Saturday, August 6, 2011

Failure To Hold Promissory Note May Block Forclosure

Separation of the note and security deed creates a question of what entity [has] the authority to foreclose…” wrote, Federal Judge Amy Totenberg, United States District Court, Northern District of Georgia, in Morgan v. Ocwen. [1]

This is one of the first federal Orders in Georgia that has acknowledged the problem associated with stripping the Promissory Note from the Security Deed. This “separation,” has raised the very problematic legal question of which entity has the legal authority to launch a non-judicial foreclosure. The right to bring a non-judicial foreclosure is akin (but not exactly the same as) as legal “standing.” That is, the failure to own the Promissory Note at the time a lender or server files a Non-Judicial Foreclosure may render that foreclosure wrongful.

Judge Totenberg wrote of the facts of the Morgan v. Ocwen as follows: “Like most residential mortgages in Georgia, this transaction was memorialized by two documents: a promissory note and a deed to secure debt (or “security deed”). The original grantee of the promissory note was [Guaranteed Rate, Inc.]… The original grantee of the security deed was [Mortgage Electronic Registration System, Inc.] MERS “as nominee” for Guaranteed Rate and its successors and assigns… Guaranteed Rate later transferred the note to Taylor, Bean & Whitaker... Subsequently, MERS executed a purported assignment of the security deed to Ocwen. Ocwen is not now and has never been the holder of the note. [2]


Judge Totenberg then turned to a description of the securitization process and described how securitized debt reached this bizarre state of affairs. Citing the distinguished former Dean of the Emory Law School [3], she wrote:

A promissory note and a security deed are two separate, but interrelated, instruments. The security deed arises from the indebtedness memorialized in the promissory note, and “the deed’s power of sale depend[s] on default under the note.” [Citation omitted.] . Historically, the note and security deed have traveled together. If an originating lender decided to sell a mortgage loan, that lender would endorse and physically transfer the note (a negotiable instrument) to a new holder, and assign the security deed to that holder as well. [Citation omitted.]

The parties would then record the assignment in the county deed room, giving record notice to the homeowner and all the world of who held the mortgage. [Citation omitted.] With the rise of securitization of mortgage loans, the financial services industry sought to maximize profitability by developing shortcuts to these cumbersome paperwork requirements. [Citation omitted.] One such cost-saving method was to have the original lender endorse the note in blank, so that it would not have to be specifically endorsed to every holder in the chain of ownership. In the securitization process, ownership of a note might be transferred four or five times, from the original lender to the issuer of the securities, through one or more special purpose entities, and finally to the trustee bank, which holds the legal interest in the note for the benefit of the securities holders. [Citation omitted.]

Along the same lines, the mortgage industry created MERS to facilitate tracking ownership of mortgage loans without the necessity of executing and recording assignments of the security deeds. [Citation omitted.] [MERS is a private company that electronically keeps track of who owns the Security Deed].

Whereas the cost-saving benefits to the mortgage banking industry of the MERS system are clear, its harmony with Georgia real estate law is less evident. Indeed, the use of MERS as a record “holder” of the security instrument (and tracking system for actual ownership of same) has created a great deal of confusion for homeowners attempting to communicate with the owner of their loan, as well as for judges and lawyers attempting to parse out ownership of the debt and authority to foreclose. [Citation omitted.]. [4]

In, Morgan v. Ocwen, supra, Judge Totenberg questioned the right of Ocwen Servicing to foreclose since [Ocwen never owned the promissory note]. While this Order is only at the Motion to Dismiss phase [meaning that the server/lender may come forward later with evidence it does own debt], this type of reasoning is clearly a “shot across the bow” to lenders in Georgia. This Order is one of the very few Georgia Orders that challenges a Georgia lender on these grounds.

So where is all this headed? It may be that Judge Totenberg is attempting to force the Georgia Supreme Court’s hand to weigh in on the MERS dilemma by forcing it to decide whether or not MERS has standing to bring foreclosures in Georgia. [5] Time and more wrongful foreclosures on her docket will tell.

Hugh Wood
Atlanta, GA

Phone: 404-633-4100
Email: hwood@woodandmeredith.com
 
 
 
 
 
ENDNOTES
 
[1]
Michael L. Morgan, v. Ocwen Loan Servicing, LLC, Mortgage Electronic Registration System, Inc., and Merscorp, Inc., United States District Court for the Northern District of Georgia – Atlanta Division, Civil Action File No. 1:10‑CV‑3555‑AT at 8.
[2]
Morgan, Order at 7.
[3]
See Frank S. Alexander, Georgia Real Estate Finance and Foreclosure Law, § 3:7 (2010-11 ed.).
[4]
Morgan, Order at 7-15.
[5]
This comment may seem odd, since an appeal of a federal Order will not go to the Georgia Supreme Court, but rather to the 11th Circuit. However, the Georgia Supreme Court keeps dodging this issue. As Totenberg reflected, “[t]he Georgia Supreme Court has expressly reserved ruling on the question of ‘whether MERS, as nominee for the original lender and its successors, has the power to foreclose on an existing security deed either with or without the participation of the existing note holder.’ “ Morgan v. Ocwen, supra, at 10-11. Perhaps (other than the factual fight in Morgan), this Order is an attempt to force the 11th Circuit and/or the Georgia Supreme Court [by certified question] to finally address this thorny issue.
[6]
A Uniform System of Citation, “The Bluebook,” The Harvard Law Review Association (and 4 other Law Reveiws), 19th Edition, 2011, suggest legal quotations be indented. While I agree with same, the Google Blogger does not display the indents well. Thus, if the reader will excuse same, I have merely italicized the quotes.
&&&&&&&&







ORDER

Here is Michael L. Morgan, v. Ocwen Loan Servicing, LLC, Mortgage Electronic Registration System, Inc., and Merscorp, Inc., United States District Court for the Northern District of Georgia – Atlanta Division, Civil Action File No. 1:10‑CV‑3555‑AT.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
MICHAEL L. MORGAN, Plaintiff,
v.
CIVIL ACTION NO. :1:10-CV-3555-AT
OCWEN LOAN SERVICING, LLC, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., and MERSCORP, INC.
Defendants.
ORDER
The action is presently before the Court on Defendants’ motion to dismiss (“motion”) [Doc. 15], filed on November 22, 2010. For the following reasons, the Court GRANTS IN PART and DENIES IN PART the motion.

I. Background

Plaintiff filed his complaint against Ocwen Loan Servicing, LLC (“Ocwen”), Mortgage Electronic Registration Systems, Inc. (“MERS”), and Merscorp, Inc. (“Merscorp”)on November 1, 2010. In the complaint, Plaintiff raises state law claims.  The facts described here are taken from Plaintiff’s complaint [Doc. 1] and presumed true for purposes of resolving Defendants’ motion to dismiss. See infra Part
II.

against Defendants for declaratory judgment, injunctive relief, cancellation of deed to secure debt, slander of title, quiet title, wrongful foreclosure, intentional infliction of emotional distress, and negligence. (Compl. at 1-20.) He also raises a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U. S.C. 1961-1968. (Id. at 20-22.)

Plaintiff’s claims for declaratory judgment, cancellation of security deed, slander of title, and quiet title rest on the fact that he obtained a residential mortgage loan from Guaranteed Rate, Inc., and in connection with the loan he executed a promissory note to Guaranteed Rate and a deed to secure debt in favor of MERS“as nominee” for Guaranteed Rate. (Id. ¶¶ 11-13.) He alleges that because MERS had no pecuniary interest in the transaction, and was acting solely as“nominee” for the lender, the security deed to MERS is void. (Id. ¶¶ 19, 20.)

Plaintiff’s claims for injunctive relief, wrongful foreclosure, intentional infliction of emotional distress, and negligence are based on allegations that Ocwen commenced a nonjudicial foreclosure against his property (1) when Ocwen was not the holder of the promissory note, and (2) without sending the statutorily required notice of foreclosure sale to the proper address. (Id. ¶¶ 24-27.) Plaintiff’s RICO claim is based on allegations that Defendants fraudulently used MERS in mortgage transactions, mailed fraudulent notices of foreclosure, and committed other unlawful acts. (Id. ¶¶ 79-80.)

Defendants filed a motion to dismiss the complaint on November 22, 2010, that contended: (1) Plaintiff failed to effect service of process, (2) Plaintiff’s claim for wrongful foreclosure based on Defendant’s failure to properly mail the foreclosure notice was moot, because Defendant canceled the November foreclosure sale, and (3) all counts based on allegations that the security deed is void failed to state a claim. (Defs.’ Mem. Supp. Mot. Dismiss at 6-15.) Plaintiff filed a response in opposition to the motion to dismiss on December 9, 2010,2 and Defendants filed a reply on December 22, 2010.

On December 30, 2011, all Defendants executed the waiver of service of summons, which was filed with the Clerk’s office on January 3, 2011. (Waiver of Service of Summons, Jan. 3, 2011.)

II. Motion to Dismiss Standard

In determining whether a complaint states a claim upon which relief can be granted, courts accept the factual allegations in the complaint as true and construe them Plaintiff exceeded the twenty-five-page limit imposed by the local rules in his response brief. See Local Rule 7.1(D). Because Plaintiff is appearing pro se, he is entitled to some lenience from this Court regarding the formalities of litigation. However, Plaintiff is advised in the future to keep any original briefs to no more than twenty-five pages, and reply briefs to no more than fifteen pages.
In the light most favorable to the plaintiff. Hill v. White, 321 F.3d 1334, 1335 (11th Cir. 2003). To survive a motion to dismiss, a complaint must allege facts that, if true, “state a claim to relief that is plausible on its face.”Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quotations omitted). A claim is plausible where the plaintiff alleges factual content that “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The plausibility standard requires that a plaintiff allege sufficient facts “to raise a reasonable expectation that discovery will reveal evidence” that supports the plaintiff’s claim. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007).
The Court recognizes that Plaintiff is appearing pro se. Thus, his complaint is to be liberally construed and “held to less stringent standards than formal pleadings drafted by lawyers.” Erickson v. Pardus, 551 U. S. 89, 94 (2007) (citations and internal quotation marks omitted).

III. Analysis

A. Service of Process

As Defendants executed the waiver of service on December 30, 2010, their arguments for dismissal based on insufficient process, insufficient service of process, and lack of jurisdiction are moot. (See Waiver of Service of Summons, Jan. 3, 2011.) Defendants’ sole basis for alleging a lack of personal jurisdiction was the (previously) true, but no longer so) assertion that service had not been effected under Rule 4. (Defs.’ Mem. Supp. Mot. Dismiss at 6-8.)
B. Alleged Failure to Send Notice of Foreclosure

Defendants argue that Plaintiff’s claims arising out of failure to send the foreclosure notice to the proper address are moot because the foreclosure did not go forward on November 2, 2010. However, a court may refuse to dismiss as moot claims in which the former controversy is one “capable of repetition, yet evading review.” United Steelworkers of America v. Bishop, 598 F.2d 408, 412 (5th Cir. 1979) (internal citations omitted).3 Claims will be preserved for review on this basis when they meet the following criteria: (1) “the challenged action was too brief in duration to be fully litigated prior to its cessation or expiration,” and (2) there is a reasonable likelihood that the plaintiff will face the same challenged conduct again. Id.

As Plaintiff is still in default on his mortgage, and the Court’s predecessor judge terminated the injunction barring foreclosure on January 3, 2011, it is very likely that Defendants will again attempt a nonjudicial foreclosure. Since the statutorily required notice of foreclosure sale is only required to be sent 30 days prior to the sale date, there would not likely be time to adjudicate this issue should it arise again by virtue of

In Bonner v. Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to October 1, 1981.

another foreclosure sale notice mailed to the incorrect address. See O.C.G.A. § 44-14-162.2. Plaintiff contends that Defendant failed to send proper notice, despite his written provision of an updated address. (Compl. ¶ 16.) Under these circumstances, the Court declines to dismiss as moot Plaintiff’s claims for wrongful foreclosure arising out of failure to give the required foreclosure notice.

C. Validity of the Security Deed and Wrongful Foreclosure

The issues presented here regarding ownership of the note and the effectiveness of an assignment executed by MERS have been the subject of much litigation, in this district and throughout the country. Therefore, the Court takes this opportunity to carefully address the complex issues presented.
The following are the facts relevant to these claims that must be presumed true for purposes of the instant motion. Plaintiff obtained a residential mortgage loan from Guaranteed Rate. (Compl. ¶ 9.) Like most residential mortgages in Georgia, this transaction was memorialized by two documents: a promissory note and a deed to secure debt (or “security deed”). The original grantee of the promissory note was Guaranteed Rate. (Id. ¶ 11.) The original grantee of the security deed was MERS “as nominee” for Guaranteed Rate and its successors and assigns. (Id. ¶¶ 12-13.) Guaranteed Rate later transferred the note to Taylor, Bean & Whitaker. (Id. ¶ 14.)
Subsequently, MERS executed a purported assignment of the security deed to Ocwen. (Id. ¶ 64.) Ocwen is not now and has never been the holder of the note.4 (Id. ¶ 25.)

1. Validity of the Security Deed

A promissory note and a security deed are two separate, but interrelated,instruments. See Frank S. Alexander, GEORGIA REAL ESTATE FINANCE AND FORECLOSURE LAW, § 3:7 (2010-11 ed.). The security deed arises from the indebtedness memorialized in the promissory note, and “the deed’s power of sale depend[s] on default under the note.” Boaz v. Latson, 580 S.E.2d 572, 578 (Ga. Ct. App. 2003), rev’d on other grounds, 598 S.E.2d 485, 487 (Ga. 2004). Historically, the

4 The facts in the complaint must be presumed true at this stage. Hill v. White, 321 F.3d at 1335. Defendants assert that the Court may consider documents referenced in the complaint, including the promissory note and the purported assignment of the security deed to Ocwen, without converting this motion to a motion for summary judgment. However, Defendants are attempting to use these documents to dispute a central factual allegation of Plaintiff’s complaint, compared to the securities cases wherein courts have considered on a motion to dismiss documents required to be filed with the SEC of which the contents, and not the truth, were at issue. See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1278 (11th Cir. 1989) (“When SEC documents are relevant only to determine what statements or disclosures are actually contained therein, there can be little question as to authenticity, nor can the fact that such statements or disclosures were thus publicly filed be reasonably questioned.”); Oxford Asset Mgmt. Ltd. v. Jahar, 297 F.3d 1182, 1188 (11th Cir. 2002) (documents outside the complaint may only be considered at the motion to dismiss stage to show their contents, not for the truth of matters asserted therein). The Court must therefore assume at this motion to dismiss stage of the proceedings that Ocwen is not the holder of the note, based on the allegations of Plaintiff’s complaint. (Compl. ¶ 25.) Furthermore, the documents attached to the motion to dismiss do not support any factual finding to the contrary, as an assignment of the security deed is not indicative of who holds the note, and the promissory note shows no endorsement to Ocwen.


note and security deed have traveled together. If an originating lender decided to sell a mortgage loan, that lender would endorse and physically transfer the note (a negotiable instrument) to a new holder, and assign the security deed to that holder as well. See Bowen v. Tucker Fed. Sav. & Loan Assoc., 438 S.E.2d 121, 122 (Ga. Ct. App.1993) (“the holder of a note who is also the grantee of a security deed has the right to exercise the power of sale in the security deed upon default”). The parties would then record the assignment in the county deed room, giving record notice to the homeowner and all the world of who held the mortgage. Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U. CIN. L. REV. 1359, 1362 (2009-10). With the rise of securitization of mortgage loans, the financial services industry sought to maximize profitability by developing shortcuts to these cumbersome paperwork requirements. Peterson, 78 U. CIN. L. REV. at 1368-69. One such cost-saving method was to have the original lender endorse the note in blank, so that it would not have to be specifically endorsed to every holder in the chain of ownership. In the securitization process, ownership of a note might be transferred four or five times, from the original lender to the issuer of the securities, through one or more special purpose entities, and finally to the trustee bank, which holds the legal interest in the note for the benefit of the securities holders. Id. at 1367; Adam Ashcraft and Til Schuermann, Understanding the Securitization of Subprime Mortgage Credit, 318 FEDERAL RESERVE BANK OF NEW YORK STAFF REPORT at 5 (2008).

Along the same lines, the mortgage industry created MERS to facilitate tracking ownership of mortgage loans without the necessity of executing and recording assignments of the security deeds. Peterson, 78 U. CIN. L. REV. at 1369.
The Georgia Supreme Court has described the MERS system as follows:

MERS, which began operating in 1997, is a private company created by the mortgage banking industry for the purpose of establishing a centralized, electronic system for registering the assignments and sales of residential mortgages, with the goal being the elimination of costly paperwork every time a loan is sold . . . . Under the MERS system, the borrower and the original lender name MERS as the grantee5 of any instrument designed to secure the mortgage loan. The security instrument is then recorded in the local land records, and the original lender registers the original loan on MERS’s electronic system. Thereafter, all sales or assignments of the mortgage loan are accomplished electronically under the MERS system. Taylor, Bean & Whitaker v. Brown, 583 S.E.2d 844, 845 n.1 (Ga. 2003) (internal citations omitted).
Whereas the cost-saving benefits to the mortgage banking industry of the MERS system are clear, its harmony with Georgia real estate law is less evident. Indeed, the use of MERS as a record “holder” of the security instrument (and tracking system for actual ownership of same) has created a great deal of confusion for homeowners

5 MERS is listed on the original security deed as the grantee of the instrument“as nominee” for the lender and lender’s successor and assigns. Attempting to communicate with the owner of their loan, as well as for judges and lawyers attempting to parse out ownership of the debt and authority to foreclose. See Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 168 (Kan. 2009).

Several of Plaintiff’s claims rest on the argument that the security deed is void because of the fact that MERS was named as the grantee-as-nominee in the security deed rather than Guarantee Rate, the actual lender and payee on the note. This argument is unsupported by Georgia law. Separation of the note and security deed creates a question of what entity would have the authority to foreclose, but does not render either instrument void. See Boaz, 580 S.E.2d at 578; Alexander at § 3.7. Therefore, the Court dismisses Plaintiff’s claims for declaratory judgment (Count I), cancellation of the security deed (Count III), slander of title (Count IV), and quiet title (Count V), all of which seek either injunctive relief or damages based on the assertion that the security deed is void because of the MERS involvement.

2. Wrongful Foreclosure

Although the separation of the note and the security deed does not render either instrument void, it does create a substantial question of what entity has the right to foreclose when the borrower defaults on the loan. The Georgia Supreme Court has expressly reserved ruling on the question of “whether MERS, as nominee for the original lender and its successors, has the power to foreclose on an existing security

deed either with or without the participation of the existing note holder.” Taylor, Bean & Whitaker v. Brown, 583 S.E.2d at 848. Many other courts have questioned MERS’s right to foreclose or effect an assignment of a security instrument, as it admittedly holds no beneficial interest in the note or security instrument. See Landmark v. Kesler, 216 P.3d at 167 (“If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right.”); Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 624 (Mo. Ct. App. 2009) (“MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force.”); In re Agard, No. 810-77338, 2011 WL 499959, at *16 (E.D.N.Y. Feb. 10, 2011) (“[W]ithout more, this Court finds that MERS’s ‘nominee’ status and the rights bestowed upon MERS within the Mortgage itself, are insufficient to empower MERS to effectuate a valid assignment of mortgage.”).

The question presented by this case is not whether MERS has authority to foreclose under Georgia law, but whether an assignment of a security deed from MERS to Ocwen empowers Ocwen to foreclose when Ocwen does not hold the note.6

6 Defendants cite O.C.G.A. § 44-14-64 and Redwine v. Frizzell, 190 S.E. 789 (Ga. 193 7) to support their argument that the purported assignment of the security deed also transferred the promissory note. However, this statute and Redwine were authored at a time when the promissory note and the security deed where not commonly separated. Neither support the proposition that a party who has never held the promissory note (MERS) could transfer it by an assignment of the security deed.


Georgia law authorizes the secured creditor, the holder of the obligation, to exercise a power of sale. See O.C.G.A. §§ 44-14-162 et seq.7 The Georgia Supreme Court has clearly indicated that the right to foreclose lies with the party that holds the indebtedness:

Could there be a more conclusive defense to the foreclosure than that the party prosecuting it was not the holder of the debt or demand secured by the mortgage, which he failed to produce when called on, and offered nothing to show that he controlled it, or to explain why it was not forthcoming at the trial?

Weems v. Coker, 70 Ga. 746, 749 (1883), cited by Truitt v. Moister, 11 B.R. 15 (Bankr. N.D. Ga. 1981); see also Bowen, 438 S.E.2d at 122; Boaz, 580 S.E.2d at 578; Cummings v. Anderson, 173 B.R. 959, 963 (Bankr. N.D. Ga. 1994) (foreclosure was null and void where the entity foreclosing did not have an actual assignment of the note and security deed), aff’d, 112 F.3d 1172 (11th Cir. 1997); Weston v. Towson, No. 5:04- CV-416, 2006 WL 2246206, at *6 (M.D. Ga. Aug. 4, 2006) (“[T]he holder of the note continues to retain remedies under the security deed so long as the debt evidenced by the note has not been satisfied.”).

7“The security instrument or assignment thereof vesting the secured creditor with title to the security instrument shall be filed prior to the time of sale in the office of the clerk of the superior court of the county in which the real property is located.” O.C.G.A. § 44-14-162(b) (emphasis added). “Notice of the initiation of proceedings to exercise a power of sale in a mortgage, security deed, or other lien contract shall be given to the debtor by the secured creditor no later than 30 days before the date of the proposed foreclosure.”O.C.G.A. § 44-14-162.2(a) (emphasis added).

Plaintiff has alleged that Ocwen is attempting to foreclose when it is not the holder of the note. (Compl. ¶ 25.) Moreover, in publishing the foreclosure notice, Ocwen did not purport to be acting as agent for the actual holder of the note, but rather asserted that it was acting on its own behalf. (Id. ¶ 61.) These allegations clearly support a claim for wrongful foreclosure.8 The Court need not reach the question of whether an agent for the holder of the debt can carry out a power of sale foreclosure under Georgia law, as Ocwen did not advertise the foreclosure as agent for any disclosed principal.

Defendants further argue that there can be no cause of action for wrongful foreclosure here because the foreclosure has not taken place. However, courts have recognized a cause of action for wrongful attempted foreclosure when a foreclosure action was commenced, but not completed, where plaintiffs have shown that a defendant “knowingly published an untrue and derogatory statement concerning the

8 Defendants cite Nicholson v. One West Bank, No. 1:10-CV-0795, 2010 WL

2732325 (N.D.Ga. Apr. 20, 2010) for the proposition that MERS has the ability to foreclose even if it does not hold the promissory note. However, in Nicholson the court denied a motion for TRO because the plaintiff in that case failed to carry his burden on a TRO motion to show the likelihood of success on the merits when he failed to overcome the defendant OneWest’s showing that it held both the note and security deed. Id. at *4. Nicholson is therefore inapposite to the facts that must be assumed true herein.

Defendants also cite Trent v. Mortgage Electronic Registration Systems, Inc.,

288 Fed. Appx. 571 (11th Cir. 2008) (unpublished) and Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So.2d 33 (Fla. Dist. Ct. App. 2007). These cases interpret Florida law and therefore are not relevant to the instant case.

plaintiffs’financial conditions and that damages were sustained as a direct result.” Sale

City Peanut & Milling Co. v. Planters & Citizens Bank, 130 S.E.2d 518, 520 (Ga. Ct.

App. 1963).9 Furthermore, Plaintiff is clearly seeking injunctive relief barring Ocwen from foreclosing wrongfully because it allegedly is not the holder of the note. (Compl. ¶¶ 40-43, 63.) A court may enjoin a nonjudicial foreclosure sale in a wrongful foreclosure action where the authority to foreclose is in question. See Atlanta

Dwellings, Inc. v. Wright, 527 S.E.2d 854, 856 (Ga. 2000); West v. Koufman, 384

S.E.2d 664, 666 (Ga. 1989); Cotton v. First Nat’l Bank of Gwinnett Co., 220 S.E.2d 132 (Ga. 1975).

Thus, Plaintiff’s claims for injunctive relief (Count II), wrongful foreclosure (Count VI), and negligence (Count VIII) are not subject to dismissal at this time.

D. Remaining Claims

Defendants have not made any argument for dismissal of the claims for intentional infliction of emotional distress (Count VII) or RICO (Count IX) other than their general argument that Ocwen had the right to foreclose, which cannot prevail at

9 It is not clear whether Plaintiff can prevail on a claim for wrongful attempted foreclosure, which requires a showing of intentional publication of derogatory and untrue financial information about the complainant. See Sale City Peanut, 130 S.E.2d at 520. Plaintiff does not specify in the complaint whether he was actually in default on the mortgage at the time Ocwen commenced foreclosure proceedings against him or whether a default had been cured through a loan modification. However, to the extent Plaintiff fails to establish the required elements for the tort of attempted wrongful foreclosure, his claim for wrongful foreclosure may proceed as a claim for injunctive relief.

this stage for the reasons cited above. Therefore, because Defendants have not challenged these claims, Court does not address them in this Order.

IV. Conclusion

For the foregoing reasons, Defendants’ motion to dismiss [15] is GRANTED IN PART and DENIED IN PART. Plaintiff’s claims for declaratory judgment (Count I), cancellation of the security deed (Count III), slander of title (Count IV), and quiet title (Count V) are DISMISSED. Defendants’ motion to dismiss Plaintiff’s claims for injunctive relief (Count II), wrongful foreclosure (Count VI), negligence (Count VIII), intentional infliction of emotional distress (Count VII), and RICO (Count IX) is DENIED.

IT IS SO ORDERED, this 7th day of July, 2011.

AMY TOTENBERG

UNITED STATES DISTRICT JUDGE





Some related cases [from KANSAS and MISSOURI] are:





216 P.3d 158 (Kan. 2009)

LANDMARK NATIONAL BANK, Plaintiff/Appellee,

v.

Boyd A. KESLER Appellee/Cross-appellant

Millennia Mortgage Corporation, Defendant,

(Mortgage Electronic Registration Systems, Inc. and Sovereign Bank), Appellants/Cross-appellees,

and

Dennis Bristow and Tony Woydziak, Intervenors/Appellees.

No. 98,489.

Supreme Court of Kansas.

August 28, 2009

Page 159

[Copyrighted Material Omitted]

Page 160

Syllabus by the Court

1. Denial of a motion to set aside default judgment is subject to review under a standard of abuse of discretion. A district court decision that denies a motion to join a party as a necessary party under K.S.A. 60-219(a) is also subject to an abuse of discretion standard of review.

2. Whether the evidence demonstrates that the statutory requirements for joinder have been met is a mixed question of fact and law. When reviewing a mixed question of fact and law, an appellate court reviews the district court's factual findings for substantial competent evidence and reviews de novo the district court's legal conclusions.

3. Intervention as a matter of right is subject to the same mixed determination of law and fact as is joinder. Permissive intervention lies within the discretion of the district court.

4. Judicial discretion is abused when no reasonable person would take the view adopted by the trial court. Review for abuse of discretion includes review to determine whether erroneous legal conclusions guided the exercise of discretion.

5. K.S.A. 60-255(b) does not require that the party moving for relief from default judgment be a party to the action.

6. It is appropriate for a trial court to consider evidence beyond the bare pleadings to determine whether it should set aside a default judgment. In a motion to set aside default, a trial court should consider a variety of factors to determine whether the defendant or would-be defendant had a meritorious defense, and the burden of establishing a meritorious defense rests with the moving party.

7. Relief under K.S.A. 60-255(b) is appropriate only upon a showing that if relief is granted the outcome of the suit may be different than if the entry of default or the default judgment is allowed to stand; the showing should underscore the potential injustice of allowing the case to be disposed of by default. In most cases the court will require the party in default to demonstrate a meritorious defense to the action as a prerequisite to vacating the default entry or judgment. The nature and extent of the showing that will be necessary lie within the trial court's discretion.

8. The law relating to a contingently necessary party closely resembles the law relating to vacating default judgment, in that both require the party asserting the interest to demonstrate a meritorious defense or an interest that may be impaired.

9. The word " nominee" is subject to more than one interpretation. The legal significance of the word depends on the context in which it is used. The word encompasses a range of meanings from a straw man or limited agent to a representative enjoying

Page 161

the same legal rights as the party that acts as the nominator.

10. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is a party to whom property is mortgaged, which is to say, a mortgage creditor or lender. A mortgagee and a lender have intertwined rights that defy a clear separation of interests.

11. Parties are bound by the formal admissions of their counsel in an action.

12. The Due Process Clause does not protect entitlements where the identity of the alleged entitlement is vague. A protected property right must have some ascertainable monetary value. An entitlement to a procedure does not constitute a protected property interest.

Tyson C. Langhofer and Court T. Kennedy, of Stinson Morrison Hecker, L.L.P., of Wichita, for appellants/cross-appellees.

Ted E. Knopp, of Ted E. Knopp, Chartered, of Wichita, for appellee Boyd A. Kesler.

David A. Schatz, of Husch Blackwell Sanders L.L.P., of Kansas City, Missouri, for amicus curiae American Land Title Association.

OPINION

ROSEN, J.:

Mortgage Electronic Registration Systems, Inc. (MERS) and Sovereign Bank seek review of an opinion by our Court of Appeals holding that a nonlender is not a contingently necessary party in a mortgage foreclosure action and that due process does not require that a nonlender be allowed to intervene in a mortgage foreclosure action.

The facts underlying this appeal are not in dispute. On March 19, 2004, Boyd Kesler secured a loan of $50,000 from Landmark National Bank (Landmark) with a mortgage registered in Ford County, Kansas. On March 15, 2005, he secured an additional loan of $93,100 from Millennia Mortgage Corp. (Millennia) through a second mortgage registered in Ford County. Both mortgages were secured by the same real property located in Ford County.

The second mortgage lies at the core of this appeal. That mortgage document stated that the mortgage was made between Kesler-the " Mortgagor" and " Borrower" -and MERS, which was acting " solely as nominee for Lender, as hereinafter defined, and Lender's successors and assigns." The document then identified Millennia as the " Lender." At some subsequent time, the mortgage may have been assigned to Sovereign and Sovereign may have taken physical possession of the note, but that assignment was not registered in Ford County.

On April 13, 2006, Kesler filed for bankruptcy in the United States Bankruptcy Court for the District of Kansas, Wichita Division. He named Sovereign as a creditor; although he claimed the secured property as exempt, he filed an intention to surrender the property. The bankruptcy court discharged his personal liability on November 16, 2006. The record contains little documentation or evidence explaining the interplay of the bankruptcy and the foreclosure action, except to suggest that the bankruptcy action may have given Sovereign constructive notice of a possible default on payments.

On July 27, 2006, Landmark filed a petition to foreclose on its mortgage, serving and naming as defendants Kesler and Millennia. It did not serve notice of the litigation on MERS or Sovereign. In the absence of answers from either defendant, the trial court entered default judgment against Kesler and Millennia on September 6, 2006. The trial court then filed an order of sale on September 29, 2006. Notice of the sale was initially published in the Dodge City Daily Globe on October 4, 2006. On October 26, 2006, Dennis Bristow and Tony Woydziak purchased the secured property at a sheriff's sale for $87,000, and on November 14, 2006, Landmark filed a motion to confirm sale of the secured property.

Also on November 14, 2006, Sovereign filed an answer to the foreclosure petition, asserting an interest in the real property as the successor in interest to Millennia's second mortgage. A week later, on November 21, 2006, Sovereign filed a motion to set aside

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or vacate the default judgment and an objection to confirmation of sale. The motion asserted that MERS was a K.S.A. 60-219(a) contingently necessary party and, because Landmark failed to name MERS as a defendant, Sovereign did not receive notice of the proceedings. The motion asked the court to vacate the default judgment under K.S.A. 60-260(b). The motion further asked the court to set aside the surplus from the sale, holding it to later to be paid to Sovereign if the court elected not to grant the motion to vacate.

On November 27, 2006, Kesler filed a motion seeking distribution of surplus funds from the sheriff's sale, and on January 3, 2007, Kesler filed a motion joining Landmark's earlier motion to confirm the sheriff's sale. The trial court conducted a hearing on the various motions on January 8, 2007, at which counsel for Landmark, Kesler, Sovereign, and Bristow appeared and presented their cases. The trial court deferred judgment pending review of the pleadings.

On January 16, 2007, MERS filed a motion joining Sovereign's motion to vacate the journal entry of default judgment and objecting to confirmation of the sheriff's sale, followed on January 18, 2007, by a motion to intervene under K.S.A. 60-224. MERS proffered an answer and a cross-claim to the original foreclosure petition.

On that same date, the trial court filed an order finding that MERS was not a real party in interest and Landmark was not required to name it as a party to the foreclosure action. The court found that MERS served only as an agent or representative for Millennia. The court also found that Sovereign's failure to register its interest with the Ford County Register of Deeds precluded it from asserting rights to the mortgage after judgment had been entered. The court denied the motions to set aside judgment and to intervene and granted the motions to confirm the sale and to distribute the surplus.

On February 1, 2007, MERS and Sovereign filed motions to reconsider. The trial court conducted a hearing on those motions, at which counsel for Kesler, Sovereign, and MERS appeared and argued. The trial court subsequently entered an order denying the motions to reconsider. MERS and Sovereign filed timely notices of appeal.

Prior to the appellants submitting their briefs, the purchasers Bristow and Woydziak filed a motion with the Court of Appeals seeking leave to intervene in the appeal. The Court of Appeals granted the motion. Bristow and Woydziak then filed a motion to compel the office of the Clerk of the Appellate Courts to docket their cross-appeal, which the Court of Appeals denied. The Court of Appeals affirmed the district court in Landmark National Bank v. Kesler, 40 Kan.App.2d 325, 192 P.3d 177 (2008). This court granted the appellants' petition for review.

I. Did The District Court Abuse Its Discretion In Denying MERS's Motion To Set Aside Default Judgment And Motion To Intervene As A Contingently Necessary Party?

A. Standard of Review

Denial of a motion to set aside a default judgment is subject to review under a standard of abuse of discretion. See Canaan v. Bartee, 272 Kan. 720, Syl. ¶ 9, 35 P.3d 841 (2001). A district court decision that denies a motion to join a party as a necessary party under K.S.A. 60-219(a) is also subject to an abuse of discretion standard of review. State ex rel. Graeber v. Marion County Landfill, Inc., 276 Kan. 328, 352, 76 P.3d 1000 (2003). Whether the evidence demonstrates that the statutory requirements for joinder have been met is a mixed question of fact and law. When reviewing a mixed question of fact and law, an appellate court reviews the district court's factual findings for substantial competent evidence and reviews de novo the district court's legal conclusions. State v. Fisher, 283 Kan. 272, 286, 154 P.3d 455 (2007).

Intervention as a matter of right is subject to the same mixed determination of law and fact as is joinder. K.S.A. 60-224(a). Permissive intervention lies within the discretion of the district court. K.S.A. 60-224(b); see Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370, 382 n. 1, 107 S.Ct. 1177, 94 L.Ed.2d 389 (1987) (Brennan, J., concurring) (discussing the different standards

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applied to Federal Rule of Civil Procedure 24[a] and [b] ).

Judicial discretion is abused when no reasonable person would take the view adopted by the trial court. Harsch v. Miller, 288 Kan. 280, 293, 200 P.3d 467 (2009). Review for abuse of discretion includes review to determine whether erroneous legal conclusions guided the exercise of discretion. State v. Skolaut, 286 Kan. 219, Syl. ¶ 3, 182 P.3d 1231 (2008).

To the extent that this appeal requires interpretation of statutory mandates, this court exercises unlimited review. See Genesis Health Club, Inc. v. City of Wichita, 285 Kan. 1021, 1031, 181 P.3d 549 (2008).

B. Analysis

While this is a matter of first impression in Kansas, other jurisdictions have issued opinions on similar and related issues, and, while we do not consider those opinions binding in the current litigation, we find them to be useful guideposts in our analysis of the issues before us.

At the heart of this issue is whether the district court abused its discretion in refusing to set aside the default judgment and in refusing to join MERS as a contingently necessary party.

The statutory provision for setting aside a default judgment is K.S.A. 60-255(b), which refers to K.S.A. 60-260(b), relating to relief from judgment, in a manner similar to the correlation between the corresponding federal rules, Fed. R. Civ. Proc. 55(c) and 60(b). K.S.A. 60-260(b) allows relief from a judgment based on mistake, inadvertence, surprise, or excusable neglect; newly discovered evidence that could not have been timely discovered with due diligence; fraud or misrepresentation; a void judgment; a judgment that has been satisfied, released, discharged, or is no longer equitable; or any other reason justifying relief from the operation of the judgment. K.S.A. 60-260(b) requires that the motion be made by a party or by a representative who is in privity with a party, thus precluding a nonparty of standing to file such a motion. K.S.A. 60-255(b) does not, however, require that the movant be a party to the action. See 11 Wright, Miller & Kane, Federal Practice & Procedure: Civil 2d § 2865 (1995).

It is appropriate-and probably necessary-for a trial court to consider evidence beyond the bare pleadings to determine whether it should set aside a default judgment. In a motion to set aside default, a trial court should consider a variety of factors to determine whether the defendant (or would-be defendant) had a meritorious defense, and the burden of establishing a meritorious defense rests with the moving party. See Canaan v. Bartee, 272 Kan. 720, 731, 35 P.3d 841 (2001).

This conclusion is consistent with the construction of the parallel federal rules:

" Generally, a federal court will grant a motion under Rule 55(c) only after some showing is made that if relief is granted the outcome of the suit may be different than if the entry of default or the default judgment is allowed to stand; the showing should underscore the potential injustice of allowing the case to be disposed of by default. In most cases, therefore, the court will require the party in default to demonstrate a meritorious defense to the action as a prerequisite to vacating the default entry or judgment. ...

" A majority of the courts ... have insisted upon a presentation of some factual basis for the supposedly meritorious defense....

" The demonstration of a meritorious defense is not expressly called for by the federal rules and, therefore, the nature and extent of the showing that will be necessary is a matter that lies within the court's discretion. ... The underlying concern is to determine whether there is some possibility that the outcome of the suit after a full trial will be contrary to the result achieved by the default. " (Emphasis added.) 10A Wright, Miller & Kane, Federal Practice & Procedure: Civil 3d § 2697 (1998).

We accordingly find that it was incumbent on the trial court, when ruling on the motion to set aside default judgment, to consider

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whether MERS would have had a meritorious defense if it had been named as a defendant and whether there was some reasonable possibility MERS would have enjoyed a different outcome from the trial if its participation had precluded default judgment.

In determining whether MERS was a contingently necessary party that was entitled to relief from judgment, the trial court was required to consider the factors of K.S.A. 60-219(a) in addition to those of K.S.A. 60-260(b).

K.S.A. 60-219(a) defines which parties are to be joined in an action as necessary for just adjudication:

" A person is contingently necessary if (1) complete relief cannot be accorded in his absence among those already parties, or (2) he claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action in his absence may (i) as a practical matter substantially impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest."

The law relating to a contingently necessary party closely resembles the law relating to vacating a default judgment, in that both require the party asserting the interest to demonstrate a meritorious defense or an interest that may be impaired. In order to prevail on appeal, MERS must demonstrate that the trial court abused its discretion when it found, based on the testimony, evidence, and pleadings before the court at the time when it considered the motion to set aside default judgment, that MERS lacked a meritorious defense to the foreclosure proceeding or had an interest that could be impaired. We will accordingly examine the nature of the interest in the mortgage that MERS has demonstrated.

Sovereign is a financial institution that putatively purchased the Kesler mortgage from Millennia but did not register the transaction in Ford County. The relationship of MERS to the transaction is not subject to an easy description. One court has described MERS as follows:

" MERS is a private corporation that administers the MERS System, a national electronic registry that tracks the transfer of ownership interests and servicing rights in mortgage loans. Through the MERS System, MERS becomes the mortgagee of record for participating members through assignment of the members' interests to MERS. MERS is listed as the grantee in the official records maintained at county register of deeds offices. The lenders retain the promissory notes, as well as the servicing rights to the mortgages. The lenders can then sell these interests to investors without having to record the transaction in the public record. MERS is compensated for its services through fees charged to participating MERS members." Mortgage Elec. Reg. Sys., Inc. v. Nebraska Depart. of Banking, 270 Neb. 529, 530, 704 N.W.2d 784 (2005).

The second mortgage designated the relationships of Kesler, MERS, and Millennia and established payment and notice obligations. That document purported to define the role played by MERS in the transaction and the contractual rights of the parties.

The document began by identifying the parties:

" THIS MORTGAGE is made this 15th day of March 2005, between the Mortgagor, BOYD A. KESLER, (herein ‘ Borrower’ ), and the Mortgagee, Mortgage Electronic Registration Systems, Inc. (‘ MERS'), (solely as nominee for Lender, as hereinafter defined, and Lender's successors and assigns). MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS. MILLENNIA MORTGAGE CORP., A CALIFORNIA CORPORATION is organized and existing under the laws of CALIFORNIA and has an address of 23046 AVENIDA DE LA CARLOTA # 100, LAGUNA HILLS, CALIFORNIA 92653 (herein ‘ Lender’ )."

The third paragraph of the first page of the mortgage document conveyed a security interest in real estate:

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" TO SECURE to Lender the repayment of the indebtedness evidenced by the Note, with interest thereon; the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Mortgage; and the performance of the covenants and agreements of Borrower herein contained, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender's successors and assigns) and to the successors and assigns of MERS the following described property located in the County of FORD, State of Kansas."

The first paragraph of the second page of the mortgage document contains the following language that apparently both limits and expands MERS's rights:

" Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Mortgage; 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 and 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 or cancelling this Mortgage."

Paragraph 7 of the mortgage document provides the lender with the right to protect the security:

" If Borrower fails to perform the covenants and agreements contained in this Mortgage, or if any action or proceeding is commenced which materially affects Lender's interest in the Property, then Lender, at Lender's option, upon notice to Borrower, may make such appearances, disburse such sums, including reasonable attorneys' fees, and take such action as is necessary to protect Lender's interest."

Paragraph 9 of the mortgage document provides the lender with rights in the event of a condemnation:

" Condemnation. The proceeds of any award or claim for damages, direct or consequential, in connection with any condemnation or other taking of the Property, or part thereof, or for conveyance in lieu of condemnation, are hereby assigned and shall be paid to Lender, subject to the terms of any mortgage, deed of trust or other security agreement with a lien which has priority over this mortgage."

Paragraph 12 of the mortgage document addresses notice:

" Notice. Except for any notice required under applicable law to be given in another manner, (a) any notice to Borrower provided for in this Mortgage shall be given by delivering it or by mailing such notice by certified mail addressed to Borrower at the Property Address or at such other address as Borrower may designate by notice to Lender as provided herein, and (b) any notice to Lender shall be given by certified mail to Lender's address stated herein or to such other address as Lender may designate by notice to Borrower as provided herein. Any notice provided for in this Mortgage shall be deemed to have been given to Borrower or Lender when given in the manner designated herein." (Emphasis added.)

The signature page of the mortgage document contains language relating to notice in the event of default:

" Borrower and Lender request the holder of any mortgage, deed of trust or other encumbrance with a lien which has priority over this Mortgage to give Notice to Lender, at Lender's address set forth on page one of this Mortgage, of any default under the superior encumbrance and of any sale or other foreclosure action." (Emphasis added.)

The mortgage instrument states that MERS functions " solely as nominee" for the lender and lender's successors and assigns. The word " nominee" is defined nowhere in the mortgage document, and the functional relationship between MERS and the lender is likewise not defined. In the absence of a contractual definition, the parties leave the definition to judicial interpretation.

What meaning is this court to attach to MERS's designation as nominee for Millennia? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant

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-their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage " in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not." He later stated that the nominee " is the mortgagee and is holding that mortgage for somebody else." At another time he declared on the record that the nominee

" is more like a trustee or more like a corporation, a trustee that has multiple beneficiaries. Now a nominee's relationship is not a trust but if you have multiple beneficiaries you don't serve one of the beneficiaries you serve the trustee of the trust. You serve the agent of the corporation."

Counsel for the auction property purchasers stated that a nominee is " one designated to act for another as his representative in a rather limited sense." He later deemed a nominee to be " like a power of attorney."

Black's Law Dictionary defines a nominee as " [a] person designated to act in place of another, usu. in a very limited way" and as " [a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others." Black's Law Dictionary 1076 (8th ed.2004). This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.

In its opinion below, the Court of Appeals cited Thompson v. Meyers, 211 Kan. 26, 30, 505 P.2d 680 (1973), which provides the only discussion in Kansas of the legal significance of a nominee:

" In common parlance the word ‘ nominee’ has more than one meaning. Much depends on the frame of reference in which it is used. In Webster's Third New International Dictionary, unabridged, one of the definitions given is ‘ a person named as the recipient in an annuity or grant.’ We view a ‘ nominee’ , as the term was used by the parties here, not simply in the sense of a straw man or limited agent ..., but in the larger sense of a person designated by them to purchase the real estate, who would possess all the rights given a buyer...."

The legal status of a nominee, then, depends on the context of the relationship of the nominee to its principal. Various courts have interpreted the relationship of MERS and the lender as an agency relationship. See In re Sheridan, 2009 WL 631355, at *4 (Bankr.D.Idaho March 12, 2009) (MERS " acts not on its own account. Its capacity is representative." ); Mortgage Elec. Registration System, Inc. v. Southwest, 2009 Ark. 152, __, __ S.W.3d __, 2009 WL 723182 (March 19, 2009) (" MERS, by the terms of the deed of trust, and its own stated purposes, was the lender's agent" ); LaSalle Bank Nat. Ass'n v. Lamy, 12 Misc.3d 1191, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (Sup.2006) (unpublished opinion) (" A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee." )

The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is " [o]ne to whom property is mortgaged: the mortgage creditor, or lender." Black's Law Dictionary 1034 (8th ed.2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting " solely" as the nominee of the lender.

Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying

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with some independent entity, the mortgage may become unenforceable.

" The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust." Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo.App.2009).

The Missouri court found that, because MERS was not the original holder of the promissory note and because the record contained no evidence that the original holder of the note authorized MERS to transfer the note, the language of the assignment purporting to transfer the promissory note was ineffective. " MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force." 284 S.W.3d at 624; see also In re Wilhelm, 407 B.R. 392 (Bankr.D.Idaho 2009) (standard mortgage note language does not expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517 (Bankr.C.D.Cal.2008) (" [I]f FHM has transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal. MERS presents no evidence as to who owns the note, or of any authorization to act on behalf of the present owner." ); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D.Cal.2008) (unpublished opinion) (" [F]or there to be a valid assignment, there must be more than just assignment of the deed alone; the note must also be assigned.... MERS purportedly assigned both the deed of trust and the promissory note.... However, there is no evidence of record that establishes that MERS either held the promissory note or was given the authority ... to assign the note." ).

What stake in the outcome of an independent action for foreclosure could MERS have? It did not lend the money to Kesler or to anyone else involved in this case. Neither Kesler nor anyone else involved in the case was required by statute or contract to pay money to MERS on the mortgage. See Sheridan, 2009 WL 631355, at *4 (" MERS is not an economic ‘ beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through foreclosure of the Deed of Trust in the event the Note is not paid." ). If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. at 517 (" [w]hile the note is ‘ essential,’ the mortgage is only ‘ an incident’ to the note" [quoting Carpenter v. Longan, 16 Wall. 271, 83 U.S. 271, 275, 21 L.Ed. 313 (1872) ] ).

When it found that MERS did not have an interest in the property that was impaired by the default judgment, the trial court properly considered four factors: (1) that the written pleadings and oral arguments by MERS and Sovereign identified MERS as acting only as a digital mortgage tracking service; (2) that counsel for MERS insisted that no evidence of a financial or property interest was necessary and its argument rested solely on its identity as the mortgagee on the mortgage document, when counsel was directly challenged to produce evidence of a financial or property interest; (3) that evidence showed that Sovereign was on notice that Landmark had leave of the bankruptcy court to proceed with foreclosure and that MERS did not attempt to intervene in the action until after its alleged principal, Sovereign, had already had its motion to intervene and to set aside judgment denied; and (4) that the case law submitted by the parties weighed more in favor of denying the motion. These factors were properly before the trial court and were consistent with the evidence and supported the court's legal reasoning.

Counsel for MERS explicitly declined to demonstrate to the trial court a tangible interest in the mortgage. Parties

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are bound by the formal admissions of their counsel in an action. Dick v. Drainage District No. 2, 187 Kan. 520, 525, 358 P.2d 744 (1961). Counsel for MERS made no attempt to show any injury to MERS resulting from the lack of service; in fact, counsel insisted that it did not have to show a financial or property interest.

MERS argued in another forum that it is not authorized to engage in the practices that would make it a party to either the enforcement of mortgages or the transfer of mortgages. In Mortgage Elec. Reg. Sys. v. Nebraska Dept. of Banking, 270 Neb. 529, 704 N.W.2d 784 (2005), MERS challenged an administrative finding that it was a mortgage banker subject to license and registration requirements.

The Nebraska Supreme Court found in favor of MERS, noting that " MERS has no independent right to collect on any debt because MERS itself has not extended credit, and none of the mortgage debtors owe MERS any money." 270 Neb. at 535, 704 N.W.2d 784. The Nebraska court reached this conclusion based on the submissions by counsel for MERS that

" MERS does not take applications, underwrite loans, make decisions on whether to extend credit, collect mortgage payments, hold escrows for taxes and insurance, or provide any loan servicing functions whatsoever. MERS merely tracks the ownership of the lien and is paid for its services through membership fees charged to its members. MERS does not receive compensation from consumers." 270 Neb. at 534, 704 N.W.2d 784.

Even if MERS was technically entitled to notice and service in the initial foreclosure action-an issue that we do not decide at this time-we are not compelled to conclude that the trial court abused its discretion in denying the motions to vacate default judgment and require joinder of MERS and Sovereign. The record lacks evidence supporting a claim that MERS suffered prejudice and would have had a meritorious defense had it been joined as a defendant to the foreclosure action. We find that the trial court did not abuse its discretion and did not commit reversible error in ruling on the post default motions.

We note that various arguments were presented suggesting that economic policy provides independent grounds for reversing the trial court. MERS and the amicus curiae American Land Title Association argue that MERS provides a cost-efficient method of tracking mortgage transactions without the complications of county-by-county registration and title searches. The amicus suggests the statutory recording system is grounded in seventeenth-century property law that is entirely unsuited to twentieth-century financial transactions. While this may be true, the MERS system introduces its own problems and complications.

One such problem is that having a single front man, or nominee, for various financial institutions makes it difficult for mortgagors and other institutions to determine the identity of the current note holder.

" [I]t is not uncommon for notes and mortgages to be assigned, often more than once. When the role of a servicing agent acting on behalf of a mortgagee is thrown into the mix, it is no wonder that it is often difficult for unsophisticated borrowers to be certain of the identity of their lenders and mortgagees." In re Schwartz, 366 B.R. 265, 266 (Bankr.D.Mass.2007).

" [T]he practices of the various MERS members, including both [the original lender] and [the mortgage purchaser], in obscuring from the public the actual ownership of a mortgage, thereby creating the opportunity for substantial abuses and prejudice to mortgagors ..., should not be permitted to insulate [the mortgage purchaser] from the consequences of its actions in accepting a mortgage from [the original lender] that was already the subject of litigation in which [the original lender] erroneously represented that it had authority to act as mortgagee." Johnson v. Melnikoff, 20 Misc.3d 1142, 873 N.Y.S.2d 234, 2008 WL 4182397, at *4 (Sup.1008).

The amicus argues that " [a] critical function performed by MERS as the mortgagee is the receipt of service of all legal process related to the property." The amicus makes this argument despite the mortgage clause

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that specifically calls for notice to be given to the lender, not the putative mortgagee. In attempting to circumvent the statutory registration requirement for notice, MERS creates a system in which the public has no notice of who holds the obligation on a mortgage.

The Arkansas Supreme Court has noted:

" The only recorded document provides notice that [the original lender] is the lender and, therefore, MERS's principal. MERS asserts [the original lender] is not its principal. Yet no other lender recorded its interest as an assignee of [the original lender]. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state." Southwest Homes v. Carmen Price, __ Ark. at __.

In any event, the legislature has established a registration requirement for parties that desire service of notice of litigation involving real property interests. It is not the duty of this court to criticize the legislature or to substitute its view on economic or social policy. Samsel v. Wheeler Transport Services, Inc., 246 Kan. 336, 348, 789 P.2d 541 (1990).

II. Did The Trial Court's Refusal To Join MERS As A Party Violate MERS's Right To Due Process?

MERS contends that the Fourteenth Amendment and § 18 of the Kansas Constitution Bill of Rights guarantees of due process were violated when the foreclosure action was consummated without MERS receiving notice of the proceeding and without MERS having the opportunity to intervene in the action.

Although joinder is evaluated under an abuse of discretion standard, if a constitutional right is involved the trial judge's exercise of discretion is limited. Discretion must be exercised not in opposition to, but in accordance with, established principles of law. It is not an arbitrary power. In re Adoption of B.G.J., 281 Kan. 552, 563, 133 P.3d 1 (2006).

The Fourteenth Amendment to the United States Constitution provides: " No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law."

Section 18 of the Kansas Constitution Bill of Rights provides: " All persons, for injuries suffered in person, reputation or property, shall have remedy by due course of law, and justice administered without delay."

Due process provides any interested party with the elementary and fundamental right to notice of the pendency of an action and the opportunity to present its objections in any proceeding that is to be accorded finality. Alliance Mortgage Co. v. Pastine, 281 Kan. 1266, 1275, 136 P.3d 457 (2006) (citing Mullane v. Central Hanover Bank & Tr. Co., 339 U.S. 306, 314, 94 L.Ed. 865, 70 S.Ct. 652 [1950] ). In the absence of a protected property or liberty interest, there can be no due process violation. State ex rel. Tomasic v. Unified Gov't of Wyandotte County/Kansas City, 265 Kan. 779, 809, 962 P.2d 543 (1998).

The Due Process Clause does not protect entitlements where the identity of the alleged entitlement is vague. Castle Rock v. Gonzales, 545 U.S. 748, 763, 125 S.Ct. 2796, 162 L.Ed.2d 658 (2005). A protected property right must have some ascertainable monetary value. 545 U.S. at 766, 125 S.Ct. 2796. Indirect monetary benefits do not establish protection under the Fourteenth Amendment. 545 U.S. at 767, 125 S.Ct. 2796. An entitlement to a procedure does not constitute a protected property interest. 545 U.S. at 764, 125 S.Ct. 2796.

MERS's contention that it was deprived of due process in violation of constitutional protections runs aground in the shallows of its property interest. As noted in the discussion of the first issue above, MERS did not demonstrate, in fact, did not attempt to demonstrate, that it possessed any tangible interest in the mortgage beyond a nominal designation as the mortgagor. It lent no money and received no payments from the borrower. It suffered no direct, ascertainable monetary

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loss as a consequence of the litigation. Having suffered no injury, it does not qualify for protection under the Due Process Clause of either the United States or the Kansas Constitutions.

Furthermore, MERS received the full opportunity to present arguments and evidence to the trial court. Only after Sovereign clearly had notice of the litigation, had filed a motion to intervene, and had participated in a hearing on the motion did MERS-Sovereign's nominee-elect to file for joinder. Despite its late decision to enter an appearance in the case, the trial court allowed MERS the opportunity to present arguments and evidence. It cannot be said that MERS was prejudicially denied notice and the opportunity to be heard.

We find that the district court did not abuse its discretion in denying the motions to vacate and for joinder and in holding that MERS was not denied due process. We accordingly affirm the district court and the Court of Appeals.

&&&&&&&&&&&&

229 P.3d 420 (Kan.App. 2010)

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Appellee,

v.

Michelle C. GRAHAM and David Martinez, Appellants,

v.

Countrywide Home Loans, Inc., Appellee.

No. 101,848.

Court of Appeals of Kansas.

April 30, 2010

Editorial Note:

This case does not have precedential value under Kansas supreme court rule 7.04 (f) and may only be cited as persuasive authority on a material issue not addressed by a published Kansas appellate court decision.

Appeal from Shawnee District Court; Franklin R. Theis, Judge.

Paul D. Post, of Topeka, for appellants.

Staci Olvera Schorgl and Rebecca S. Jelinek, of Bryan Cave LLP, of Kansas City, Missouri, for appellees Mortgage Electronic Registration Systems, Inc. and Countrywide Home Loans, Inc.

Before MARQUARDT, P.J., BUSER, J., and LARSON, S.J.

MEMORANDUM OPINION

PER CURIAM.

Michelle Graham and David Martinez appeal the partial summary judgment granted to Mortgage Electronic Registration Systems, Inc. (MERS), on MERS's petition to foreclose Graham and Martinez' mortgage. Graham and Martinez also appeal the summary judgment granted in favor of Countrywide Home Loans, Inc. (Countrywide), and the denial of their Kansas Consumer Protection Act (KCPA) and fraud claims. We affirm in part, reverse in part, and dismiss in part.

In August 2002, Graham executed a mortgage and promissory note for $140,000 with Countrywide for the purchase of a house. MERS, " acting solely as nominee for Countrywide," held the mortgage on the property. The property is titled in Graham's name, and she is the sole signatory on the promissory note. According to Graham's appellate brief, she and Martinez " have long considered themselves to be common law spouses, and accordingly, each recognizes that the other has an interest in this property."

Graham stopped making monthly payments on the promissory note in June 2004. MERS filed a petition to foreclose the mortgage in September 2004. MERS and Countryside named Martinez as a defendant in the foreclosure action " by virtue of his marital interest in the property." The district court dismissed the petition without prejudice after learning that Graham and Martinez had filed for Chapter 13 bankruptcy in August 2004. The bankruptcy was dismissed in February 2005 for lack of feasibility; however, Graham and Martinez filed another Chapter 13 bankruptcy in May 2005. Because of the bankruptcy filing, MERS, as nominee for Countrywide, filed a motion for relief from the automatic stay placed on the foreclosure action under 11 U.S.C. § 362 (2000).

While this second bankruptcy case was pending, Countrywide contracted with the law firm of McCalla, Raymer, Padrick, Cobb, Nichols & Clark, LLC in Roswell, Georgia, (McCalla Raymer), to analyze their troubled loans and identify borrowers who might qualify for a loan modification. On August 16, 2005, McCalla Raymer sent Michael Brunton, Graham and Martinez' attorney, a letter notifying him that a loan modification was possible. They also sent a consent form requesting authorization for them to communicate directly with Graham and Martinez. In compliance with the letter's request, Graham and Martinez provided McCalla Raymer with various financial documents. Brunton signed the consent form.

On October 26, 2005, McCalla Raymer sent another letter to Brunton stating that Graham and Martinez were conditionally preapproved for a loan modification. The letter stated:

" Please be advised that our office represents [Countrywide] in your client's above referenced bankruptcy. Based upon a review of your client(s) financial package received and bankruptcy schedules, your client's loan has been conditionally pre-approved by the Investor for a loan modification. The conditions are as follows:

" • Approval of motion for relief from the bankruptcy (or)

" • Dismissal of the bankruptcy (if chapter 13)

" Please be advised that final terms of the loans [ sic ] modification will be determined when the loan is released out of bankruptcy.

" If your client is interested in a loan modification with our client, please contact our office immediately to discuss further. Please be advised that if your client is interested in a loan modification that the debtor would be required to consent to relief from the stay or dismiss their bankruptcy."

It is undisputed that Brunton informed Graham and Martinez about the letter, but neither Graham nor Martinez contacted McCalla Raymer. Graham and Martinez claimed they were not required to contact McCalla Raymer to obtain the loan modification.

On November 9, 2005, Graham and Martinez allowed Brunton to consent to an order lifting the automatic bankruptcy stay placed on MERS's foreclosure action. The bankruptcy court noted that an " [a]greement has been reached and the debtor has no objection to relief from stay being granted." The bankruptcy order was filed on November 30, 2005.

On November 14, 2005, McCalla Raymer sent another letter to Brunton, which included the following sentence: " Please note that if we do not hear from your office regarding this matter by 11/21/05, we will be forced to close our file." It is undisputed that neither Graham nor Martinez contacted McCalla Raymer concerning the November 14 letter.

On January 18, 2006, after the bankruptcy court dismissed Graham and Martinez' case for failure to make payments under the bankruptcy plan, MERS filed a second petition to foreclose on the property. In response, Graham and Martinez added Countrywide as a third-party defendant. They filed a counterclaim against MERS and a cross-claim against Countrywide alleging that both committed fraud when MERS and Countrywide knowingly made false and misleading statements through their agent, McCalla Raymer, in the October 26, 2005, letter. Additionally, Graham and Martinez alleged MERS and Countrywide violated K.S.A. 50-626 and K.S.A. 50-627 of the KCPA, K.S.A. 50-623 et seq. , because the false promise to modify their loan enticed them to lift the automatic bankruptcy stay.

On July 23, 2007, MERS filed a motion for partial summary judgment and Countrywide filed a motion for summary judgment contending that the claims filed by Graham and Martinez failed as a matter of law because they provided: (1) no evidence the offer was false or misleading; (2) no evidence of deceptive or unconscionable acts or practices; (3) no evidence of actual damages; and (4) they could not be liable for any offer made by an employee of McCalla Raymer, an independent contractor.

In response, Graham and Martinez argued that they detrimentally relied on McCalla Raymer's fraudulent letter stating they had been preapproved for a loan modification and summary judgment was not appropriate because: (1) the existence of fraud is a question of fact; (2) whether a person engaged in deceptive acts or practices is also a question of fact; (3) MERS and Countrywide presented a " lame argument" that suggested McCalla Raymer " suddenly and magically appeared" without Countrywide's guidance; and (4) the loss of their $150,000 home was evidence of their damages.

On February 25, 2008, the district court granted MERS and Countrywide's motions for summary judgment, focusing on Graham and Martinez' lack of evidence supporting their claims that (1) the loan was automatically modified after they agreed to lift the bankruptcy stay; (2) they were ready to proceed with the loan modification; or (3) MERS or Countrywide lacked good faith in offering the loan modification.

Additionally, the district court stated that Graham and Martinez failed to provide evidence they detrimentally relied on McCalla Raymer's alleged misrepresentations. Although Graham and Martinez maintained that merely agreeing to lift the stay supported detrimental reliance, the district court determined that " Ms. Graham is in gross default of the terms of her note and mortgage," and the involuntary dismissal of their bankruptcy 2 months after lifting the stay, was insufficient to establish detrimental reliance. Further, the district court noted Graham and Martinez failed to show they suffered a causal injury. They suggested that the foreclosure might have been delayed, but Graham and Martinez presented no evidence that the foreclosure would have been prevented.

The district court also determined that Graham and Martinez failed to support their KCPA claims because they neglected to offer any evidence that MERS or Countrywide intended to deceive, or engage in deceptive acts or practices. Without evidence of a willful falsehood or ambiguity, or a willful failure to state a material fact, the district court concluded Graham and Martinez' KCPA claims failed. Graham and Martinez timely appeal.

MERS'S PETITION TO FORECLOSE THE MORTGAGE

As a preliminary matter, after the parties filed their appellate briefs, Graham and Martinez submitted a letter of additional authority pursuant to Supreme Court Rule 6.09(b) (2009 Kan. Ct. R. Annot. 47) suggesting Landmark Nat'l Bank v. Kesler, 289 Kan. 528, 216 P.3d 158 (2009), pertains to the arguments which appellants made at pages 24 through 26 of their brief.

" Standing is a question of whether the plaintiff has alleged such a personal stake in the outcome of a controversy as to warrant invocation of jurisdiction and to justify exercise of the court's remedial powers on his or her behalf. A party must have a sufficient stake in the outcome of an otherwise justiciable controversy in order to obtain judicial resolution of that controversy. [Citations omitted.] The party must have personally suffered some injury and there must be a causal connection between the injury and the challenged conduct." Moorhouse v. City of Wichita, 259 Kan. 570, 574, 913 P.2d 172 (1996) (citing Harrison v. Long, 241 Kan. 174, 176-77, 734 P.2d 1155, appeal dismissed 484 U.S. 804 [1987] ).

In Kansas, standing is a component of subject matter jurisdiction, which any party, or the court on its own motion, may raise at any time. Vorhees v. Baltazar, 283 Kan. 389, 397, 153 P.3d 1227 (2007).

In their letter of additional authority, Graham and Martinez contend MERS did not have standing to bring a foreclosure action because MERS is only the holder of the mortgage. Countrywide, as the lender, holds the promissory note.

In its response, MERS attempts to distinguish Landmark by claiming it stands for the sole proposition that MERS was not a necessary party following an entry of default judgment in a foreclosure action. MERS claims the underlying facts in this case differ markedly from the facts in Landmark and that Graham and Martinez admitted in their pleadings that " MERS acted as an agent of the note owner, Countrywide, and are bound by their admissions." However, " parties cannot confer subject matter jurisdiction by consent, waiver, or estoppel. Nor can parties convey jurisdiction on a court by failing to object to its lack of jurisdiction. [Citation omitted.]" Kansas Bd. of Regents v. Skinner, 267 Kan. 808, 814, 987 P.2d 1096 (1999).

In Landmark, our Supreme Court determined that a nonlender is not a contingently necessary party in a mortgage foreclosure action. 289 Kan. at 542-44. In its analysis, the Landmark court provided a detailed discussion of MERS as a " nominee" for the lender, and determined the legal status of a nominee " depends on the context of the relationship of the nominee to its principal." 289 Kan. at 539. After examining the relationship between MERS and the lender, the Landmark court stated:

" The relationship that MERS has to [the lender] is more akin to that of a straw man than to a party possessing all the rights given a buyer. A mortgagee and a lender have intertwined rights that defy a clear separation of interests, especially when such a purported separation relies on ambiguous contractual language. The law generally understands that a mortgagee is not distinct from a lender: a mortgagee is ‘ [o]ne to whom property is mortgaged: the mortgage creditor, or lender.’ Black's Law Dictionary 1034 (8th ed.2004). By statute, assignment of the mortgage carries with it the assignment of the debt. K.S.A. 58-2323. Although MERS asserts that, under some situations, the mortgage document purports to give it the same rights as the lender, the document consistently refers only to rights of the lender, including rights to receive notice of litigation, to collect payments, and to enforce the debt obligation. The document consistently limits MERS to acting ‘ solely’ as the nominee of the lender.

" Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable.

" The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. [Citation omitted.] Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. [Citation omitted.] The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.' Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W.3d 619, 623 (Mo.App.2009)." 289 Kan. at 539-40.

Likewise, in the instant case, this mortgage states that MERS acts " solely as nominee" for Countrywide. There is no mention of MERS in the promissory note, and there is no evidence that Countrywide assigned the note to MERS. Thus, there is no evidence that MERS has suffered any injury caused by Graham and Martinez' failure to make payments on the promissory note. The note does not obligate Graham and Martinez to make payments to MERS. Further, there is no indication that MERS possesses any interest in the promissory note, and given Landmark's " straw man" characterization of MERS's relationship to lenders, 289 Kan. at 539, there is no evidence that MERS received permission to act as an agent for Countrywide.

Having suffered no injury, MERS lacks standing to bring a foreclosure action. Accordingly, the district court did not have jurisdiction to grant MERS's petition to foreclose the mortgage. The summary judgment in favor of MERS is reversed, and the foreclosure action is dismissed.

SUMMARY JUDGMENT ON THE FRAUD CLAIM

An appellate court's standard of review in summary judgment cases is well established.

" [W]hen the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The [district] court is required to resolve all facts and inferences which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied ." Miller v. Westport Ins. Corp., 288 Kan. 27, Syl. ¶ 1, 200 P.3d 419 (2009).

The elements required to sustain an action for fraud include: ‘ " [1] an untrue statement of fact, [2] known to be untrue by the party making it, [3] made with the intent to deceive or with reckless disregard for the truth, [4] upon which another party justifiably relies and [5] acts to his or her detriment.’ " Bomhoff v. Nelnet Loan Services, Inc., 279 Kan. 415, 422, 109 P .3d 1241 (2005); PIK Civ. 4th 127.40.

Although the existence of fraud is normally a question of fact, when a plaintiff presents no evidence of an essential element of his or her claim, " ‘ there can be " no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.’ " Crooks v. Greene, 12 Kan.App.2d 62, 64-65, 736 P.2d 78 (1987) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 [1986] ).

Here, the district court concluded Graham and Martinez simply failed to present evidence to support the essential elements of their fraud claim. Thus, when a plaintiff lacks evidence to establish an essential element of his or her claim, summary judgment is appropriate. See Saliba v. Union Pacific R.R. Co., 264 Kan. 128, 131, 955 P.2d 1189 (1998).

In its response to MERS's and Countrywide's motions for summary judgment, Graham and Martinez claimed that McCalla Raymer made false and misleading statements in its October 26, 2005, letter when it stated that they had been preapproved for a loan modification. According to Graham and Martinez, they assumed " the loan modification would go through" once they agreed to lift the stay in their bankruptcy case. However, Graham and Martinez' assumption is not supported by the evidence and does not show that any statement in McCalla Raymer's October 26 letter was untrue.

The October 26 letter contains two sentences that refute Graham and Martinez' fraud claim. First, after the letter's two conditions, McCalla Raymer stated, " Please be advised that final terms of the loans [ sic ] modification will be determined when the loan is released out of bankruptcy." Consequently, the terms of the loan modification would have had to be determined after the bankruptcy stay was lifted.

Second, and more importantly, Graham and Martinez repeatedly omit a crucial sentence in the October 26 letter: " If your client is interested in a loan modification with our client, please contact our office immediately to discuss further." Neither Brunton, Graham, nor Martinez contacted McCalla Raymer concerning an interest in a loan modification.

Contrary to Graham and Martinez' claim, the October 26 letter clearly requested that Graham and Martinez contact McCalla Raymer to communicate their interest in a loan modification. As evidence of McCalla Raymer's intent, it sent another letter on November 14, 2005, which stated, " Please note that if we do not hear from your office regarding this matter by 11/21/05, we will be forced to close our file." Thus, Graham and Martinez presented no evidence McCalla Raymer intended to deceive them.

Graham and Martinez claim that the consent form allowing McCalla Raymer to communicate directly with them mandated that McCalla Raymer initiate contact with Graham and Martinez about the preapproved loan. However, the consent form merely allowed McCalla Raymer to contact Graham and Martinez directly, it did not require direct contact, nor did it prohibit sending correspondence through Brunton, their attorney.

In their response to the motions for summary judgment, Graham and Martinez claimed their damage was the loss of their home, which, in their opinion, is worth $150,000. Although Graham and Martinez claim on appeal they " voluntarily gave up valuable protections that were in place by virtue of the existence [of] the automatic stay order," the record on appeal indicates MERS did not file its second foreclosure action until January 18, 2006, more than 1 week after the bankruptcy court involuntarily dismissed Graham and Martinez' second bankruptcy case for failure to resume the plan payments.

Even if McCalla Raymer's statements were untrue and made with the intent to deceive, Graham and Martinez did not suffer any damage from consenting to lift the automatic bankruptcy stay. See Vondracek v. Mid-State Co-op, Inc., 32 Kan.App.2d 98, 102-03, 79 P.3d 197 (2003).

Therefore, after review of the record on appeal in the light most favorable to Graham and Martinez, there is no genuine issue as to any material fact. Graham and Martinez clearly failed to provide evidence to support the essential elements of their fraud claim. Thus, summary judgment was appropriate. See Saliba, 264 Kan. at 131.

KANSAS CONSUMER PROTECTION ACT CLAIMS

Graham and Martinez claim that under the KCPA, whether a person has engaged in a deceptive act or practice is a question of fact and not appropriate for summary judgment. However, summary judgment is appropriate on claims under K.S.A. 50-626 and K.S.A. 50-627 if there is no evidence of deceptive or unconscionable conduct. Bomhoff, 279 Kan. 415, Syl. ¶ 4. The same standard of review for summary judgment applies to this issue as noted above. Miller, 288 Kan. 27, Syl. ¶ 1.

In their appellate brief, Graham and Martinez specifically allege MERS and Countrywide violated K.S.A. 50-626(b)(2) and (b)(3) of the KCPA. Under K.S.A. 50-626(b)(2) and (b)(3), a supplier shall not engage in deceptive acts or practices, including the willful use of " exaggeration, falsehood, innuendo or ambiguity as to a material fact" in any written or oral representation, the willful failure to state a material fact, or the willful concealment of a material fact. This conduct may constitute a deceptive act regardless of whether it actually misled the consumer. K.S.A. 50-626(b).

Again, Graham and Martinez point to McCalla Raymer's statements in its October 26, 2005, letter conditionally preapproving them for a loan modification. However, as noted above, Graham and Martinez failed to present any evidence that McCalla Raymer intended to deceive them, willfully failed to state a material fact, or willfully concealed a material fact. Intent is required for a violation of K.S.A. 50-626(b)(2) and (b)(3). See Crandall v. Grbic, 36 Kan.App.2d 179, 196, 138 P.3d 365 (2006).

Here, the district court stated: " The best that can be shown is a miscommunication, not a willful falsehood or ambiguity ... or a willful failure to state a material fact or the willful concealment of one." Thus, summary judgment is appropriate.

Graham and Martinez also allege MERS and Countrywide violated the KCPA by engaging in unconscionable acts or practices under K.S.A. 50-627(b)(1), (3), (5), and (6). Whether acts are unconscionable under the KCPA is a legal question for the district court, for which appellate review is unlimited. State ex rel Kline v. Berry, 35 Kan.App.2d 896, 907, 137 P.3d 500 (2006).

While the KCPA has no definition of " unconscionable," the statute provides nonexclusive examples of unconscionable acts. See K.S.A. 50-627. When determining whether certain conduct was unconscionable, the district court is to consider whether a supplier knew or had reason to know any of the following circumstances:

" (1) The supplier took advantage of the inability of the consumer reasonably to protect the consumer's interests because of the consumer's physical infirmity, ignorance, illiteracy, inability to understand the language of an agreement or similar factor;

....

" (3) the consumer was unable to receive a material benefit from the subject of the transaction;

" (5) the transaction the supplier induced the consumer to enter into was excessively onesided in favor of the supplier; [and]

" (6) the supplier made a misleading statement of opinion on which the consumer was likely to rely to the consumer's detriment." K.S.A. 50-627(b)(1), (3), (5)-(6).

Notably, in their amended counterclaim, their response to the motions for summary judgment, and their appellate brief, Graham and Martinez fail to present any facts to support an allegation that MERS and Countrywide engaged in any unconscionable acts. Instead, Graham and Martinez broadly suggest that " [i]f the District Court had considered the facts shown by the discovery record," it would have denied MERS's and Countrywide's motions for summary judgment. Issues not briefed are deemed abandoned. See Cooke v. Gillespie, 285 Kan. 748, 758, 176 P.3d 144 (2008).

Graham and Martinez simply failed to present any evidence that MERS and Countrywide, through McCalla Raymer's October 26 letter, engaged in any unconscionable acts as described in K.S.A. 50-627(b). Accordingly, the district court did not err in granting MERS's and Countrywide's motions for summary judgment concerning Graham and Martinez' fraud and KCPA claims.

Next, Graham and Martinez claim the equitable doctrine of clean hands bars MERS's motion for summary judgment concerning its foreclosure action. Because we find that the district court did not have jurisdiction to grant summary judgment on MERS's foreclosure action, the question of whether they acted with " clean hands" is not an issue.

The district court's order granting partial summary judgment in favor of MERS's foreclosure action is reversed and the foreclosure action is dismissed. The order granting summary judgment in favor of MERS and Countrywide on Graham and Martinez' fraud and KCPA claims is affirmed.

Affirmed in part, reversed in part, and dismissed in part.
 


& & &



284 S.W.3d 619 (Mo.App. E.D. 2009)

Robert BELLISTRI, Respondents,

v.

OCWEN LOAN SERVICING, LLC, Appellant.

No. ED 91369.

Court of Appeals of Missouri, Eastern District, Fifth Division.

March 3, 2009

Motion for Rehearing and/or Transfer to Supreme Court Denied April 6, 2009.

Application for Transfer Denied June 30, 2009.

Page 620

[Copyrighted Material Omitted]

Page 621

Blake Hill, Jeffrey Weisman, Co-Counsel, St. Louis, MO, for appellant.

Phillip Gebhardt, Desoto, MO, for respondent.

NANNETTE A. BAKER, Chief Judge.

Introduction

The appellant, Ocwen Loan Servicing, L.L.C.[1], (Ocwen) appeals from a judgment of the Circuit Court of Jefferson County quieting title to real estate commonly known as 1210 Airglades, Arnold, Missouri, 63010 (the property) in favor of Robert Bellistri. Both parties filed motions for summary judgment, and the circuit court held that Ocwen lacked standing to contest Bellistri's deed. For the following reasons, we affirm.

Facts

On March 5, 2002, Glen Crouther purchased the property and executed a promissory note and a deed of trust. BNC Mortgage Inc. (BNC) was the lender and payee of the promissory note. In the deed of trust, Millsap, Singer & Dunn, P.C. was the trustee. The deed of trust, however, did not name BNC as the beneficiary, but instead names Mortgage Electronic Registration System (MERS), solely as BNC's nominee. The promissory note does not make any reference to MERS. The note and the deed of trust both require payments to be made to the lender, not MERS.

During 2002, 2003 and 2004, Crouther failed to pay taxes. At the second offering delinquent tax sale, Bellistri, the respondent, purchased the property and was issued a certificate of purchase on August 22, 2005. On May 12, 2006, Bellistri sent BNC a notice of redemption as required under the Jones Munger Act, Section 140.405 RSMo. (2006).

On September 19, 2006, the collector of revenue of Jefferson County, Missouri issued Bellistri a collector's deed. After the issuance of the collector's deed, MERS, as nominee for BNC, assigned the deed of trust to Ocwen on April 4, 2007. The assignment of the deed of trust also contained language that this assignment also transferred any and all notes described in the deed of trust.

Bellistri filed the instant action seeking to quiet title and eject Crouther from the property. Initially, Bellistri named Crouther as a defendant and published notice for all other unknown persons with an interest in the property. Later, Bellistri filed a motion to add Ocwen as a necessary, if not indispensable party. The circuit court granted his motion. Ocwen and Bellistri filed cross motions for summary judgment. The circuit court denied Ocwen's motion and granted summary judgment in favor of Bellistri. Ocwen now appeals.

Standard of Review

Whether a motion for summary judgment should be granted is a question of law and our review is essentially de

Page 622

novo. ITT Commercial Finance Corp. v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). Summary judgment is proper where the movant establishes the absence of any genuine issue of material fact and a legal right to judgment. Id. at 378. We will review the record in the light most favorable to the party against whom judgment has been entered. Facts set forth by affidavit or otherwise in support are taken as true unless contradicted by the non-moving party's response. Id. at 376. We will affirm the trial court's judgment if it is sustainable on any theory. Citibrook II, L.L.C. v. Morgan's Foods of Missouri, Inc., 239 S.W.3d 631 (Mo.App. E.D.2007).

Points on Appeal

On appeal, Ocwen argues that the trial court erred in entering summary judgment in favor of Bellistri because (1) Bellistri lost his interest in the property by failing to send MERS any notice pursuant to section 140.405; (2) the notice Bellistri sent to BNC misrepresented the redemption period and was therefore insufficient; (3) summary judgment should have been entered in its favor because Bellistri failed to comply with section 140.405; and (4) Ocwen had standing in this quiet title action because it was the named grantee on the assignment of the deed of trust.

Discussion

We will address the issue of standing first, as it is a jurisdictional matter antecedent to the right to relief. Farmer v. Kinder, 89 S.W.3d 447, 451 (Mo. banc 2002). Standing refers to a party's right to seek relief. Id. It " requires that a party seeking relief have a legally cognizable interest in the subject matter and that he has a threatened or actual injury." Eastern Missouri Laborers Dist. Council v. St. Louis County, 781 S.W.2d 43, 46 (Mo. banc 1989). Standing requires the party to be sufficiently affected so as to ensure a justiciable controversy. Shannon v. Hines, 21 S.W.3d 839, 841 (Mo.App. E.D.1999). Therefore, a party " must have some actual, justiciable interest." Id. They must have a recognizable stake. Wahl v. Braun, 980 S.W.2d 322 (Mo.App. E.D.1998). Lack of standing cannot be waived and may be considered by the court sua sponte. Brock v. City of St. Louis, 724 S.W.2d 721 (Mo.App. E.D.1987). If a party seeking relief lacks standing, the trial court does not have jurisdiction to grant the requested relief. Shannon, 21 S.W.3d at 842.

The Jones Munger Act, RSMo section 140.330, provides that one who acquires a collector's deed may bring an action to quiet title, naming as defendants " all parties who have, or claim to have, or appear of record in the county where such land or lot is situated, to have an interest in, or lien upon such lands or lots." Section 140.330. Here, Ocwen appears of record to have an interest in the property because it is the named grantee on the assignment of the deed of trust.

While this section allows broad joinder of defendants, a named defendant will not prevail unless the defendant has at least some interest in the property. Scott v. Unknown Heirs of Solomon Garrison, 361 Mo. 643, 235 S.W.2d 372, 374 (1951). In Scott, the plaintiff claimed title by virtue of a tax deed. The plaintiff brought an action to quiet her title, and the defendant claimed he was the owner of the property. The defendant, however, failed to produce a recorded title. The defendant also never had possession and paid no taxes on the property. He claimed he lost the deed, but had assumed a contract to purchase the property. The trial court found that the defendant had no right, title or interest to the property. On appeal, the defendant

Page 623

argued that the tax deed was void because the tax sale was so grossly inadequate as to amount to fraud. While the court agreed that the amount paid was so grossly inadequate as to be constructive fraud, they found that the defendant " did not have such an interest or claim of right to the property in question to challenge the sufficiency of the plaintiff's deed." Id.

Essentially, the Scott court found that the defendant lacked standing to invalidate the tax deed. The defendant lacked a legally cognizable interest in the property, and therefore he could not challenge the issuance of a collector's deed.

The same is true in the instant case. While Ocwen is the recorded grantee on the assignment of the deed of trust, it has no legally cognizable interest. Lacking such an interest, Ocwen is not entitled to the relief it seeks, namely, to dismiss Bellistri's petition and declare that the plaintiff has lost all interest in the real estate. Essentially, Ocwen is asking the court to quiet title in Crouther's name.

To seek this relief from the court, Ocwen must at least have an " interest" in the property. Scott, 235 S.W.2d at 374; Thurmon v. Ludy, 914 S.W.2d 32, 34 (Mo.App. E.D.1995) On the assignment of the deed of trust, Ocwen is listed as the grantee, as servicer for Deutsche Bank National Trust Company, as Trustee for the registered holders of the CDC Mortgage Capital trust, 2002-HE1, Mortgage Pass-Through Certificates, Series 2002-HE1 (Deutsche Bank). We must turn to the law of mortgages to understand Ocwen's interest.

Generally, a mortgage loan consists of a promissory note and security instrument, usually a mortgage or a deed of trust, which secures payment on the note by giving the lender the ability to foreclose on the property. Typically, the same person holds both the note and the deed of trust. In the event that the note and the deed of trust are split, the note, as a practical matter becomes unsecured. Restatement (Third) of Property (Mortgages) § 5.4. Comment. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Id. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. Id. The mortgage loan became ineffectual when the note holder did not also hold the deed of trust.

When the holder of the promissory note assigns or transfers the note, the deed of trust is also transferred. George v. Surkamp, 336 Mo. 1, 76 S.W.2d 368, 371 (1934). An assignment of the deed of trust separate from the note has no " force." Id. Effectively, the note and the deed of trust are inseparable, and when the promissory note is transferred, it vests in the transferee " all the interest, rights, powers and security conferred by the deed of trust upon the beneficiary therein and the payee in the notes." St. Louis Mut. Life Ins. Co. v. Walter, 329 Mo. 715, 46 S.W.2d 166, 170 (1931).

When it assigned the deed of trust, MERS attempted to transfer to Ocwen the deed of trust " together with any and all notes and obligations therein described or referred to, the debt respectively secured thereby and all sums of money due and to become due." The record reflects that BNC was the holder of the promissory note. There is no evidence in the record or the pleadings that MERS held the promissory note or that BNC

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gave MERS the authority to transfer the promissory note. MERS could not transfer the promissory note; therefore the language in the assignment of the deed of trust purporting to transfer the promissory note is ineffective. Black v. Adrian, 80 S.W.3d 909, 914-15 (Mo.App. S.D.2002) (" [A]ssignee of a deed of trust or a promissory note is vested with all interests, rights and powers possessed by the assignor in the mortgaged property" ). MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen separate from the note had no force. See George, 76 S.W.2d at 371. St. Louis Mut. Life Ins. Co., 46 S.W.2d at 170.

As Ocwen holds neither the promissory note, nor the deed of trust, Ocwen lacks a legally cognizable interest and lacks standing to seek relief from the trial court. See Scott, 235 S.W.2d at 374. The trial court was without jurisdiction to grant Ocwen its requested relief, and did not err in granting summary judgment in Bellistri's favor.

Conclusion

Ocwen lacked a legally cognizable interest in the property, and therefore, it has no standing to seek relief. We hereby affirm the judgment of the circuit court of Jefferson County.

GLENN A. NORTON, J., and KENNETH M. ROMINES, J., concur.

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Notes:

[1] Ocwen Loan Servicing, L.L.C. refers to Ocwen Loan Servicing, L.L.C., servicer for Deutsche Bank National Trust Company, as Trustee for the registered holders of the CDC Mortgage Capital trust 2002-HE1, as successor in interest to MERS, Inc.

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END







3 comments:

Anonymous said...

Sanity restored to the N.D. Ga. Bench.

Anonymous said...

We have a split in the Northern District of Georgia. Judge Story issued two opinions that directly contradict the one discussed above. Story based his opinion on contract law wherein the grantor gave MERS the authority to do anything the lender can do etc.etc. Based on that sophomoric legal interpretation a homeowner will loose everytime. Story opined that because O.C.G.A. 44-14-162.2 is silent on whether or not secured creditor status may be delegated, under principal/agent theory, such silence affirmatively indicates secured creditor is the actual noteholder and any entity the noteholder says it is, ie the servicer. Story conveniently overlooked the fact that words not defined in the Georgia code are to be given their ordinary meaning and we all know an agent of the creditor can never be the actual creditor for several reasons including an agent cannot be a principal at the same time, moereover the word "servicer" is mentioned no less than 7 times in chapter 44, thus the legislature knew the difference between a creditor and servicer when drafting 162.2 This issue is now ripe for certification.

Hugh Wood said...

Forward Me Judge Story's Two Orders and I will publish them. Or, give me the case numbers and I will get them from Pacer. Hugh Wood. I only have Totenberg's (there is a similiar one from Magistrate Baverman; but, this is a District Order)