MB Fin. Bank v. Rao

239 A.3d 181

MB FINANCIAL BANK, Appellee

v.Lawrence J. RAO, Jr., Appellant

No. 2564 EDA 2019

Superior Court of Pennsylvania.

Submitted May 29, 2020

Filed September 09, 2020

David Denenberg, Philadelphia, for appellant.

Lauren R. Tabas, Philadelphia, for appellee.

BEFORE: BENDER P.J.E., LAZARUS, J. and STRASSBURGER, J.^*

OPINION BY STRASSBURGER, J.:

Lawrence J. Rao, Jr. appeals from the order entered August 8, 2019 against him and in favor of MB Financial Bank (MB Financial) following a non-jury trial in this in rem mortgage foreclosure action. We affirm.

A prior panel of this Court summarized the factual and procedural history of this matter as follows.

Rao is the record owner of a mortgaged property located at 1171 South Darien Street, Philadelphia, PA 19147. On February 9, 2006, Rao executed a promissory note [ (Note) ] in favor of SunTrust Mortgage, Inc. [ (SunTrust) ], for $228,000. To secure the Note, Rao executed a mortgage to Mortgage Electronic Registration Systems, Inc. [ (MERS) ] as nominee for SunTrust. On or around April 22, 2013, SunTrust discovered that the Note was missing from their vault and David Van Aken, Vice President [of SunTrust], executed a Lost Note Affidavit. On May 13, 2015, MERS, as nominee for SunTrust, assigned the mortgage to MB Financial [and SunTrust remained the servicer].

On June 25, 2015, MB Financial filed [an] in rem foreclosure action against Rao DUE TO RAO'S MARCH 1, 2011 DEFAULT ON THE MORTGAGE . In addition to setting forth relevant information, including the parties and date of the mortgage, its place of record, a specific averment of default, an itemized statement of the amount due, and a demand for judgment in rem , MB Financial also averred that MB Financial was in possession, either "directly or through an agent," of a "Lost Note Affidavit and has the right to foreclose."

Rao filed an answer with new matter challenging MB Financial's standing to proceed with the matter based on MB Financial's failure to have legal possession of the Note, and, therefore, failure to have the right to enforce the Note.

On October 31, 2017, the trial court held a non-jury trial. At trial, MB Financial presented testimony from Nancy Johnson, Assistant Vice President and the Default Proceedings Officer for SunTrust. By and through Johnson's testimony, MB Financial identified and introduced seven exhibits during its case-in-chief, including: (1) the original Lost Note Affidavit with a copy of the Note attached;^[1] (2) a certified copy of the mortgage; (3) a certified copy of the assignment of mortgage recorded on May 13, 2015; (4) the pre-foreclosure notice dated July 14, 2011 sent to Rao; (5) the payment history for the mortgage; (6) the payoff/judgment figures; and (7) the limited power of attorney between Rao and SunTrust. When Rao objected to the admission of the Lost Note Affidavit based on hearsay, the trial court sustained the objection and precluded its admission into evidence. The trial court also precluded from evidence the limited power of attorney. MB Financial moved the remaining exhibits into evidence.

Rao did not present any evidence and made an oral motion for a nonsuit. [ ] The trial court granted the motion and made a finding in favor of Rao.

On November 13, 2017, MB Financial filed a post-trial motion. On February 14, 2018, after oral argument[, ] the trial court denied the post-trial motion and entered a judgment of nonsuit in favor of Rao and against MB Financial.

MB Financial Bank v. Rao , 201 A.3d 784 (Pa. Super. 2018) (emphasis added, unnecessary capitalization, emphasis, titles, and record references omitted).

M.B. Financial appealed to this Court claiming, inter alia , that the trial court erred when it precluded from evidence the Lost Note Affidavit as inadmissible hearsay. This Court concluded the Lost Note Affidavit qualified as a business record, which is an exception to the rule against hearsay, and that its preclusion constituted reversible error. Id. at 790-91. Accordingly, this Court reversed the February 14, 2018 judgment and remanded the case for a new trial. Id. at 791. In doing so, this Court declined to address MB Financial's remaining claims, including whether the Lost Note Affidavit complies with the requirements of 13 Pa.C.S. § 3309,² and whether MB Financial had standing to proceed in the foreclosure action. Id. Regarding the latter, this Court noted "MB Financial misstates the law when it asserts that ownership of the [m]ortgage, without possession of the note, is sufficient to confer standing to foreclose. Our case law is clear that a person foreclosing on a mortgage must own or hold the note." Id. at 791 n.3, citing CitiMortgage, Inc. v. Barbezat , 131 A.3d 65, 68 (Pa. Super. 2016).

On May 6, 2019, a second non-jury trial was held. MB Financial introduced the same aforementioned exhibits it introduced in the first non-jury trial. The trial court, in accordance with this Court's holding, admitted the Lost Note Affidavit, which contained the following language.

The said Note has been misplaced and lost through causes unknown and is presently lost and unavailable after diligent search has been made. An amount of principal and interest on said Note is still presently outstanding, due and unpaid, and the Seller is still owner and holder in due course of said lost Note.

Lost Note Affidavit, 4/22/2013. Additionally, MB Financial presented testimony from Johnson. Regarding the April 22, 2013 Lost Note Affidavit, Johnson testified it is SunTrust's practice to prepare such an affidavit upon determining a note is lost. N.T., 5/6/2019, at 14-15. There is no indication that the Note was seized or transferred to anyone other than MB Financial. Id. at 17. SunTrust inquired into the location of the Note, but it could not be found. Id. at 17-18. Moreover, SunTrust would indemnify Rao if another entity attempted to enforce the Note. Id. at 20.

Johnson also testified regarding the ownership of the Lost Note Affidavit. Johnson stated that SunTrust was servicing the mortgage on behalf of MB Financial. Id. at 16. When MB Financial's counsel asked "what, if anything, did [MB Financial] receive or did they claim to receive from SunTrust?," Johnson responded, "They received the [L]ost [N]ote [A]ffidavit." Id. at 18. Johnson agreed with MB Financial's counsel that the Lost Note Affidavit was attached to MB Financial's complaint. Id. at 18. But when asked who owns the Lost Note Affidavit, Johnson answered "SunTrust." Id. at 37. Johnson went on to testify that SunTrust transferred the mortgage to MB Financial, but did not transfer the Note or anything else to MB Financial, and SunTrust is still holding a copy of the Note. Id. at 40.

During closing arguments, Rao claimed that because neither the Note nor the Lost Note Affidavit was transferred, MB Financial lacked standing to foreclose on the mortgage. Id. at 53, 55. Meanwhile, MB Financial's counsel pointed out that the terminology of "possession," "holder," and "owner" might have confused Johnson, inferring she was unable to ascertain the difference. Id. at 53-54. Although the trial court agreed with Rao that neither the Note nor the Lost Note Affidavit was physically transferred, it characterized the issue as "one of ownership," and determined that the Lost Note Affidavit was held on behalf of and for the use of MB Financial. Id. at 54, 56. As a result, the trial court found in favor of MB Financial and against Rao in the mortgage foreclosure action.

On May 15, 2019, Rao timely filed a post-trial motion requesting judgment in his favor notwithstanding the verdict. On August 8, 2019, the trial court entered two orders: one denying Rao's post-trial motion and one entering in rem judgment in favor of MB Financial in the amount of $389,067.88.

This timely-filed appeal followed.³ On appeal, Rao avers that the Lost Note Affidavit does not comply with the requirements of 13 Pa.C.S. § 3309, and even if it does, the lack of transfer of any interest in the Note and Lost Note Affidavit results in MB Financial's lack of standing to proceed in the foreclosure action. Rao's Brief at 16-17.

Our scope and standard of review of a non-jury verdict is settled.

Our appellate role in cases arising from non-jury trial verdicts is to determine whether the findings of the trial court are supported by competent evidence and whether the trial court committed error in any application of the law. The findings of fact of the trial judge must be given the same weight and effect on appeal as the verdict of a jury. We consider the evidence in a light most favorable to the verdict winner. We will reverse the trial court only if its findings of fact are not supported by competent evidence in the record or if its findings are premised on an error of law. However, where the issue concerns a question of law, our scope of review is plenary.

The trial court's conclusions of law on appeal originating from a non-jury trial are not binding on an appellate court because it is the appellate court's duty to determine if the trial court correctly applied the law to the facts of the case.

Bank of New York Mellon v. Bach , 159 A.3d 16, 19-20 (Pa. Super. 2017) (citation omitted).

Rao argues MB Financial failed to carry its burden to establish the requirements of a Lost Note Affidavit pursuant to 13 Pa.C.S. § 3309. Rao's Brief at 17. Specifically, Rao avers SunTrust failed to introduce any evidence that SunTrust was ever in possession of or able to enforce the Note. Id. at 18-20. Rao also asserts that the Lost Note must be in possession of the party seeking enforcement at the time it was lost, i.e. , MB Financial, because he claims that 13 Pa.C.S. § 3309 limits enforcement of a lost note to the person who was in possession of the note at the time it was lost. Id. at 18-19. Finally, Rao claims that MB Financial did not conduct an adequate search to satisfy subsection (3) of 13 Pa.C.S. § 3309. Id. at 21-22. In raising these arguments, Rao attacks the content of the Lost Note...