Opinion
No. 108,872.
2013-09-13
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee Under Pooling and Servicing Agreement, Dated as of January 1, 2006, and Morgan Stanley Home Equity Loan Trust 2006–1, Mortgage Pass Through Certificates, Series 2006–1, Appellees, v. HENRY H. SON, Phoung Kim Nguyen, et al., Appellants.
Appeal from Sedgwick District Court; Anthony J. Powell, judge. Clifford L. Bertholf, of Wichita, for appellants. M. Casey McGraw and Beverly M. Weber, of Martin, Leigh, Laws & Fritzlen, P.C., of Kansas City, Missouri, for appellees.
Appeal from Sedgwick District Court; Anthony J. Powell, judge.
Clifford L. Bertholf, of Wichita, for appellants. M. Casey McGraw and Beverly M. Weber, of Martin, Leigh, Laws & Fritzlen, P.C., of Kansas City, Missouri, for appellees.
Before McANANY, P.J., GREEN and HILL, JJ.
MEMORANDUM OPINION
PER CURIAM.
In this appeal, the homeowners challenge the district court's entry of summary judgment against them in the action to foreclose the mortgage on their home. In our de novo review of the mortgage holder's motion, we find that the homeowner-mortgagors' contentions asserted in opposition to the motion do not raise any genuine issues of material fact and that, under the uncontested material facts, the mortgage holder is entitled to judgment as a matter of law. Accordingly, we affirm the district court.
The undisputed facts establish that Henry H. Son executed a promissory note to Wilmington Finance, a division of AIG Federal Savings Bank, in the principal sum of $170,100, to be paid in monthly installments with interest over 30 years. Son's wife, Phoung Kim Nguyen, did not sign the note, but she signed the mortgage on the home purchased with the borrowed funds.
Under the terms of the mortgage, Son and Nguyen were identified as the “Borrower,” Wilmington Finance was identified as the “Lender,” and Mortgage Electronic Registration Systems, Inc. (MERS) was named the mortgagee, “a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assigns.” The mortgage contained the usual provisions for foreclosure in the event of default on the underlying note. In defining MERS' role in the transaction, the mortgage stated:
“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.”
The note was endorsed by Wilmington Finance to Deutsche Bank, as trustee for a Morgan Stanley Home Equity Loan Trust, which apparently consisted of a bundle of notes secured by similar home mortgages. Thereafter, MERS assigned the mortgage to Deutsche Bank. All this occurred before these foreclosure proceedings commenced. At the time this action commenced, Deutsche Bank held both the note and the mortgage.
Son defaulted on the note. Deutsche Bank then commenced this foreclosure action, claiming that the principle sum of $166,975.85, plus accrued interest and late fees, were due and owing.
In due time, Deutsche Bank moved for summary judgment and attached to its motion (1) an affidavit from Katarzyna Vera, contract management coordinator for Deutsche Bank, with accompanying exhibits detailing the payment history and the loan records; (2) an affidavit from Daniel McClaughlin, the vice president of MERS, with accompanying exhibits detailing MERS' terms and conditions, rules of membership, and the mortgage; and (3) a document detailing the assignment of the mortgage from MERS to Deutsche Bank.
In their response, the mortgagors do not dispute the foregoing facts but nevertheless claim that the motion should be denied because (1) the facts in Deutsche Bank's summary judgment motion were not supported by proper affidavits or proper evidence; (2) the mortgage did not secure the note because the note was signed only by Son; (3) the mortgage limits the mortgagee's right to foreclose; (4) the promissory note and the underlying debt were irreparably severed from the mortgage because the promissory note and the mortgage were held by separate entities; and (5) the assignment of the mortgage was ineffective because it did not contain the proper address for Deutsche Bank, thus failing to conform to statutory requirements for the assignment of a mortgage under K.S.A. 58–2319.
The standards for our de novo review of the Bank's motion are well known to the parties and can be found in O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 330, 277 P.3d 1062 (2012). The undisputed facts recited above would ordinarily result in a foreclosure on the mortgage as a matter of course. As stated in MetLife Home Loans v. Hansen, 48 Kan.App.2d 213, 218, 286 P .3d 1150 (2012):
“[I]n order to grant summary judgment in a mortgage foreclosure action, the district 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. See Cornerstone Homes v. Skinner, 44 Kan.App.2d 88, 97–98, 235 P.3d 494 (2010).”
Our task here is to determine if the contentions raised by the mortgagors make any difference.
Here, the mortgagors dispute that Deutsche Bank is the valid holder of the note. But it is clear that Wilmington Finance assigned the note to Deutsche Bank, and in her affidavit Vera attested to the fact that based on her personal knowledge and her review of the Bank's business records Deutsche Bank possessed both the note and the mortgage when it commenced this action. Vera's affidavit complies with the affidavit requirements of K.S.A.2012 Supp. 60–256(e). The mortgagors' criticisms of the Bank's position as the holder of the note do not address the central and unassailable fact that Deutsche Bank is, in fact, the holder of the note. They have failed to present evidence supported by affidavits or facts in the record that disputed Deutsche Bank's claims regarding its possession of the note. The Bank's status as the holder of the note is deemed admitted. See Supreme Court Rule 141(f)(2) (2012 Kan. Ct. R. Annot. 246).
The mortgagors also claim that the mortgage did not secure the note because the mortgage referred to both Son and Nguyen as borrowers when Son was the only one who signed the note. But when considering the document as a whole, it is clear that in signing the mortgage, both Son and Nguyen unequivocally expressed their intent to convey a mortgage on the home they purchased with the proceeds of the loan evidenced by Son's promissory note.
Further, although Nguyen is not personally liable for the unsatisfied promissory note, she cannot defeat foreclosure merely because she did not also sign it. See Hill, Adm'r, v. Petty, 116 Kan. 360, Syl. ¶ 1, 226 Pac. 717 (1924); McMurray v. Crawford, 3 Kan.App.2d 329, 332, 594 P.2d 1109 (1979). The mortgage specifically provides:
“[A]ny Borrower who co-signs this Security Instrument but does not execute the Note (a ‘co-signer’): (a) 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; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower can agree to extend, modify, forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co-signer's consent.”
Having signed the mortgage, Nguyen joined with her husband in conveying an equitable mortgage security interest in their home to the lender or, in this instance, the lender's nominee or agent See U.S. Bank v. Howie, 47 Kan.App.2d 690, Syl. ¶¶ 4–5, 280 P.3d 225(2012).
Next, the mortgagors challenge Deutsche Bank's right to foreclose because, they claim, foreclosure on the mortgage can only be initiated “if necessary to comply with law or custom.” They claim that Deutsche Bank has failed to show that foreclosure “is necessary to comply with law or custom.” The mortgage provides:
“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.”
It is apparent that this language does not restrict rights of the holder of the note and mortgage to exercise its foreclosure rights, but rather makes clear the fact that MERS, as the nominee for the lender, has the right to enforce the rights of the lender if necessary. The recognition of the rights of MERS as a nominee does not undermine the rights of the entity for which MERS acted as nominee. Our courts have recognized the role of MERS in modern lending, and the language used in this mortgage did not alter the right of the holder of the note and the mortgage to foreclose on the mortgage in the event of default. See Howie, 47 Kan.App.2d at 691. The language in the mortgage establishing the express agency relationship in this case was identical to the language used in Howie. The Howie court found that the language of the mortgage evidences an express agency between MERS and the bank because it specifically authorized MERS to act on behalf of the lender in all situations relating to the enforcement of the mortgage. 47 Kan.App.2d at 697; see In re Martinez, 444 B.R. 192, 205,clarified on denial of reconsideration by455 B.R. 755 (Bankr.D.Kan.2011). The “if necessary to comply with law and custom” language refers to MERS's rights as the holder of the legal title to the mortgage, not to the rights of the holder of the mortgage. MERS, as nominee, does not possess legally enforceable rights beyond those of its principal. See Hansen, 48 Kan.App.2d at 220.
The mortgagors next argue that the mortgage cannot be foreclosed because the note and the associated underlying debt were irreparably severed from the mortgage. They rely on the fact that at the time of the loan transaction the note was given to Wilmington Finance and the mortgage given to MERS. But they neglect to mention that MERS held the mortgage solely as “nominee” or agent of the lender. The note and mortgage were never severed. There are numerous authorities that lead to this conclusion. See Bank Western v. Henderson, 255 Kan. 343, 354, 874 P.2d 632 (1994); Army Nat'l Bank v. Equity Developers, Inc., 245 Kan. 3, 17, 774 P.2d 919 (1989); Middlekauff v. Bell, 111 Kan. 206, 207, 207 Pac. 184 (1922). “Indeed, in the event that a mortgage loan somehow separates interests of the note and the [mortgage] with the [mortgage] lying with some independent entity, the mortgage may become unenforceable.” (Emphasis added). Landmark Natl Bank v.. Kesler, 289 Kan. 528, 540, 216 P.3d 158 (2009). But this rule does not apply when there is an agency relationship between the holder of the mortgage and the lender originating the loan. Here, MERS's sole role was to act as an agent or nominee. The mortgagors here do not effectively dispute this. Deutsche Bank introduced evidence that both Wilmington Finance and Deutsche Bank were members of MERS. Because MERS acted as an agent of the lender and its successors and assigns, the mortgage and the note were never severed and Deutsche Bank, as the present holder of both, may foreclose on the mortgage. See Hansen, 48 Kan.App.2d at 223–26;In re Martinez, 444 B.R. at 206;FV–I, Inc. v. Kallevig, No. 108,706, 2013 WL 2321198, at *2–5 (Kan.App.2013) (unpublished opinion).
If, for the sake of argument, we consider the note and mortgage to have been split between the originating lender and MERS, any such split was cured when, before this foreclosure action was commenced, MERS assigned the mortgage to Deutsche Bank and Wilmington Finance assigned the note to Deutsche Bank.
The mortgagors also take issue with the fact that the lender assigned the note to a securitized trust, with Deutsche Bank acting as the trustee. The mortgagors argue that Deutsche Bank, as trustee, does not have the authority to enforce the mortgage on behalf of the trust. In Com. Property Advocates v. Mortg. Electronic Reg., Inc., 680 F.3d 1194, 1204 (10th Cir.2011), the Tenth Circuit Court of Appeals rejected a similar argument. We adopt the common-sense reasoning of Commonwealth. Deutsche Bank, as the trustee, is the holder of the note and the mortgage. The trust assets include the mortgage at issue here. The job of the trustee is to manage the trust assets. This includes bringing a foreclosure action such as the action here.
Finally, the mortgagors argue that MERS's assignment of the mortgage to Deutsche Bank was not effective because it did not contain the post office address of the assignee. K.S.A. 58–2319 provides:
“All assignments of real estate mortgages hereafter made shall be acknowledged by the assignor in the manner provided for the acknowledgement of other instruments affecting the title to real estate, and all such assignments shall clearly set forth the full name of the assignee, together with the assignee's post-office address.”
In fact, the assignment gave the business address where it appears that an interested party could communicate about any issue relating to the assignment or the property interest assigned. The mortgagors do not direct us to any evidence in the record to the contrary. Besides, Kansas law does not require an assignment in order to vest a party with a beneficial interest in the mortgage. “It is a well-established general rule that the possession of negotiable paper proves prima facie the ownership of the holder. [Citations omitted.]” King v. Bellamy, 82 Kan. 301, 302, 108 Pac. 117 (1910). As a valid holder of a note, a party “ha[s] such interest sufficient to give it standing in a foreclosure action.” Hansen, 48 Kan.App.2d at 225. A note and mortgage are transferable by mere delivery, without a written endorsement. Bank Western, 255 Kan. at 350;Anthony v. Brennan, 74 Kan. 707, 709, 87 Pac. 1136 (1906). Delivery and possession are sufficient to establish ownership of a mortgage. Bank Western, 255 Kan. at 350.
“[T]here is nothing in the current act governing real estate mortgages which limits the methods by which such mortgages can be transferred or which provides a penalty for the failure to record an assignment, except that the assignee must give the mortgagor credit for payments made to the last mortgagee or assignee of record. K.S.A. 58–2321.” 255 Kan. at 350.
The mortgagors here do not contend that because of an erroneous address they made payments on the mortgage note which were misdirected and not credited to their account.
The issues raised by the mortgagors do not defeat the right of Deutsche Bank to foreclose on the mortgage signed by both Son and Nguyen that secures the note held by Deutsche Bank, which Son executed and which is now in default. The district court did not err in granting summary judgment to Deutsche Bank.
Affirmed.