159 Conn.App. 483
Conn. App. Ct.2015Background
- Borrower Heather Bliss executed a $1,300,000 promissory note and mortgage on 4/27/2006 in favor of Long Beach Mortgage Company (an operating subsidiary of Washington Mutual).
- Borrower defaulted by January 1, 2009; plaintiff Deutsche Bank, as trustee for Long Beach Mortgage Loan Trust 2006-5, sought foreclosure by sale.
- Plaintiff produced the original note with an undated blank endorsement (purportedly by Long Beach) and JP Morgan Chase (servicer) testified that the note and endorsement were in its collateral file and imaged as of 7/18/2009; foreclosing suit was commenced 8/25/2009.
- Mortgage assignment to plaintiff was recorded 10/20/2009; JP Morgan, as servicer, had possession of loan documents before that assignment.
- Defendant asserted (1) lack of standing because plaintiff lacked holder status at commencement, (2) plaintiff failed to prove a prima facie case, and (3) the loan/mortgage were unenforceable because Long Beach had surrendered its Connecticut mortgage license prior to origination.
- Trial court found plaintiff the holder of the note, defendant in default, and that federal preemption (per Wachovia) rendered the unlicensed-subsidiary argument unsuccessful; judgment of foreclosure by sale affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to sue (holder status at commencement) | Plaintiff had possession of the original note endorsed in blank (servicer records and testimony) and so was a holder with standing. | Plaintiff did not show the blank endorsement existed before the suit; endorsement may have been added later. | Court held plaintiff demonstrated possession of the note endorsed in blank before commencement via servicer records and testimony; standing proven. |
| Prima facie case (ownership of note; evidence) | Possession of bearer note with blank endorsement establishes prima facie ownership; assignment timing not dispositive. | Plaintiff failed to prove it received the note and endorsements before suit; assignment and POA authority issues undermine proof. | Court held plaintiff met prima facie burden: holder status and default proven; assignment authority argument irrelevant to holder-based foreclosure under §49-17. |
| Enforceability of loan (unlicensed lender) | Loan was enforceable because Long Beach was an operating subsidiary of a federally chartered institution and federal regulation preempted state licensing rules. | Loan/mortgage unenforceable under state public policy because Long Beach had surrendered Connecticut license before origination. | Court held federal preemption (Wachovia and related decisions) applied; state licensing did not render loan unenforceable. |
| Effect of Dodd-Frank on preemption analysis | Preemption analysis should be based on federal law in effect at origination; Dodd-Frank does not apply retroactively. | Dodd-Frank effectively overruled Wachovia preemption analysis and should change outcome. | Court rejected retroactive application; Dodd-Frank did not disturb preemption analysis for this 2006 loan. |
Key Cases Cited
- Wachovia Bank, N.A. v. Burke, 414 F.3d 305 (2d Cir.) (federal OCC regulations preempt state laws as applied to operating subsidiaries of nationally chartered banks)
- Watters v. Wachovia Bank, N.A., 550 U.S. 1 (U.S.) (Supreme Court affirmed that bank mortgage activities conducted by operating subsidiary are outside state licensing/visitorial regimes)
- Solomon v. Gilmore, 248 Conn. 769 (Conn.) (state-law unenforceability of loans made by unlicensed lenders under state licensing regime)
- U.S. Bank v. Ugrin, 150 Conn. App. 393 (Conn. App.) (possession of a note endorsed in blank is prima facie evidence of holder status and standing)
- Wells Fargo Bank, N.A. v. Strong, 149 Conn. App. 384 (Conn. App.) (standing is threshold, nonwaivable; servicer/holder issues relevant to foreclosure standing)