Dow Family, LLC v. PHH Mortg. Corp.

350 Wis.2d 411

838 N.W.2d 119

2013 WI App 114

DOW FAMILY, LLC, Plaintiff–Appellant,^†

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

No. 2013AP221.

Court of Appeals of Wisconsin.

Submitted on Briefs June 25, 2013.

Opinion Filed Aug. 6, 2013.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Joe Thrasher of Thrasher, Pelish, Franti & Heaney, Ltd., Rice Lake.

On behalf of the defendant-respondent, the cause was submitted on the brief of Mary Sue Anderson of Mallery & Zimmerman, S.C., Wausau.

Before HOOVER, P.J., MANGERSON and STARK, JJ.

STARK, J.

¶ 1 Dow Family, LLC, appeals a summary judgment of foreclosure entered in favor of PHH Mortgage Corporation. The circuit court concluded PHH's summary judgment submissions sufficiently established that it was entitled to foreclose a mortgage Dow's predecessors in title gave to another entity. On appeal, Dow argues PHH failed to make a prima facie case that it is entitled to enforce the note. Dow also contends there is no evidence the mortgage was validly assigned to PHH. Dow further asserts the circuit court erred by finding PHH did not need to prove a valid assignment of mortgage because, under the doctrine of equitable assignment, the mortgage was automatically assigned to PHH when PHH became the holder of the note. Finally, Dow argues the mortgage was unenforceable when Dow purchased the subject property because the note and mortgage were not held by the same entity at that time. Dow therefore asserts that, even if the mortgage is now enforceable, it cannot take priority over Dow's interest in the property.

¶ 2 We conclude the circuit court erred by granting PHH summary judgment because PHH failed to make a prima facie case that it is entitled to enforce the note. We therefore reverse and remand for a trial on that issue. However, we agree with the circuit court that, if PHH can show it is entitled to enforce the note, it is also entitled to enforce the mortgage under the doctrine of equitable assignment. It is therefore irrelevant whether Dow can prove a valid, written assignment of mortgage. In addition, we reject Dow's argument that the mortgage cannot be enforced because it was unenforceable when Dow purchased the property. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.

BACKGROUND

¶ 3 On May 17, 2001, William and Jo Sullivan issued a note to “U.S. Bank, National Association,” in the sum of $146,250. The note was secured by a mortgage on a condominium in Barron County. The mortgage listed Mortgage Electronic Registration Systems, Inc., (MERS) ¹ as the mortgagee. The mortgage was recorded on June 22, 2001.

¶ 4 In 2009, the Sullivans accepted Dow's offer to purchase the condominium. Dow's attorney obtained a title commitment, which showed two mortgages to U.S. Bank: the 2001 mortgage, and a 2003 mortgage in the sum of $140,000. ² When Dow's attorney e-mailed counsel for the Sullivans to ask about the mortgages, he was informed that “the U.S. Bank mortgage originated in 2001 (original amount $146,250) should no longer be on the title and is the same mortgage listed ... from 2003 (original amount $140,000).” Dow took this to mean that the 2003 mortgage “was a refinance of the 2001 mortgage.” Dow was apparently satisfied with this explanation, and the transaction closed on May 20, 2009. The closing statement shows that a single mortgage to U.S. Bank in the amount of $143,140.89 was satisfied at closing.

¶ 5 On November 24, 2009, Kristina Larese, in-house counsel for PHH, wrote to Dow's attorney asserting that the 2001 mortgage “remain[ed] of record because the Note was not paid in full.” Larese stated the loan was delinquent, and PHH would initiate foreclosure proceedings if Dow did not take steps to resolve the matter. She further stated:

A copy of the assignment of the Note and Mortgage from U.S. Bank to MERS has not yet been located. However, our records clearly evidence that the Note and Mortgage were assigned into MERS and are now owned by Fannie Mae. PHH has serviced the loan since 2001 in the name PHH Mortgage Corporation.

¶ 6 Dow filed a lawsuit against PHH on June 23, 2010, seeking a declaratory judgment that the 2001 mortgage “no longer constitutes a lien on the propert [y].” PHH filed a separate lawsuit on August 9, 2010, seeking a foreclosure judgment. The two lawsuits were consolidated on February 1, 2011.

¶ 7 PHH's complaint alleged it was “the current holder of a certain note and recorded mortgage on real estate located in this county,” and that true copies of the note and mortgage were attached to the complaint. The attached copy of the note listed U.S. Bank as the lender and William and Jo Sullivan as the borrowers. It did not contain any endorsements. PHH first produced an endorsed copy of the note on September 26, 2011. That copy bore two undated endorsements: an endorsement from U.S. Bank to “Cendant Mortgage Corporation d/b/a PHH Mortgage Services Corporation,” and an endorsement in blank by Cendant.

¶ 8 The copy of the mortgage attached to PHH's complaint listed MERS as the mortgagee and the Sullivans as the borrowers. No assignment of mortgage was attached to the complaint. The complaint did not allege the existence of any assignment.

¶ 9 PHH subsequently moved for summary judgment. In support of its motion, it offered the affidavit of its attorney, Patricia Lonzo. Lonzo averred that “what appear to be the original note and mortgage have been received by my office from [PHH].”

¶ 10 Attached to Lonzo's affidavit was the affidavit of Robin Callahan, a “custodian of the business records” for PHH. Callahan averred:

I have possession, control, and responsibility for the accounting and other mortgageloan records relating to the defendant's mortgage loan which are created and kept and maintained in the ordinary course of business as a regular business practice and are prepared at or near the time of the transaction or event by a person with knowledge and that I make this affidavit from my personal inspection of said records and from my own personal knowledge of how these records are created and kept and maintained.

Callahan further averred that PHH “is the current holder of said note and mortgage.” A copy of the note, bearing the two endorsements discussed above, was attached to Callahan's affidavit. A copy of the mortgage was also attached, along with a copy of an assignment of mortgage from MERS to PHH. The assignment of mortgage was dated April 13, 2010 and recorded September 1, 2010.

¶ 11 Dow opposed summary judgment, arguing PHH had not made a prima facie case that it was entitled to enforce the mortgage because neither the endorsed copy of the note nor the purported assignment of mortgage would be admissible in evidence. Dow also contended that, because the note and mortgage were held by separate entities when Dow purchased the property, the mortgage was unenforceable at that time. Dow therefore argued there was “no lien to take priority over the fee simple interest acquired by Dow[.]”

¶ 12 The circuit court rejected Dow's arguments and granted PHH summary judgment. Regarding the note, the court concluded there was “no material issue of fact as to PHH holding the note[.]” The court stated, “[T]he affidavits adequately support the travels of that note and who endorsed it and who had authority to endorse it[.]” As for the mortgage, the court did not specifically determine whether the purported assignment of mortgage from MERS to PHH would be admissible in evidence. Instead, the court concluded PHH did not need to prove a written assignment of mortgage because the mortgage was equitably assigned to PHH when PHH became the holder of the note. In addition, the court implicitly rejected Dow's argument that the mortgage was unenforceable because the note and mortgage were held by separate entities when Dow purchased the property. The court entered a foreclosure judgment in favor of PHH, and Dow now appeals.

DISCUSSION

¶ 13 We independently review a grant of summary judgment, using the same methodology as the circuit court. Hardy v. Hoefferle, 2007 WI App 264, ¶ 6, 306 Wis.2d 513, 743 N.W.2d 843. Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Wis. Stat. § 802.08(2).³ Where, as here, it is undisputed that the complaint states a claim for relief, we begin by examining the moving party's affidavits to determine whether that party has made a prima facie case for summary judgment. See Gross v. Woodman's Food Mkt., Inc., 2002 WI App 295, ¶ 30, 259 Wis.2d 181, 655 N.W.2d 718. If so, we examine the opposing party's submissions to determine whether there are material facts in dispute that entitle the opposing party to a trial. Id.

¶ 14 Dow raises several challenges to the circuit court's summary judgment ruling. We first address Dow's argument that PHH failed to make a prima facie case that it is entitled to enforce the note. We then turn to Dow's argument that PHH failed to make a prima facie case that it was assigned the mortgage, and Dow's related argument that the doctrine of equitable assignment does not relieve PHH from proving a valid assignment. Finally, we consider Dow's argument that the mortgage is unenforceable because the note and mortgage were not held by the same entity when Dow purchased the property.

I. The note

¶ 15 “[A] mortgage cannot exist without a debt.” Mitchell Bank v. Schanke, 2004 WI 13, ¶ 32, 268 Wis.2d 571, 676 N.W.2d 849. As a result, in order to prevail on a foreclosure claim, a mortgagee must first prove it has the right to enforce the note. See PNC Bank, N.A. v. Bierbrauer, 2013 WI App 11, ¶ 10, 346 Wis.2d 1, 827 N.W.2d 124.

¶ 16 PHH contends it made a prima facie case that it is entitled to enforce the note by establishing that: (1) it is in possession of the note; and (2) the note is endorsed in blank. In support of its...