Ocwen Loan Servicing, LLC v. Elliott

851 N.W.2d 727

2014 S.D. 52

OCWEN LOAN SERVICING, LLC, Plaintiff and Appellee,

v. Raymond D. ELLIOTT, Defendant and Appellant,andJoan L. Elliott and Any Person In Possession, Defendants,Raymond D. Elliott, Counterclaimant, Third–Party Plaintiff and Appellant,andMortgage Electronic Registration Systems, Inc.; Homecomings Financial Network LLC f/k/a Homecomings Financial Network Inc.; Joan L. Elliott; and Federal Home Loan Mortgage Corporation d/b/a Freddie Mac, Third–Party Defendants.

No. 26796.

Supreme Court of South Dakota.

Considered on Briefs April 29, 2014.

Decided July 23, 2014.

Jeffery D. Collins, Dana Van Beek Palmer, Lynn, Jackson, Shultz & Lebrun, PC, Rapid City, South Dakota, Attorneys for plaintiff and appellee OCWEN Loan Servicing, LLC.

Brad J. Lee, Beardsley, Jensen & Von Wald, LLC, Rapid City, South Dakota, Attorneys for defendant, counterclaimant, third-party plaintiff and appellant Raymond D. Elliott.

SEVERSON, Justice.

[¶ 1.] Raymond Elliott defaulted on his mortgage. GMAC Mortgage (GMAC) sued to foreclose. The Seventh Judicial Circuit Court granted GMAC summary judgment on its right to foreclose. Elliott appeals. We affirm.

Background

[¶ 2.] On December 7, 2006, Elliott executed and delivered a promissory note (Note) to Homecomings Financial, LLC, for $340,800, plus interest, to purchase a residence. The Note provided that the lender may transfer the Note and that anyone who takes it is entitled to receive payments. Elliott executed and delivered a mortgage that same day to Mortgage Electronic Registration System (MERS) as nominee for lender and lender's successors and assignees. The mortgage and the Note's physical document took divergent paths from the Note's somewhat complicated legal chain.

[¶ 3.] Shortly after the Note's execution, Homecomings sold it to its parent company—Residential Funding Company, LLC. On March 7, 2007, Residential sold the Note to GMAC. GMAC indorsed the Note in blank. GMAC notified Elliott by letter that it obtained his mortgage account and Note servicing. GMAC then sold the Note to Freddie Mac.

[¶ 4.] Freddie Mac placed the Note into an investment pooled trust. Freddie Mac pledged notes in the trust as collateral to other parties so those parties could receive a portion of the income stream. GMAC serviced the loan for Freddie Mac per a Master Agreement that provided GMAC's rights and responsibilities, among them:

If the servicer is foreclosing on a Mortgage registered with the Mortgage Electronic Registration Systems, Inc. (MERS), the Servicer must prepare an assignment of the Security Instrument from MERS to the Servicer and instruct the foreclosure counsel or trustee to foreclose in the Servicer's name and to take title in Freddie Mac's name....

[¶ 5.] MERS held the mortgage after its inception. MERS transferred the mortgage to GMAC on July 21, 2010, the date GMAC sued to foreclose.

[¶ 6.] GMAC Bank (Custodian) held the physical Note since February 22, 2007, after Homecomings sold the Note to Residential. Custodian is a separate entity than GMAC. Custodian and GMAC had in place a custodial agreement dated January 1, 2007, which authorized Custodian to “complete mortgage note endorsements with respect to specific mortgage loans that GMACM [GMAC] identifies in writing.” Custodian transferred the physical Note to GMAC sometime after Elliott defaulted.¹

[¶ 7.] Elliott defaulted around April 1, 2010. GMAC, as Freddie Mac's servicing agent, signified the loan was inactive. Freddie Mac removed the Note from the trust and placed it into its own portfolio.

[¶ 8.] On July 21, 2010, GMAC sued to foreclose. GMAC attached a copy of the Note to its complaint. That copy did not include GMAC's indorsements. Later, GMAC provided the circuit court with the Note that included its indorsements. GMAC claims they made a mistake by attaching the original, pre-indorsed, scanned Note to the complaint.

[¶ 9.] Preparing for litigation, Elliott moved to compel discovery about the Note's ownership. GMAC moved to have Ocwen Loan Servicing, LLC, (Ocwen) replace it as Plaintiff.² The circuit court heard the motions on June 17, 2013, and took them under advisement. GMAC and Elliott then both moved for summary judgment. The circuit court heard those motions on July 1, 2013. Ultimately, the circuit court found Freddie Mac was the Note's owner and GMAC was the Note's holder and servicer. The circuit court concluded that GMAC, as holder and servicer, had authority to enforce the Note. As a result, the circuit court granted GMAC's motion for summary judgment. The circuit court also granted GMAC's motion to substitute parties and denied Elliott's motion to compel.

[¶ 10.] Elliott appeals, raising as issues: (1) Whether the circuit court erred by granting GMAC's motion for summary judgment, and (2) Whether the circuit court erred by denying Elliott's motion to compel.

Standard of Review

[¶ 11.] Our review of summary judgment is well-settled:

We must determine whether the moving party demonstrated the absence of any genuine issue of material fact and showed entitlement to judgment on the merits as a matter of law. The evidence must be viewed most favorably to the nonmoving party and reasonable doubts should be resolved against the moving party. The nonmoving party, however, must present specific facts showing that a genuine, material issue for trial exists. Our task on appeal is to determine only whether a genuine issue of material fact exists and whether the law was correctly applied. If there exists any basis which supports the ruling of the trial court, affirmance of a summary judgment is proper.

De Smet Farm Mut. Ins. Co. of S.D. v. Busskohl, 2013 S.D. 52, ¶ 11, 834 N.W.2d 826, 831 (quoting Brandt v. Cnty. of Pennington, 2013 S.D. 22, ¶ 7, 827 N.W.2d 871, 874).

Analysis

[¶ 12.] (1) Whether the circuit court erred by granting GMAC's motion for summary judgment.

[¶ 13.] Elliott's principal argument is that GMAC lacked standing at the time GMAC initiated foreclosure. GMAC's general answer is that the Note's ownership is irrelevant and that it had standing as holder and servicer.

[¶ 14.] SDCL 57A–3–301 spells out who is entitled to enforce an instrument:

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to § 57A–3–309 or 57A–3–418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

[¶ 15.] Further, South Dakota's real-party-in-interest statute allows party substitution after a lawsuit is filed:

Every action shall be prosecuted in the name of the real party in interest. A personal representative, guardian, conservator,bailee, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party authorized by statute may sue in his own name without joining with him the party for whose benefit the action is brought; and when a statute of the state so provides, an action for the use or benefit of another shall be brought in the name of the state. No action shall be dismissed on the ground that it is not prosecuted in the name of the real party in interest until a reasonable time has been allowed after objection for ratification of commencement of the action by, or joinder or substitution of, the real party in interest; and such ratification, joinder, or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest.

SDCL 15–6–17(a).

[¶ 16.] Ultimately, at summary judgment, GMAC possessed and supported its motion with a properly indorsed bearer Note signed by Elliott, a mortgage signed by Elliott, and affidavits indicating Elliott's default. Conclusively, there exists a basis which supports the circuit court's grant of summary judgment to GMAC on its right to foreclose. See, e.g., Home Fed. Sav. & Loan Ass'n of Sioux Falls v. First Nat. Bank in Sioux Falls, 405 N.W.2d 655, 657 (S.D.1987) (“First Bank's summary judgment motion was supported by three affidavits and other evidence, including the note and mortgage signed by the executor and the consent/waiver signed by Jeanette. This evidence established a prima facie right to foreclosure.”); Deutsche Bank Nat. Trust Co. v. Whalen, 107 A.D.3d 931, 969 N.Y.S.2d 82, 84 (N.Y.App.Div.2013) (stating “plaintiff established its prima facie entitlement to judgment as a matter of law by producing the mortgage, the unpaid note, and evidence of default”).

[¶ 17.] Elliott cites for authority GMAC Mortgage, LLC v. Ford, 144 Conn.App. 165, 73 A.3d 742, 751 (2013). There, the original promissory note was not attached to the complaint. The plaintiff later provided it. The Connecticut Appellate Court found no error, stating a “sworn affidavit averring that the mortgagee is the holder of the promissory note in question at the time it commenced the action” satisfied standing. Id....