Dow Family, LLC v. PHH Mortg. Corp.

354 Wis.2d 796

848 N.W.2d 728

2014 WI 56

DOW FAMILY, LLC, Plaintiff–Appellant–Petitioner,

v. PHH MORTGAGE CORPORATION, Defendant–Respondent,U.S. Bank, N.A., Defendant.

No. 2013AP221.

Supreme Court of Wisconsin.

Argued March 19, 2014.

Decided July 10, 2014.

For the plaintiff-appellant-petitioner, there were briefs by Joe Thrasher and Thrasher, Pelish, Franti & Heaney, Ltd., Rice Lake, and oral argument by Joe Thrasher.

For the defendant-respondent, there was a brief by Mary Sue Anderson and Mallery & Zimmerman, S.C., Wausau, and oral argument by Mary Sue Anderson.

An amicus curiae brief was filed by John E. Knight, Kirsten E. Spira, and Boardman & Clark LLP, Madison, on behalf of Wisconsin Bankers Association, and oral argument by John E. Knight.

An amicus curiae brief was filed by Michael B. Apfeld and Godfrey & Kahn, S.C., Milwaukee; and Robert J. Pratte and Fulbright & Jaworski LLP, Minneapolis, on behalf of Mortgage Electronic Registration Systems, Inc.

N. PATRICK CROOKS, J.

¶ 1 In 2009, Dow Family, LLC, (Dow) purchased a condominium located at unit four in the Island of Happy Days Condominiums. Unfortunately, the purchase did not result in happy days for Dow because PHH Mortgage Corporation (PHH) asserted that the condominium remained burdened by a mortgage after closing. Dow asks this court to find that the outstanding mortgage is unenforceable. Specifically, Dow argues that even if PHH can prove it holds the underlying note in question, it does not follow that PHH also holds the mortgage, which would give PHH the right to bring a foreclosure action in regard to the property to satisfy any outstanding debts.

¶ 2 At the time of purchase, Dow satisfied a mortgage from 2003. Before closing, Dow also inquired about another mortgage from 2001 that was listed on the title commitment. The sellers' attorney informed Dow that the 2001 mortgage was mistakenly listed on the title commitment. This information, however, was incorrect because the 2001 mortgage, purportedly owed to PHH, did exist and went unsatisfied at the time of closing.

¶ 3 Dow sought declaratory judgment that the 2001 mortgage did not constitute a lien on the property at the time of the 2009 sale. Dow's position is that the statute of frauds requires written documentation of mortgage assignments. Specifically, Dow asserts that PHH is unable to produce documentation indicating that the mortgage was assigned to PHH at the time of closing. Therefore, Dow argues the 2001 mortgage was not an enforceable lien at the time it purchased the condominium in 2009. After PHH initiated a foreclosure action against Dow, the circuit court consolidated the two cases.

¶ 4 We are asked to determine whether PHH could properly enforce the 2001 mortgage at the time Dow purchased the property in 2009. PHH argues 1) that it received the applicable note by assignment in 2001, and 2) that it also held the mortgage at the time of the 2009 sale because, under the doctrine of equitable assignment, the mortgage follows the note. To evaluate PHH's argument we must determine whether the doctrine of equitable assignment exists in Wisconsin. We must then determine whether that doctrine exempts mortgage assignments from the statute of frauds.

¶ 5 We agree with the circuit court and the court of appeals that the doctrine of equitable assignment is alive and well in Wisconsin. The doctrine's existence is evidenced in our case law, and we are convinced that the case law we rely upon should not be distinguished or discredited due to its age or changes in banking practices. We further conclude that the language of Wis. Stat. § 409.203(7) (2011–12),¹ which governs liens securing the right to payment, codifies equitable assignment. Finally, the application of equitable assignment in this case results in no unfairness to Dow.

¶ 6 We further hold that the doctrine of equitable assignment does not conflict with the statute of frauds outlined in Wis. Stat. § 706.02. Equitable assignment occurs by operation of law, which satisfies Wis. Stat. § 706.001(2)(a),² a statutory exception to the statute of frauds.

¶ 7 Therefore, under the doctrine of equitable assignment, we hold that a mortgage automatically passes by operation of law upon the assignment of a mortgage note, which, as we noted above, satisfies a statutory exception to the statute of frauds. Accordingly, we affirm the court of appeals decision, which affirmed the circuit court, in part, reversed in part, and remanded the cause. Like both the circuit court and court of appeals, we conclude that the doctrine of equitable assignment applies and does not violate the statute of frauds; however, the issue of whether PHH has the necessary documents to enforce the note in question must be determined by the circuit court.

I. PROCEDURAL BACKGROUND

¶ 8 The circuit court ruled in favor of PHH and held that “there is no material issue of fact as to PHH holding the note and thereby getting the mortgage equitably assigned to them.” This ruling from the bench by the Barron County Circuit Court, Honorable James D. Babbitt presiding, followed arguments on PHH's summary judgment motion. The circuit court held that the doctrine of equitable assignment is alive and well in Wisconsin and that PHH possessed the underlying note. Therefore, it concluded that under the doctrine of equitable assignment, the 2001 mortgage was equitably assigned to PHH when it received the note in 2001. Because the 2001 mortgage remained unsatisfied at the time of the 2009 sale, foreclosure in favor of PHH was appropriate. Accordingly, the circuit court granted PHH's motion for summary judgment. The circuit court later issued its written findings of fact, conclusions of law, and judgment of foreclosure.

¶ 9 We now review a published court of appeals decision that affirmed the circuit court in part, reversed in part, and remanded for further proceedings. Dow Family, LLC v. PHH Mortg. Corp., 2013 WI App 114, ¶ 2, 350 Wis.2d 411, 838 N.W.2d 119. The court of appeals, relying on Tidioute Sav. Bank v. Libbey, 101 Wis. 193, 77 N.W. 182 (1898), Tobin v. Tobin, 139 Wis. 494, 121 N.W. 144 (1909), Muldowney v. McCoy Hotel Co., 223 Wis. 62, 269 N.W. 655 (1936), and Wis. Stat. § 409.203(7), agreed with the circuit court that the doctrine of equitable assignment applies in Wisconsin. Dow Family, LLC, 350 Wis.2d 411, ¶¶ 26–37, 838 N.W.2d 119. It further held that application of equitable assignment did not conflict with the statute of frauds outlined in Wis. Stat. § 706.02. Id., ¶ 38. It held that because the mortgage was equitably assigned to PHH by virtue of PHH holding the note, the transfer of the mortgage occurred by operation of law, which is an exception to the statute of frauds. Id.; see alsoWis. Stat. § 706.02(2)(a).

¶ 10 The court of appeals, however, found that the circuit court erred in granting summary judgment to PHH because PHH failed to show that it could enforce the note. Dow Family, LLC, 350 Wis.2d 411, ¶ 24, 838 N.W.2d 119. Specifically, the court of appeals concluded that PHH's documentation at summary judgment did not show that it held an authenticated copy of the note in question. Id. Furthermore, the court of appeals held that PHH's arguments as to whether the note could be considered self-authenticating were undeveloped, and it declined to address those arguments. Id., ¶ 22. Therefore, the court of appeals reversed and remanded for trial on the issue of PHH's ability to enforce the note in question.³Id., ¶ 24.

¶ 11 Dow appeals, arguing that even if the doctrine of equitable assignment exists in Wisconsin, a point that it does not concede, the doctrine cannot serve as an exception to the statute of frauds, which it argues requires that mortgage assignments be done in writing. Dow further contends that because the statute of frauds cannot be overcome by the doctrine of equitable assignment, no enforceable lien existed when Dow purchased the condominium in question; therefore, Dow asserts that PHH cannot foreclose on the property. ⁴

II. FACTUAL BACKGROUND

¶ 12 In 2001, U.S. Bank loaned William E. Sullivan and Jo Y. Sullivan $146,250. A note dated May 17, 2001, which lists U.S. Bank as the lender and the Sullivans as the borrowers evidences this transaction.

¶ 13 The 2001 note is secured by a mortgage on a condominium located at unit four, Island of Happy Days, Mikana, Wisconsin, in Barron County. The mortgage documentation is dated May 17, 2001, and explicitly references the above-described 2001 note. The mortgage lists the Sullivansas the borrower/mortgagor and U.S. Bank as the lender. The mortgage also lists the Mortgage Electronic Registration System (MERS) ⁵ as both the nominee for U.S. Bank and the mortgagee.⁶ The mortgage was recorded with the Barron County Register of Deeds on June 22, 2001. PHH asserts that it received an assignment of the 2001 note shortly after it came into existence.⁷

¶ 14 In 2009, Dow purchased the condominium at issue ⁸ from the Sullivans. Prior to the purchase, Dow obtained a title commitment that indicated that the property in question was subject to the above-described 2001 mortgage as well as a 2003 mortgage in the amount of $140,000.⁹ The title commitment documentation listed U.S. Bank as the lender for both the 2001 and 2003 mortgages.¹⁰

¶ 15 Prior to closing, Dow's attorney contacted the Sullivans' attorney to inquire about the 2001 mortgage. Email correspondence between the attorneys indicates that William Sullivan represented that the 2001 mortgage should no longer be on the title and that the 2001 mortgage was the same as the 2003 mortgage. Dow apparently relied on this information to conclude that the 2003 mortgage evidenced a refinancing of the note that underlay the 2001 mortgage. Closing documents reflect that Dow satisfied a single mortgage to U.S. Bank in the amount of $143,140.89.

¶ 16 On November 24, 2009, PHH's counsel informed Dow's attorney that the 2001 note, serviced by PHH, remained outstanding and...