838 N.W.2d 119
Wis. Ct. App.2013Background
- In 2001 the Sullivans executed a promissory note to U.S. Bank secured by a recorded mortgage naming MERS as mortgagee.
- Dow purchased the condominium in 2009; title commitment showed confusion between a 2001 and a 2003 U.S. Bank mortgage, and the closing satisfied a single U.S. Bank mortgage.
- PHH later claimed it serviced and held the loan; PHH filed foreclosure in 2010 and attached a copy of the note with two undated endorsements and a later-produced assignment of mortgage from MERS to PHH dated 2010.
- On summary judgment PHH submitted affidavits asserting possession/holding of the note and records custody, but did not produce an affidavit that the copy of the note was a true authenticated copy of an original in PHH’s possession.
- The circuit court granted PHH summary judgment, finding PHH had shown it held the note and that the mortgage was equitably assigned to PHH upon its holding of the note; Dow appealed.
Issues
| Issue | Plaintiff's Argument (Dow) | Defendant's Argument (PHH) | Held |
|---|---|---|---|
| Whether PHH made a prima facie showing it is entitled to enforce the note | PHH failed to authenticate the original note/copy; the copy is hearsay and inadmissible, so PHH cannot prove possession of an endorsed original | PHH argued it possessed the note endorsed in blank (making it bearer paper) and submitted affidavits and a copy showing endorsements | Court: PHH did not authenticate the copy as a true copy of an original in its possession; summary judgment reversed and remanded for trial on entitlement to enforce the note |
| Whether PHH proved a valid written assignment of the mortgage | PHH’s assignment of mortgage (MERS→PHH) would be inadmissible; PHH must prove written assignment under statute of frauds | PHH argued it need not prove a written assignment because equitable assignment attaches the mortgage to the note-holder | Court: If PHH proves entitlement to enforce the note, equitable assignment transfers the mortgage to PHH; PHH need not prove a written assignment to enforce the mortgage (affirmed on this point) |
| Whether equitable assignment applies to real estate mortgages despite statute of frauds | The statute of frauds requires written assignments of real estate mortgages; equitable assignment cannot circumvent § 706.02(1) | PHH relied on Wisconsin precedent and UCC § 409.203(7) (codifying UCC § 9-203(g)) to show transfer of an obligation carries the security | Court: Equitable assignment applies to real estate mortgages; § 409.203(7) and precedent support that transfer of the note transfers the mortgage by operation of law; statute of frauds does not bar assignments by operation of law (affirmed) |
| Whether the mortgage was unenforceable when Dow bought the property because note and mortgage were held by different entities | At Dow’s purchase the note and recorded mortgage were held by different entities, so no single party could enforce both and Dow took clear title free of the mortgage | PHH: the entity holding the note at any given time equitably held the mortgage; MERS system and transfers do not defeat enforceability | Court: Because equitable assignment operates upon transfer of the note, a single entity had the right to enforce both at purchase; Dow did not obtain clear title (court rejected Dow’s clear-title argument) |
Key Cases Cited
- Tidioute Sav. Bank v. Libbey, 101 Wis. 193, 77 N.W. 182 (1898) (transfer of a note carries the security by operation of law; mortgage transfers with the note)
- Tobin v. Tobin, 139 Wis. 494, 121 N.W. 144 (1909) (mortgage securing a promissory note passes as an incident upon transfer of the note)
- Muldowney v. McCoy Hotel Co., 223 Wis. 62, 269 N.W. 655 (1936) (purchaser of a note is considered equitable owner of related security even without formal assignment)
- Mitchell Bank v. Schanke, 268 Wis. 2d 571, 676 N.W.2d 849 (2004) (to foreclose, a mortgagee must first prove the right to enforce the note)
- PNC Bank, N.A. v. Bierbrauer, 346 Wis. 2d 1, 827 N.W.2d 124 (2013) (same principle: enforceability of mortgage depends on right to enforce note)
- Gross v. Woodman's Food Mkt., Inc., 259 Wis. 2d 181, 655 N.W.2d 718 (2002) (summary judgment affidavit evidence must show admissible evidence; proponent must prima facie show admissibility)