Deutsche Bank Nat'l Trust Co. v. Wuensch

380 Wis.2d 727

911 N.W.2d 1

2018 WI 35

DEUTSCHE BANK NATIONAL TRUST COMPANY, Plaintiff-Respondent-Petitioner,

v.Thomas P. WUENSCH, Defendant-Appellant,Heidi Wuensch, Appellant.

No. 2015AP175

Supreme Court of Wisconsin.

Oral Argument: October 2, 2017

Opinion Filed: April 17, 2018

Motion for Reconsideration filed May 7, 2018

For the plaintiff-respondent-petitioner, there were briefs filed by Thomas C. Dill and BP Peterman Group, Brookfield; Robert W. Brunner and Bryan Cave LLP, Chicago, Illinois; and Kenneth Lee Marshall and Bryan Cave LLP, San Francisco, California. There was an oral argument by Kenneth Lee Marshall.

For the defendant-appellant there was a brief filed by Christa O. Westerberg, Susan M. Crawford, Aaron G. Dumas, and Pines Bach LLP, Madison. There was an oral argument by Christa O. Westerberg.

REBECCA GRASSL BRADLEY, J.

¶ 1 This is a review of an unpublished court of appeals summary disposition reversing the La Crosse County Circuit Court's¹ foreclosure judgment against Thomas P. Wuensch in favor of Deutsche Bank National Trust Company (Deutsche Bank).² The circuit court admitted the promissory note signed by Wuensch (the Note) into evidence when offered by Deutsche Bank through its attorney, and permitted the Bank to enforce the Note, ruling that the original Note, endorsed in blank, was sufficient to establish possession. We reverse the court of appeals' summary disposition³ and affirm the circuit court's judgment of foreclosure.

¶ 2 The issue before this court is whether presentment by a party's attorney of an original, wet-ink note endorsed in blank is admissible evidence and enforceable against the borrower without further proof that the holder had possession at the time the foreclosure action was filed. To answer this question, we must determine the evidence necessary to prove that an entity seeking to enforce a note against a borrower has the right to do so. We hold that presentment to the trier of fact in a mortgage foreclosure proceeding of the original, wet-ink note endorsed in blank, establishes the holder's possession and entitles the holder to enforce the note.

I. BACKGROUND

¶ 3 In December 2006, Wuensch signed an adjustable rate Note issued by HLB Mortgage for $301,500. Wuensch secured the Note with a mortgage he executed in favor of the mortgagee, Mortgage Electronic Registrations Systems, Inc. as nominee for HLB Mortgage, the lender. By the time this action was filed, HLB had transferred the Note to American Home Mortgage Servicing, Inc. (AHM),⁴ HLB's parent entity, and AHM had endorsed the Note in blank.

¶ 4 It is uncontested that in February 2008, Wuensch defaulted. He failed to make any payment on the Note after February 2008 and has remained in default through the pendency of this foreclosure action. The events surrounding the default underlie the circuit court's ruling that "equity dictates that Wuensch be allowed one last opportunity to cure his default, because his default on the Note may have been caused by the actions of the preceding Note holders." They also color Wuensch's arguments on the primary issue regarding whether Deutsche Bank in fact possessed the original Note.

¶ 5 Wuensch's Note required him to remain current on all property taxes by paying into an escrow account serviced by the lender, which would pay his property taxes directly from the escrow account. His promised monthly mortgage payment, due the first of each month, totaled $1,487.68, consisting of $1,210.98 for the Note itself, plus $276.70, which went into escrow to cover property taxes.⁵ In August 2007, although Wuensch was current on his mortgage payments, he received notice from the Town of Onalaska that his property taxes had not been paid. Around this time, Wuensch learned that AHM, then in possession of his Note, had filed for bankruptcy earlier in the month.

¶ 6 In a letter dated February 23, 2008, AHM informed Wuensch it had not received his February mortgage payment. Wuensch claimed he had submitted payment via Western Union on February 15, 2008. Wuensch's attempts to resolve the February payment issue were unsuccessful. Allegedly based on the recommendation of an AHM employee, Wuensch stopped making payments on the Note altogether. As a result, AHM sent Wuensch notice of acceleration dated March 4, 2008, indicating that he was in default and owed $2,355.89, which had become due on or after February 1, 2008. Regardless of why Wuensch stopped making payments, there is no dispute that AHM never received any mortgage payments from Wuensch after February 15, 2008.

¶ 7 Deutsche Bank filed this foreclosure action against Wuensch in August 2009, attaching a copy of the Note to the complaint. It elected to proceed to foreclosure under Wis. Stat. § 846.101 (2013-14), waiving any deficiency judgment against Wuensch, and consenting to Wuensch's continued occupancy of the property until the circuit court entered confirmation of a sale.⁶

¶ 8 Deutsche Bank claimed to be the "lawful holder of said note and mortgage." During the life of the loan, Wuensch's Note and mortgage were transferred multiple times, ultimately landing with Deutsche Bank on August 4, 2009. Because of the nature of a note endorsed in blank, precisely how Deutsche Bank came into physical possession of the Note is not relevant. For purposes of enforcing the Note, it is enough that Deutsche Bank was in possession of the original Note at trial, a copy of which was attached to the complaint.

¶ 9 In his answer, Wuensch denied that Deutsche Bank was a holder entitled to enforce the Note and denied that any payments were past due. Wuensch also asserted the following affirmative defenses: material misrepresentation, laches, estoppel, lack of standing, improper joinder of parties, and lack of note. In an amended answer, Wuensch also alleged fraud and unclean hands by Deutsche Bank and again asserted that the Bank lacked the ability to foreclose.

¶ 10 Pretrial proceedings continued for five years before the case finally came before the circuit court for a bench trial. In May 2014, Deutsche Bank's attorney presented the original, wet-ink Note to the circuit court to inspect and asked the circuit court to admit into evidence a copy of the Note as a self-authenticating, "non-hearsay instrument ... offered for its legal significance, not to prove the truth of the matter asserted."⁷ Wuensch's counsel objected on the bases of hearsay and lack of personal knowledge on the part of Deutsch Bank's counsel, while also asserting that Deutsche Bank's counsel was impermissibly acting as a witness. The circuit court overruled these objections and after inspecting the Note, observed:

THE COURT: When I looked at the document purporting to be an original, looks like original ink on signatures and appears to be the same as what has now been marked as a copy Exhibit 1....

....

It will be admitted.

The circuit court then concluded that "plaintiff is, in my mind, the holder in due course of a note endorsed in blank and they can proceed on it." Wuensch's counsel objected to the admission of the Note and questioned the validity of the signatures on and the assignment of the instrument, arguing that there were "no indentations on the initials" and "the assignments of the mortgage are relevant because of the false nature of them." The circuit court responded, "the law is pretty clear that somebody that is holding a note endorsed in blank has the right to seek foreclosure of such a document" and that it did not think "the assignments were relevant when there's a note endorsed in blank."

¶ 11 Deutsche Bank called one witness at trial, Rasheed Blanchard, a loan analyst from Ocwen Financial Corporation, the entity that serviced the loan. He testified as to Wuensch's payment history and the processes by which Ocwen serviced the loan.

¶ 12 Wuensch testified regarding the difficulty he had contacting AHM to resolve the 2007 property tax issue, the payment history leading up to his default, and the events that followed his default. He also claimed that the Note presented by Deutsche Bank did not contain his original, wet-ink signature.

¶ 13 In December 2014, the circuit court issued findings of fact and conclusions of law in its judgment and order. It determined that Deutsche Bank "is entitled to a judgment of foreclosure of the Defendant's mortgage." It found Deutsche Bank:

is the holder of the original Note, endorsed in blank. The Court is satisfied that the Plaintiff has in its possession the original ink Note. The Plaintiff produced the original Note at trial and the Court examined it. The Court is satisfied that it is the original Note executed by Wuensch on December 18, 2006. Exhibit 1 is a true and accurate copy of the original ink Note.

It further found Wuensch was in default on the Note in the principal amount of $315,233.64.⁸

¶ 14 The circuit court concluded that Wuensch's arguments regarding allegedly fraudulent practices associated with mortgage-backed securities comprised of pooled mortgages such as his own were "beyond the scope of this case." Relying on Dow Family, LLC v. PHH Mortgage Corp., 2014 WI 56, ¶ 21, 354 Wis. 2d 796, 848 N.W.2d 728, the circuit court ruled that "[u]nder the doctrine of equitable assignment, a mortgage automatically follows the assignment of the note." The circuit court applied the Dow Family holding that "security for a note is equitably assigned upon transfer of the note, without need for a written assignment." Pivotally, the circuit court held that "[t]he holder of an original note endorsed in blank has the right to enforce the note"; therefore, Deutsche Bank had standing to bring the foreclosure action against Wuensch.

¶ 15 The circuit court, however, exercised its equitable authority to delay entry of the foreclosure judgment and permit Wuensch the opportunity to return to the position he occupied prior to the default event of February 2008. It explained:

Even if the Plaintiff is without blame for the problems with Wuensch's mortgage, the same cannot be said

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