regarding Assignments I to III.
Defendants maintain that plaintiff omitted Fannie Mae, who is the beneficial owner, and therefore failed to comply with the rule. However, it is clear that the Fannie Mae assignment was never intended to be part of the chain of title. Instead, the guideline explicitly states that when a mortgage is not registered with MERS, an assignment to Fannie Mae must be kept in the loan file, but it should not be recorded. The rule specifies that only "assignments in the chain of title" must be recited in the complaint. R. 4:64-1(b)(10). The Fannie Mae assignment, by its own terms, is not to be recorded and is not designed to be part of the chain of title. Thus, plaintiff complied with the rule.
As for defendants' remaining arguments, namely that plaintiff has unclean hands and that plaintiff failed to comply with discovery demands, they are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION