IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS ORDER GRANTING DEFENDANTS MOTION FOR SUMMARY JUDGMENT

Transcription

1 The relief described hereinbelow is SO ORDERED. SIGNED this 30th day of April, In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS MARTIN HUERTER, Case No Debtor. Chapter 13 MARTIN HUERTER, Plaintiff, v. Adv. No CHASE HOME FINANCE, LLC, et al., Defendants. ORDER GRANTING DEFENDANTS MOTION FOR SUMMARY JUDGMENT Plaintiff/Debtor Martin Huerter seeks a declaration invalidating a mortgage lien against his homestead because the note and mortgage are held by different parties and the note s ownership is unclear to Debtor. Defendants JP Morgan Chase Bank, National Association, successor by merger to Chase Home Finance LLC (JP Morgan Chase), and Mortgage Electronic Registration Systems, Inc. (MERS), move for summary judgment. The motion is granted Huerter v Chase SJ.wpd Case Doc# 68 Filed 04/30/12 Page 1 of 6

2 because Defendants present uncontroverted evidence establishing Federal National Mortgage Association (Fannie Mae) has an interest in the note; JP Morgan Chase holds and services the note; and MERS holds the mortgage as an agent of JP Morgan Chase and Fannie Mae, thereby defeating Plaintiff s claim the note is unsecured. Findings of Fact On December 14, 2005, Debtor borrowed $284,000 to apply toward his homestead. He executed a promissory note to American Mortgage Network, Inc. To secure the note, Debtor and his non-debtor wife signed a mortgage. The mortgage states MERS is the mortgagee and is a separate corporation that is acting solely as a nominee for Lender and Lender s successors and assigns. Lender is defined as American Mortgage Network, Inc. The mortgage states Debtor mortgages and warrants to MERS (solely as nominee for Lender and Lender s successors and assigns) and to the successors and assigns of MERS the property. The mortgage states the note can be sold one or more times without prior notice to Debtor, and the covenants and agreements in the mortgage shall bind... and benefit the successors and assigns of Lender. The mortgage was recorded on December 21, American sold the note to Morgan Stanley Mortgage Capital Holdings, LLC, and endorsed it in blank. Morgan Stanley sold the note to JP Morgan Chase. Fannie Mae is an investor on the note, but JP Morgan Chase is the holder of the note and, through its counsel, is in possession of the note. At all relevant times, American, Morgan Stanley, JP Morgan Chase, and Fannie Mae were MERS members, subject to membership agreements with MERS. Pursuant to the agreements, at the time they owned or held the note, American, Morgan Stanley, JP Morgan Chase, and Fannie Mae all appointed MERS to act as their agent to serve as mortgagee on their Huerter v Chase SJ.wpd -2- Case Doc# 68 Filed 04/30/12 Page 2 of 6

3 behalf. MERS s business is to hold record legal title to mortgages and deeds of trust on behalf of the beneficial owners. MERS is structured to allow its members, which include originators, lenders, servicers and investors, to track transfers of servicing rights and beneficial ownership interests in notes secured by the mortgages and deeds of trust held by MERS. MERS s membership agreements define the scope of its relationship with its members and require, among other things, (1) members to cause MERS to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that the Member registers on the MERS System ; (2) MERS to serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners; and (3) MERS to comply with the instructions of the holder and beneficial owner of the notes. Debtor filed for bankruptcy on September 14, Debtor is attempting to invalidate Defendants security interest in his homestead. Conclusions of Law A. Summary Judgment Standard. Summary judgment is appropriate if the moving party demonstrates there is no genuine issue as to any material fact, and he is entitled to judgment as a matter of law. 1 All inferences are to be construed in favor of the non-moving party. 2 Only when reasonable minds could not differ as to the import of the proffered evidence is summary judgment proper. 3 1 FED.R.BANKR. P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 2 Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). 3 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, (1986) Huerter v Chase SJ.wpd -3- Case Doc# 68 Filed 04/30/12 Page 3 of 6

4 B. Defendants Objection to Claim Alleged for the First Time in Summary Judgment Pleadings. A complaint can not be amended to raise a new claim for relief by summary judgment pleadings. The Tenth Circuit requires a formal motion to amend under Rule 15(b). 4 In the complaint, Plaintiff alleges Defendants split the promissory note and mortgage between two separate and independent parties, rendering the note unsecured. Plaintiff cites K.S.A Defendants motion addresses these allegations. In opposing summary judgment, Plaintiff raises a factual allegation regarding the acknowledgments of the signatures on the mortgage. Plaintiff does not deny he and his wife signed the mortgage, but he disputes it occurred in the presence of a notary on the date and in the county noted in the acknowledgments. Defendants object to the additional factual allegation. To the extent the fact is offered to defeat summary judgment on the claim the note is unsecured as between the Plaintiff and Defendants, the failure of a notary to properly authenticate the signatures is immaterial in light of Debtor s admission he and his wife signed the mortgage. The mortgage is valid between the parties thereto despite the lack of an acknowledgment. 5 This fact would be material in an 11 U.S.C. 544 avoidance action, but such an action is not alleged, and the trustee is not a party to the lawsuit. C. The Evidence of an Agency Relationship between MERS and Its Members Demonstrates the Note and Mortgage Were Not Severed and Remain Valid and Enforceable. Under Kansas law, a promissory note and the mortgage securing it are, as a general rule, inseparable. 6 Even so, a note holder may appoint another to hold and enforce the mortgage on its 4 Green Country Food Market, Inc., v. Bottling Group, LLC, 371 F.3d 1275, (10th Cir. 2004). 5 K.S.A Hamilton v. CitiMortgage, Inc. (In re Lieurance), 458 B.R. 757, (Bankr. D. Kan. 2011); Bank Western v. Henderson, 255 Kan. 343 (1994), citing Middlekauff v. Bell, 111 Kan. 206, 207 (1922); Kurtz v. Sponable, 6 Kan. 395, 396 (1870) Huerter v Chase SJ.wpd -4- Case Doc# 68 Filed 04/30/12 Page 4 of 6

5 behalf. 7 A note and mortgage are not split when the note is held by the principal and the mortgage is held by its agent. 8 Kansas statutory law is the complement to the general, common law rule. 9 The MERS system has been scrutinized and analyzed by other courts, and, provided MERS can produce a complete evidentiary record, its system has been upheld as a valid way to hold and enforce promissory notes secured by mortgages and deeds of trust. 10 Williams, and its predecessor, Martinez, are well-reasoned, well-supported, and directly on point. This Court adopts the reasoning of these opinions and so holds in this case. Defendants present uncontroverted testimony JP Morgan Chase holds and possesses the note, which is endorsed in blank. The uncontroverted testimony is MERS holds the mortgage as an agent of JP Morgan Chase. Defendants uncontroverted testimony responds to Debtor s assertion Fannie Mae owns the note by averring Fannie Mae has an investment interest in the note, and Fannie Mae also has an agency relationship with MERS. Plaintiff/Debtor offers no evidence to raise a triable issue of fact over JP Morgan Chase s possession of the note and the agency relationship between MERS, Fannie Mae, and JP Morgan Chase. Debtor makes no effort to address the case law cited by Defendants which holds the note and mortgage may be held by separate entities, provided an agency relationship exists between the two. Debtor does not distinguish, discuss, or even mention Martinez and Williams. Accordingly, Defendants have 7 Martinez v. Mortgage Electronic Registration Systems, Inc. (In re Martinez), 444 B.R. 192, (Bankr. D. Kan. 2011). 8 Williams v. BAC Home Loans Servicing, LP (In re Williams), slip copy, 2012 WL , at *3 (Bankr. D. Kan. 2012); In re Tucker, 441 B.R. 638, (Bankr. W.D. Mo. 2010). 9 Williams, slip copy, 2012 WL , at *3, citing Bank Western v. Henderson, 255 Kan. 343, 354 (1994); Army Nat l Bank v. Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that [o]ur view is that the mortgage follows the note ); Kurtz v. Sponable, 6 Kan. 395, 396 (1870) ( Under our laws, the mortgage is but appurtenant to the debt,-- a mere security; and, under ordinary circumstances, whoever owns the debt owns the mortgage. ); and K.S.A Also worth noting, K.S.A (g) codifies the common law rule that a transfer of a note secured by a lien on real property also transfers the lien. 10 Williams, slip copy, 2012 WL Huerter v Chase SJ.wpd -5- Case Doc# 68 Filed 04/30/12 Page 5 of 6

6 sustained their burden of establishing they are entitled to judgment as a matter of law. GRANTED. Conclusion IT IS THEREFORE ORDERED Defendants Motion for Summary Judgment is ROBERT D. BERGER U.S. BANKRUPTCY JUDGE DISTRICT OF KANSAS ### Huerter v Chase SJ.wpd -6- Case Doc# 68 Filed 04/30/12 Page 6 of 6

7 The relief described hereinbelow is SO ORDERED. SIGNED this 30th day of April, In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS COREY VAN NOSTRAND and Case No MISTY VAN NOSTRAND, Chapter 13 Debtors. COREY VAN NOSTRAND and MISTY VAN NOSTRAND, Plaintiffs, v. Adv. No IBM LENDER BUSINESS PROCESS SERVICES, INC., et al., Defendants. ORDER GRANTING DEFENDANTS MOTION FOR SUMMARY JUDGMENT Plaintiffs/Debtors Corey and Misty Van Nostrand seek a declaration invalidating a mortgage lien against their homestead because the note and mortgage are held by different Van Nostrand v IBM SJ.wpd Case Doc# 75 Filed 04/30/12 Page 1 of 6

8 parties and the note s ownership is unclear to Debtors. Defendants Seterus, Inc., f/k/a IBM Lender Business Process Services, Inc., as servicer for Federal National Mortgage Association (Fannie Mae), and Mortgage Electronic Registration Systems, Inc. (MERS), move for summary judgment. The motion is granted because Defendants present uncontroverted evidence establishing Fannie Mae owns the note, Seterus holds and services the note, and MERS holds the mortgage as an agent of Seterus and Fannie Mae, thereby defeating Plaintiffs claim the note is unsecured. Findings of Fact On March 1, 2007, Corey Van Nostrand borrowed $136,000 to apply toward Debtors homestead. He executed a promissory note to American Mortgage Network, Inc. To secure the note, Corey and Misty Van Nostrand signed a mortgage dated March 1, The mortgage states MERS is the mortgagee and is a separate corporation that is acting solely as a nominee for Lender and Lender s successors and assigns. Lender is defined as American Mortgage Network, Inc. The mortgage states Van Nostrand mortgages and warrants to MERS (solely as nominee for Lender and Lender s successors and assigns) and to the successors and assigns of MERS the property. The mortgage states the note can be sold one or more times without prior notice to Van Nostrand, and the covenants and agreements in the mortgage shall bind... and benefit the successors and assigns of Lender. The mortgage was recorded on March 5, American sold the note to Fannie Mae and endorsed it in blank. Seterus is the current servicer on the note for Fannie Mae. Seterus is also the holder of the note and, through its counsel, is in possession of the note. At all relevant times, American, Fannie Mae, and Seterus Van Nostrand v IBM SJ.wpd -2- Case Doc# 75 Filed 04/30/12 Page 2 of 6

9 were MERS members, subject to membership agreements with MERS. Pursuant to the agreements, at the time they owned or held the note, American, Fannie Mae, and Seterus all appointed MERS to act as their agent to serve as mortgagee on their behalf. MERS s business is to hold record legal title to mortgages and deeds of trust on behalf of the beneficial owners. MERS is structured to allow its members, which include originators, lenders, servicers and investors, to track transfers of servicing rights and beneficial ownership interests in notes secured by the mortgages and deeds of trust held by MERS. MERS s membership agreements define the scope of its relationship with its members and require, among other things, (1) members to cause MERS to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that the Member registers on the MERS System ; (2) MERS to serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners; and (3) MERS to comply with the instructions of the holder and beneficial owner of the notes. Debtors filed for bankruptcy on December 23, They are attempting to invalidate Defendants security interest in their homestead. Conclusions of Law A. Summary Judgment Standard. Summary judgment is appropriate if the moving party demonstrates there is no genuine issue as to any material fact, and he is entitled to judgment as a matter of law. 1 All inferences are 1 FED. R. BANKR. P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) Van Nostrand v IBM SJ.wpd -3- Case Doc# 75 Filed 04/30/12 Page 3 of 6

10 to be construed in favor of the non-moving party. 2 Only when reasonable minds could not differ as to the import of the proffered evidence is summary judgment proper. 3 B. Defendants Objection to Claim Alleged for the First Time in Summary Judgment Pleadings. A complaint can not be amended to raise a new claim for relief by summary judgment pleadings. The Tenth Circuit requires a formal motion to amend under Rule 15(b). 4 In their complaint, Plaintiffs allege Defendants split the promissory note and mortgage between two separate and independent parties, rendering the note unsecured. Plaintiffs cite K.S.A Defendants motion addresses these allegations. In opposing summary judgment, Plaintiffs raise a factual allegation that Misty Van Nostrand s signature on the mortgage is not notarized. Defendants object to the additional factual allegation. To the extent the fact is offered to defeat summary judgment on the claim the note is unsecured as between the Plaintiffs and Defendants, the lack of a notarized signature is immaterial. The mortgage is valid between the parties thereto despite the lack of an acknowledgment. 5 This fact would be material in an 11 U.S.C. 544 avoidance action, but such an action is not alleged, and the trustee is not a party to this lawsuit. C. The Evidence of an Agency Relationship between MERS and Its Members Demonstrates the Note and Mortgage Were Not Severed and Remain Valid and Enforceable. Under Kansas law, a promissory note and the mortgage securing it are, as a general rule, 2 Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). 3 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, (1986). 4 Green Country Food Market, Inc., v. Bottling Group, LLC, 371 F.3d 1275, (10th Cir. 2004). 5 K.S.A Van Nostrand v IBM SJ.wpd -4- Case Doc# 75 Filed 04/30/12 Page 4 of 6

11 inseparable. 6 Even so, a note holder may appoint another to hold and enforce the mortgage on its behalf. 7 A note and mortgage are not split when the note is held by the principal and the mortgage is held by its agent. 8 Kansas statutory law is the complement to the general, common law rule. 9 The MERS system has been scrutinized and analyzed by other courts, and, provided MERS can produce a complete evidentiary record, its system has been upheld as a valid way to hold and enforce promissory notes secured by mortgages and deeds of trust. Debtors counsel was involved in the most recent challenge to MERS in a case similar to this case. 10 Williams and its predecessor, Martinez, are well-reasoned, well-supported, and directly on point. This Court adopts the reasoning of these opinions and so holds in this case. Defendants present uncontroverted testimony stating Fannie Mae owns the note, Seterus services the note, and MERS holds the mortgage as an agent of Seterus and Fannie Mae. Plaintiffs/Debtors offer no evidence to raise a triable issue of fact over the agency relationship between MERS, Fannie Mae, and Seterus. Debtors make no effort to address the case law cited by Defendants which holds the note and mortgage may be held by separate entities, provided an agency relationship exists between the two. Debtor does not distinguish, discuss, or even 6 Hamilton v. CitiMortgage, Inc. (In re Lieurance), 458 B.R. 757, (Bankr. D. Kan. 2011); Bank Western v. Henderson, 255 Kan. 343 (1994), citing Middlekauff v. Bell, 111 Kan. 206, 207 (1922); Kurtz v. Sponable, 6 Kan. 395, 396 (1870). 7 Martinez v. Mortgage Electronic Registration Systems, Inc. (In re Martinez), 444 B.R. 192, (Bankr. D. Kan. 2011). 8 Williams v. BAC Home Loans Servicing, LP (In re Williams), slip copy, 2012 WL , at *3 (Bankr. D. Kan. 2012); In re Tucker, 441 B.R. 638, (Bankr. W.D. Mo. 2010). 9 Williams, slip copy, 2012 WL , at *3, citing Bank Western v. Henderson, 255 Kan. 343, 354 (1994); Army Nat l Bank v. Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that [o]ur view is that the mortgage follows the note ); Kurtz v. Sponable, 6 Kan. 395, 396 (1870) ( Under our laws, the mortgage is but appurtenant to the debt,--a mere security; and, under ordinary circumstances, whoever owns the debt owns the mortgage. ); and K.S.A Williams, slip copy, 2012 WL Van Nostrand v IBM SJ.wpd -5- Case Doc# 75 Filed 04/30/12 Page 5 of 6

12 mention Martinez and Williams. Accordingly, Defendants have sustained their burden of establishing they are entitled to judgment as a matter of law. Conclusion IT IS THEREFORE ORDERED Defendants Motion for Summary Judgment is GRANTED. ROBERT D. BERGER U.S. BANKRUPTCY JUDGE DISTRICT OF KANSAS ### Van Nostrand v IBM SJ.wpd -6- Case Doc# 75 Filed 04/30/12 Page 6 of 6

13 Miller, Lynette From: Sent: To: Subject: Tuesday, May 01, :12 AM Order on Motion For Summary Judgment Van Nostrand et al v. Seterus Inc f/k/a IBM Lender Business Process Serv docket entry ***NOTE TO PUBLIC ACCESS USERS*** Judicial Conference of the United States policy permits attorneys of record and parties in a case (including pro se litigants) to receive one free electronic copy of all documents filed electronically, if receipt is required by law or directed by the filer. PACER access fees apply to all other users. To avoid later charges, download a copy of each document during this first viewing. However, if the referenced document is a transcript, the free copy and 30-page limit do not apply. Notice of Electronic Filing U.S. Bankruptcy Court District of Kansas The following transaction was received from kmr entered on 5/1/2012 at 11:12 AM CDT and filed on 4/30/2012 Case Name: Van Nostrand et al v. Seterus Inc f/k/a IBM Lender Business Process Serv Case Number: Document Number: 75 Docket Text: Order Granting Motion For Summary Judgment (Related Doc # [60]) Signed on 4/30/2012. (kmr) The following document(s) are associated with this transaction: Document description:main Document - Motion for Summary Judgment Original filename: _van_nostrand_v_ibm_sj.pdf Electronic document Stamp: [STAMP bkecfstamp_id= [Date=5/1/2012] [FileNumber= ] [b23a9ec1ceaf807d3ec1ee7b1f6981c91abf127f4e4b29ce83a9dccbdd613c ecaa41fe4d0a2be3af34b4bbee4865a03cabcddf4cd135ead69613d53c]] Notice will be electronically mailed to: Jonathan C Becker on behalf of Plaintiff Corey Van Nostrand jcb3220law@hotmail.com, jhawkbarrister@gmail.com Mark T. Benedict on behalf of Intervenor-Defendant Mortgage Electronic Registration Systems mark.benedict@huschblackwell.com, susan.williams@huschblackwell.com 1

14 John J. Cruciani on behalf of Defendant IBM Lender Business Process Services, Inc. Kurt M Lewis on behalf of Defendant Seterus Inc f/k/a IBM Lender Business Process Services Kurt.Lewis@Southlaw.com, mark.tilford@southlaw.com;lindsay.moss@southlaw.com Notice will not be electronically mailed to: 2

15 The relief described hereinbelow is SO ORDERED. SIGNED this 30th day of April, In re: IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS MARK ROBERT WILKINSON and Case No THERESA JEAN WILKINSON, Chapter 11 Debtors. MARK WILKINSON, et al., Plaintiffs, v. Adv. No BAC HOME LOANS SERVICING, LP, et al., Defendants. ORDER GRANTING DEFENDANTS MOTION FOR SUMMARY JUDGMENT Plaintiffs/Debtors Mark and Theresa Wilkinson seek a declaration invalidating a mortgage lien against their homestead because the note and mortgage are held by different parties and the note s ownership is unclear to Debtors. Defendants BAC Home Loans Servicing, LP, now known as Bank of America, N.A., and Mortgage Electronic Registration Systems, Inc. (MERS), move for summary judgment. The motion is granted because Defendants Wilkinson v BAC SJ.wpd Case Doc# 51 Filed 04/30/12 Page 1 of 5

16 present uncontroverted evidence establishing Federal National Mortgage Association (Fannie Mae) owns the note, BAC holds and services the note, and MERS holds the mortgage as an agent of BAC and Fannie Mae, thereby defeating Plaintiff s claim the note is unsecured. Findings of Fact On August 4, 2003, Debtors borrowed $82,000 to apply toward their homestead. They executed a promissory note to Sterling Capital Mortgage Company, now known as RBC Mortgage Company. To secure the note, Debtors signed a mortgage. The mortgage states MERS is the mortgagee and is a separate corporation that is acting solely as a nominee for Lender and Lender s successors and assigns. Lender is defined as Sterling. The mortgage states Debtors mortgages and warrants to MERS (solely as nominee for Lender and Lender s successors and assigns) and to the successors and assigns of MERS the property. The mortgage states the note can be sold one or more times without prior notice to Debtors, and the covenants and agreements in the mortgage shall bind... and benefit the successors and assigns of Lender. The mortgage was recorded on August 8, Sterling sold the note to Countrywide Home Loans, Inc. Countrywide sold the note to BAC and endorsed it in blank. BAC sold the note to Fannie Mae, but BAC retained possession of the note as servicer for Fannie Mae. Following BAC s merger with Bank of America, Bank of America became the current servicer and holder of the note. At all relevant times, Sterling, Countrywide, BAC and Fannie Mae were MERS members, subject to membership agreements with MERS. Pursuant to the agreements, at the time they owned or held the note, Sterling, Countrywide, BAC and Fannie Mae all appointed MERS to act as their agent to serve as mortgagee on their behalf Wilkinson v BAC SJ.wpd -2- Case Doc# 51 Filed 04/30/12 Page 2 of 5

17 MERS s business is to hold record legal title to mortgages and deeds of trust on behalf of the beneficial owners. MERS is structured to allow its members, which include originators, lenders, servicers and investors, to track transfers of servicing rights and beneficial ownership interests in notes secured by the mortgages and deeds of trust held by MERS. MERS s membership agreements define the scope of its relationship with its members and require, among other things, (1) members to cause MERS to appear in the appropriate public records as the mortgagee of record with respect to each mortgage loan that the Member registers on the MERS System ; (2) MERS to serve as mortgagee of record with respect to all such mortgage loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners; and (3) MERS to comply with the instructions of the holder and beneficial owner of the notes. Debtors filed for bankruptcy on December 31, Debtors are attempting to invalidate Defendants security interest in their homestead. Conclusions of Law A. Summary Judgment Standard. Summary judgment is appropriate if the moving party demonstrates there is no genuine issue as to any material fact, and he is entitled to judgment as a matter of law. 1 All inferences are to be construed in favor of the non-moving party. 2 Only when reasonable minds could not differ as to the import of the proffered evidence is summary judgment proper. 3 1 FED. R. BANKR. P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 2 Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). 3 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, (1986) Wilkinson v BAC SJ.wpd -3- Case Doc# 51 Filed 04/30/12 Page 3 of 5

18 B. The Evidence of an Agency Relationship between MERS and Its Members Demonstrates the Note and Mortgage Were Not Severed and Remain Valid and Enforceable. Under Kansas law, a promissory note and the mortgage securing it are, as a general rule, inseparable. 4 Even so, a note holder may appoint another to hold and enforce the mortgage on its behalf. 5 A note and mortgage are not split when the note is held by the principal and the mortgage is held by its agent. 6 Kansas statutory law is the complement to the general, common law rule. 7 The MERS system has been scrutinized and analyzed by other courts, and, provided MERS can produce a complete evidentiary record, its system has been upheld as a valid way to hold and enforce promissory notes secured by mortgages and deeds of trust. 8 Williams, and its predecessor, Martinez, are well-reasoned, well-supported, and directly on point. This Court adopts the reasoning of these opinions and so holds in this case. Defendants present uncontroverted testimony stating Fannie Mae owns the note, BAC holds and possesses the note, and MERS holds the mortgage as an agent of BAC and Fannie Mae. Plaintiffs/Debtors offer no evidence to raise a triable issue of fact over the agency 4 Hamilton v. CitiMortgage, Inc. (In re Lieurance), 458 B.R. 757, (Bankr. D. Kan. 2011); Bank Western v. Henderson, 255 Kan. 343 (1994), citing Middlekauff v. Bell, 111 Kan. 206, 207 (1922); Kurtz v. Sponable, 6 Kan. 395, 396 (1870). 5 Martinez v. Mortgage Electronic Registration Systems, Inc. (In re Martinez), 444 B.R. 192, (Bankr. D. Kan. 2011). 6 Williams v. BAC Home Loans Servicing, LP (In re Williams), slip copy, 2012 WL , at *3 (Bankr. D. Kan. 2012); In re Tucker, 441 B.R. 638, (Bankr. W.D. Mo. 2010). 7 Williams, slip copy, 2012 WL , at *3, citing Bank Western v. Henderson, 255 Kan. 343, 354 (1994); Army Nat l Bank v. Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that [o]ur view is that the mortgage follows the note ); Kurtz v. Sponable, 6 Kan. 395, 396 (1870) ( Under our laws, the mortgage is but appurtenant to the debt,-- a mere security; and, under ordinary circumstances, whoever owns the debt owns the mortgage. ); and K.S.A Also worth noting, K.S.A (g) codifies the common law rule that a transfer of a note secured by a lien on real property also transfers the lien. 8 Williams, slip copy, 2012 WL Wilkinson v BAC SJ.wpd -4- Case Doc# 51 Filed 04/30/12 Page 4 of 5

19 relationship between MERS, Fannie Mae, and BAC. 9 Debtors make no effort to address the case law cited by Defendants which holds the note and mortgage may be held by separate entities, provided an agency relationship exists between the two. Debtors do not distinguish, discuss, or even mention Martinez and Williams. Accordingly, Defendants have sustained their burden of establishing they are entitled to judgment as a matter of law. GRANTED. Conclusion IT IS THEREFORE ORDERED Defendants Motion for Summary Judgment is ROBERT D. BERGER U.S. BANKRUPTCY JUDGE DISTRICT OF KANSAS ### 9 Debtors counsel was also debtors counsel in Williams and raised the same disjointed argument regarding Red Oak Merger Corporation and an alleged broken chain of title. Even after Judge Karlin characterized the argument as throw - as - much - mud - against - the - wall - as - you - can - and - hope - some - of - it - sticks, counsel made no effort to amend this complaint or more fully address the significance, or even the relevance, of Red Oak. Id., at *4-*5. For the same reasons stated in Williams, Debtors argument does not raise a triable issue of fact in this case Wilkinson v BAC SJ.wpd -5- Case Doc# 51 Filed 04/30/12 Page 5 of 5

20 Miller, Lynette From: Sent: To: Subject: Tuesday, May 01, :23 AM Order on Motion For Summary Judgment Wilkinson et al v. BAC Home Loan Servicing Inc docket entry ***NOTE TO PUBLIC ACCESS USERS*** Judicial Conference of the United States policy permits attorneys of record and parties in a case (including pro se litigants) to receive one free electronic copy of all documents filed electronically, if receipt is required by law or directed by the filer. PACER access fees apply to all other users. To avoid later charges, download a copy of each document during this first viewing. However, if the referenced document is a transcript, the free copy and 30-page limit do not apply. Notice of Electronic Filing U.S. Bankruptcy Court District of Kansas The following transaction was received from kmr entered on 5/1/2012 at 11:23 AM CDT and filed on 4/30/2012 Case Name: Wilkinson et al v. BAC Home Loan Servicing Inc Case Number: Document Number: 51 Docket Text: Order Granting Motion For Summary Judgment (Related Doc # [38]) Signed on 4/30/2012. (kmr) The following document(s) are associated with this transaction: Document description:main Document - Motion for Summary Judgment Original filename: _wilkinson_v_bac_sj.pdf Electronic document Stamp: [STAMP bkecfstamp_id= [Date=5/1/2012] [FileNumber= ] [cc770433f547619de4d14ffa957c c4374d689bd248e031c4be722de4e 132db85b83ea8153d92e93062ae74bc6933aaa250f6f145e355cfa6cdcbbf]] Notice will be electronically mailed to: Jonathan C Becker on behalf of Plaintiff Mark Wilkinson jcb3220law@hotmail.com, jhawkbarrister@gmail.com John J. Cruciani on behalf of Defendant BAC Home Loan Servicing Inc john.cruciani@huschblackwell.com, christy.harkins@huschblackwell.com;lynette.miller@huschblackwell.com 1

21 Cynthia M Woolverton on behalf of Defendant BAC Home Loan Servicing Inc bkty@msfirm.com Notice will not be electronically mailed to: 2

22 SO ORDERED. SIGNED this 1st day of March, In the United States Bankruptcy Court for the District of Kansas In re, ) ) Bruce Kevin Williams and ) Case No Candice Sue Williams, ) ) Debtors. ) ) ) Bruce Kevin Williams and ) Candice Sue Williams, ) ) Plaintiffs, ) ) v. ) Adv. No ) BAC Home Loans Servicing, L.P. 1 and ) 1 The Complaint named only one defendant, BAC Home Loans Servicing, L.P., but in the body of the Complaint, Plaintiffs indicated defendant is a wholly owned subsidiary of Bank of America. In reply to BAC Home Loans Servicing, L.P. s Motion for Summary Judgment, Plaintiffs added the following language in the caption, immediately following BAC: n/k/a Bank of America, N.A. There has been no motion to change the name of the partydefendant, and no pleading filed by either Defendant has added the language. No one disputes that BAC Home Loans Servicing, L.P. merged with Bank of America. Accordingly I have elected to use the name originally used by Plaintiffs for Defendant BAC Home Loans Servicing, L.P., without the addition of the new n/k/a moniker. Case Doc# 57 Filed 03/01/12 Page 1 of 14

23 Mortgage Electronic ) Registration Systems, Inc., ) ) Defendant-Intervenor. ) ) Memorandum Opinion and Order Granting Defendants Motion for Summary Judgment But Giving Plaintiffs a Limited Opportunity to Amend Complaint This case involves an attempt by Plaintiffs, Bruce and Candice Williams, to have the loan they intended to be secured by the first mortgage on their home deemed unsecured and the accompanying mortgage found unenforceable. 2 The only basis articulated in their Complaint for this result is that the note was made in favor of one entity and the mortgage in favor of a different entity. They contend this results in an irrevocable split of the two instruments, making the note unsecured, and the mortgage unenforceable. The Defendants, BAC Home Loans Servicing, L.P. ( BAC ) and Mortgage Electronic Registration Systems, Inc. ( MERS ), have jointly moved for summary judgment claiming that no such split ever occurred, and that BAC has authority to enforce the note and the mortgage. I have jurisdiction over this adversary proceeding pursuant to 28 U.S.C. 157 and This is a core proceeding under 28 U.S.C. 157(b)(2)(B) and (K). 2 I recently granted summary judgment to the only defendant in a companion case involving the second mortgage on the Debtors home. See Williams v BAC Home Loans Servicing, LP, Case No , issued February 14, Case Doc# 57 Filed 03/01/12 Page 2 of 14

24 I. Findings of Fact On February 24, 2003, Bruce and Candice Williams executed a promissory note in favor of Countrywide Home Loans, Inc. ( Countrywide ) in the amount of $144, On that same date, they executed a mortgage on their home to secure repayment of the note. The mortgage was executed in favor of MERS, acting solely as nominee for [Countrywide] and [Countrywide s] successors and assigns. When the note and mortgage were executed by the Williamses, Countrywide was a member of MERS, and it remained a member of MERS during the entire time it was an owner of the note. The mortgage was properly recorded with the Register of Deeds for Douglas County, Kansas. Countrywide sold the note to BAC, which was also a member of MERS at all times that it owned the note. 3 The note was then sold to Fannie Mae, with BAC retaining possession of the original note as the servicer for Fannie Mae. Fannie Mae, like BAC and Countrywide, was also a member of MERS when it owned the note. BAC was merged into Bank of America, N.A., which took possession of the note and became the servicer for Fannie Mae upon the merger. Bank of America was also a member of MERS at all times it was in possession of the note and acted as servicer of it. Pursuant 3 This fact that Countrywide sold the note to BAC was contained in BAC s Statement of Fact 9, which also stated that Countrywide then endorsed the Note in blank and transferred possession of the Note to BAC. The Williamses disputed the second portion of this statement of fact pointing out that the copy of the note attached by BAC as an attachment to their brief shows no endorsement by Countrywide. However, the Williamses did not dispute (by pointing to anything in the record, or making any arguments) the fact that the note was sold to BAC. 3 Case Doc# 57 Filed 03/01/12 Page 3 of 14

25 to their agreements with MERS, Countrywide, BAC, Bank of America and Fannie Mae all appointed MERS to serve as mortgagee on their behalf. In September, 2009, the Williamses filed a Chapter 7 bankruptcy, which was later converted to Chapter 13 proceeding. The Williamses filed a proof of claim on behalf of Bank of America in the amount of $125,000, indicating that the claim was secured by a mortgage. 4 The Williamses filed this adversary proceeding in November In their Complaint, they allege that Defendant Bank claims interest in the real estate is subject to a first lien arising out of a mortgage in favor of Mortgage Electronic Registration Systems, Inc. in the amount of $125, The Williamses further allege that Mortgage (sic) Registration Systems, Inc. holds the mortgage, but not the promissory note. 6 They then claim that [t]he interest in the note and mortgage are held by two separate and distinct parties and result in an unsecured debt in favor of [Bank of America] pursuant to K.S.A As a result of these alleged facts, the Williamses then ask me to find that Bank of America s claim under the note is 4 The Defendants initially claimed as a material fact that Bank of America had itself filed a Proof of Claim. This is one of only two facts the Williamses elected to contest. While they are correct that their lawyer, not Bank of America, actually filed the proof of claim, any dispute over who actually filed the Proof of Claim is immaterial to the issues before me. 5 Adversary Complaint 9. There is apparently some typographical error, as this sentence is difficult to understand. 6 Id. at Id Case Doc# 57 Filed 03/01/12 Page 4 of 14

26 unsecured and that the mortgage held in the name of MERS should be cancelled when Plaintiffs receive their discharge upon completion of their confirmed plan. 8 Additional facts will be discussed below, when necessary. II. Standard for Summary Judgment Summary judgment is appropriate if the moving party demonstrates that there is no genuine issue as to any material fact and that it is entitled to a judgment as a matter of law. 9 In applying this standard, I view the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. 10 An issue is genuine if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way. 11 A fact is material if, under the applicable substantive law, it is essential to the proper disposition of the claim. 12 The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. 13 In attempting to meet that standard, a movant that does not bear the ultimate burden of 8 Debtors confirmed plan provides that they will pay the Trustee sufficient amounts each month so that the Trustee can, in turn, pay the amounts due on both notes during the pendency of this case. 9 Fed. R. Civ. P. 56(c). Fed. R. Civ. P. 56(c) is made applicable to adversary proceedings pursuant to Fed. R. Bankr. P Lifewise Master Funding v. Telebank, 374 F.3d 917, 927 (10th Cir. 2004). 11 Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). 12 Id. (citing Anderson, 477 U.S. at 248). 13 Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, (1986)). 5 Case Doc# 57 Filed 03/01/12 Page 5 of 14

27 persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party s claim. 14 If the movant carries this initial burden, the nonmovant that would bear the burden of persuasion at trial may not simply rest upon its pleadings; the burden shifts to the nonmovant to go beyond the pleadings and set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant. 15 To accomplish this, sufficient evidence pertinent to the material issue must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein. 16 Finally, summary judgment is not a disfavored procedural shortcut. But instead is an important procedure designed to secure the just, speedy and inexpensive determination of every action. 17 III. Plaintiffs Complaint does not state a theory entitling them to relief. Plaintiffs Complaint states its purpose is to determine the value of the interest of the Defendant in the residential real estate of the debtor (sic) and determine the 14 Id. (citing Celotex, 477 U.S. at 325). 15 Id. (citing Fed. R. Civ. P. 56(e)). 16 Diaz v. Paul J. Kennedy Law Firm, 289 F.3d 671, 675 (10th Cir. 2002). 17 Celotex, 477 U.S. at 327 (quoting Fed. R. Civ. P. 1). 6 Case Doc# 57 Filed 03/01/12 Page 6 of 14

28 amount of the allowed secured claim of the Defendant. 18 It then alleges that BAC has no interest in the residential real estate, and thus no secured claim, because of how the note and mortgage were originally drawn. The Defendants contend they are entitled to summary judgment because (1) the mortgage remained tied to the note despite the fact that the mortgage was made in favor of MERS and the note was made in favor of Countrywide, BAC s predecessor, and (2) BAC qualifies as a holder of the note under Kansas law, and thus has the authority to enforce the note and mortgage. The Williamses respond that, under Kansas law, the note and mortgage were split and no longer function together, and that there are factual questions surrounding BAC s status as a holder of the note. The Williamses essentially raise three arguments in opposition to the motion for summary judgment. First, they claim that K.S.A in some way requires a finding that the note is unsecured because MERS is not the holder or the owner of the note. This argument is directly tied to the claim they raised in the Complaint that the note and mortgage have been split, the mortgage is no longer (and never was) enforceable, and the note is no longer secured. Second, they claim that because Fannie Mae is now the beneficial owner of the note, BAC cannot enforce it because it is not a holder under Kansas law. Finally, they claim that an intervening entity in the merger of Countrywide to Bank of America Red Oak Merger Corporation creates 18 Doc. 1. There are actually two debtors in this case. In addition, MERS sought and received permission to intervene without objection, so that is why the Complaint speaks of only one Defendant, but this opinion often refers to Defendants, plural. See Docs.25, 26 and Case Doc# 57 Filed 03/01/12 Page 7 of 14

29 doubt as to the chain of title to this property. The second and third claims were not raised in their Complaint; they were raised for the first time when opposing summary judgment. A. The note and mortgage have not been irrevocably split. The only claim actually raised by the Williamses in their Complaint is that the mortgage was rendered unenforceable, and the note unsecured, the instant the mortgage was issued in favor of MERS and the note was issued in favor of Countrywide. I decided this precise issue over a year ago in Martinez v. Mortgage Electronic Registration Systems, Inc. (In re Martinez). 19 In that case, I concurred with the reasoning of In re Tucker, 20 which held that issuing the note in favor of one entity and the mortgage in favor of another did not result in the splitting of the note and mortgage provided there was an agency relationship between the two entities. The Williamses do not try to distinguish Martinez or argue that it was wrongly decided; they simply elect to ignore it. Similarly, they never contest the fact that MERS was acting as an agent for Countrywide, BAC, Bank of America or Fannie Mae at all times relevant to this case. Instead, they rely on K.S.A to support their argument that a fatal splitting of the note and mortgage occurred. K.S.A provides that [t]he assignment of any mortgage as herein provided shall carry with it the debt thereby secured. The Williamses claim that assignment of the mortgage B.R. 192 (Bankr. D. Kan. 2011) B.R. 638, (Bankr. W.D. Mo. 2010). 8 Case Doc# 57 Filed 03/01/12 Page 8 of 14

30 to MERS carries with it the debt secured by the mortgage. 21 Advancing that argument, they then claim that because MERS does not claim to own the note, whoever does own the note holds it as a general unsecured creditor to be paid pro rata in the main case along with other general unsecured creditors. The Williamses legal argument is difficult to follow, but appears to ignore longstanding Kansas common law that holds that the transfer of a debt secured by the mortgage also carries with it the mortgage securing the debt. 22 Contrary to what the Williamses appear to argue, the common law proposition that an assignment of a note carries with it the mortgage that was intended to secure the note and the statutory provision that the assignment of a mortgage carries with it the note secured by the mortgage are not necessarily at odds with each other. In fact, both of these principles are taken directly from the Restatement (Third) of Property (Mortgages) 5.4. Taken together, they recognize that it is nearly always sensible to keep the mortgage and the right of enforcement of the obligation it secures in the hands of the same person It also appears that the mortgage was never assigned to MERS, but was made directly to it, as agent for the beneficial owner of the note, at the inception of the loan. Thus, the assignment language in the statute does not even appear to apply to these facts. 22 See Bank Western v. Henderson, 255 Kan. 343, 354 (1994) and Army Nat. Bank v. Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that [o]ur view is that the mortgage follows the note. ). See also Kurtz v. Sponable, 6 Kan. 395, 396 (1870) ( Under our laws, the mortgage is but appurtenant to the debt, a mere security; and, under ordinary circumstances, whoever owns the debt owns the mortgage. ). I note that K.S.A has been in the Kansas statutes since 1899, well before the Bank Western v. Henderson and Army Nat. Bank v. Equity Developers, Inc. decisions were decided by the Kansas Supreme Court. 23 Restatement (Third) of Property (Mortgages) 5.4, Comment (a). 9 Case Doc# 57 Filed 03/01/12 Page 9 of 14

31 I relied on the same section of the restatement in my prior analysis in Martinez when I held that because MERS was only holding the mortgage as an agent for the lender, there was no splitting of the note and mortgage. I do not find that K.S.A requires a different result than I reached in Martinez. B. I decline to decide theories that have not been raised in the Complaint. The Williamses second argument in response to the summary judgment motion is that Fannie Mae now owns the note again, an argument raised for the first time in their summary judgment response. 24 I have previously ruled that the fact that an entity is not the beneficial owner of the note is immaterial to its ability to enforce the note if that entity is a holder of the note under Kansas law. 25 But in this case, I elect not to proceed down this path, because 1) this is not a theory asserted in the Complaint, and 2) even if BAC is not a holder of the note, the Williamses are not entitled to the relief they seek at this time and against these parties. The Williamses seek a judgment finding that no one has a secured claim against their home. But they admit that Fannie Mae, which is not a party to this proceeding, is the owner of the note. Given my decision that there has not been a split in the note 24 The Complaint has been on file since November 3, The final Pretrial Conference was first scheduled for June 24, 2011, then continued to December 15, 2011 after MERS intervened, then again to January 31, 2012 and now to March 14, At no time have Plaintiffs sought leave to amend the Complaint to assert these, or any other, theories. 25 See Martinez v. Mortg. Elec. Registration Sys., Inc. (In re Martinez), 455 B.R. 755, 763 (Bankr. D. Kan. 2011). See also In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008), overruled on other grounds 438 B.R. 661 (C.D. Cal. 2010) (holding that party who was still in possession of original mortgage note made payable to that party was entitled to enforce the mortgage note despite the fact the beneficial interest in the note had been sold to a third party). 10 Case Doc# 57 Filed 03/01/12 Page 10 of 14

32 and mortgage, even if BAC is not the holder, 26 Fannie Mae is the owner and it can enforce the note, which is secured by the mortgage. Although there may be questions as to whether BAC also has the ability to enforce the note as a secured debt, there is no dispute that Fannie Mae can do so. Similarly, the Williamses third argument in response to the summary judgment motion is to allege that the existence of an intervening entity in the merger of Countrywide to Bank of America Red Oak Merger Corporation creates doubt as to the chain of title to this property. Again, this issue cannot be found in the Williamses Complaint. They claim that the merger of Countrywide Financial Corporation to Bank of America, had an intervening entity in the merger, Red Oak Merger Corporation, which was at least disclosed to the U.S. Securities and Exchange Commission. However, the Defendants see no defect in this missing link of ownership, despite their claim that a third party, Fannie Mae now owns the Note. They then argue that Defendants have failed to demonstrate an unbroken chain of transfer of the Note of February 24, from Countrywide Home Loans, Inc. to Bank of America, N.A. Defendants claim that the Williamses have not created a genuine issue of material fact by merely questioning, without more, Red Oak Merger Corporation s involvement in the merger of Countrywide and Bank of America. The Williamses 26 Plaintiffs correctly argue that the copy of the note attached to the original affidavit of Bank of America's Mortgage Servicing Unit Manager, who professed to have personal knowledge of the facts, contains no endorsement, in blank or otherwise. Defendants, in their reply brief, now attach a copy that does contain an endorsement in blank, contending this copy was not originally attached through inadvertence. 11 Case Doc# 57 Filed 03/01/12 Page 11 of 14