Rogan v. Vanderbilt Mortgage & Finance, Inc. (In re Dorsey)
491 B.R. 464
Bankr. E.D. Ky.2013Background
- Debtors filed Chapter 7 on December 19, 2011; Rogan is the Chapter 7 Trustee.
- Vanderbilt Mortgage & Finance, Inc. claims a perfected mortgage and the right to enforce the note.
- Note executed October 13, 2006 in favor of Popular Financial Services; Mortgage to MERS securing the note; recorded October 24, 2006.
- Vanderbilt purchased related loan contracts via Purchase Agreement dated September 16, 2008 and obtained a Bill of Sale; Assignment of Mortgage to Vanderbilt recorded January 12, 2012 (Feb 13, 2012).
- Note lacks indorsement to Vanderbilt; record shows Vanderbilt possessed the original Note on petition date; Trustee contends Vanderbilt cannot enforce the Note.
- Court concludes Vanderbilt may not enforce the Note, permits sale of the real property free of Vanderbilt’s asserted interest, and denies Vanderbilt’s summary judgment request.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Trustee can use §544 to affect the Note/Mortgage. | Rogan argues trustee has strong-arm powers against unenforceable interests. | Vanderbilt contends the Mortgage is properly perfected and enforceable. | No; §544 does not authorize recovery of the Note; Vanderbilt cannot enforce the Note. |
| Whether Vanderbilt is the holder or entitled to enforce the Note under Kentucky UCC. | Trustee contends Vanderbilt lacks enforceable rights in the Note. | Vanderbilt asserts rights by possession/transfer under the Purchase Agreement and Assignment. | Vanderbilt is not a holder and not entitled to enforce the Note under KY UCC. |
| Whether the Purchase Agreement transfers the Note to Vanderbilt. | Note transfer not shown; no indorsement by Popular Financial Services. | Purchase Agreement/Assignment purportedly transfer instruments; Vanderbilt relies on them. | Purchase Agreement does not transfer the Note; Assignment does not convey the Note. |
| Whether the Assignment of Mortgage conveys the Note. | Note did not ride along with the mortgage in the Assignment. | Assignment transfers mortgage rights; argues note rights may follow. | Assignment does not transfer the Note; MERS rights under the Mortgage do not include enforceable Note rights. |
| What relief regarding sale of the Real Property is warranted. | Trustee seeks sale free of Vanderbilt’s asserted interest. | Vanderbilt would assert any enforceable interest against proceeds. | Sale of real property is authorized free of Vanderbilt’s asserted rights; proceed allocation to be handled in main case. |
Key Cases Cited
- Collins, Rogan v. Litton Loan Serv., L.P. (In re Collins), 456 B.R. 284 (6th Cir. BAP 2011) (trustee’s strong-arm power and perfection vs. perfected liens; hierarchy with unperfected interests)
- Veal v. Am. Home Mortg. Servicing, Inc., 450 B.R. 897 (9th Cir. BAP 2011) (enforceability of a note by a possessor without indorsement requires showing delivery and transfer purpose)
- Wells Fargo Fin. Ky., Inc. v. Thomer, 315 S.W.3d 335 (Ky. Ct. App. 2010) (state-law notes; enforceability requires debt attachment to mortgage securing it)
- Maryville Savings & Loan Corp. v. McDonald (In re Maryville Sav. & Loan Corp.), 743 F.2d 413 (6th Cir. 1984) (mortgage enforceability depends on underlying debt)
- Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir. 2011) (MERS and nominee structures; implications for transfer)
- Craddock v. Lee, 61 S.W. 22 (Ky.1901) (mortgage enforceability linked to continuation of debt)