October 7, 2015
by Robert J. Wichowski
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)
In Deutsche Bank National Trust Co. v. Bliss, the Connecticut Appellate Court affirmed a trial court’s decision rejecting a defendant’s arguments that: (1) the plaintiff lacked standing to bring the present action because it failed to demonstrate that it possessed the blank endorsement at the time it commenced the action; and (2) the mortgage at issue was unenforceable because the initial lender had surrendered its Connecticut license as a mortgage lender before it processed her mortgage loan application. [Deutsche Bank Nat. Trust Co. v. Bliss, 159 Conn. App. 483 (Sept. 1, 2015)].
At trial, the witness (an employee of the mortgage loan servicer) testified that the note contained an undated endorsement in blank. The witness testified further that the note is tracked by a “doc-line report” when it gets physically moved. Notably, the witness testified that there was nothing that indicated when the endorsement was added to the note, but that “the bank owns the note.” The defendant did not dispute that the plaintiff possessed the note at the commencement of the action, but rather claimed that the plaintiff failed to demonstrate that it had possession of the note endorsed in blank at the time that the action was commenced.
The court found the defendant’s reliance upon the lack of knowledge of the witness unpersuasive, especially as to when the undated endorsement was made or added to the note, and his unfamiliarity with the persons who signed it. Neither argument was sufficient to set up and prove facts that limited or changed the plaintiff’s rights, as holder of the note, to commence the action. Further, based upon Connecticut General Statutes § 49-17 (which allows the owner of a note to foreclose on real property regardless of whether the mortgage has been assigned to him), the appellate court rejected the defendant’s argument that the plaintiff lacked standing because an assignment of mortgage occurred two months after commencement of the action.
The defendant next claimed that the mortgage was unenforceable because the initial lender had surrendered its Connecticut license as mortgage lender, notwithstanding that the originating lender was a subsidiary of a bank operating under federal banking laws. The appellate court narrowed the issue “to the determination of whether federal banking regulations preempt state banking laws and especially those relating to licenses for organizations in the mortgage loan business.” The trial court, in disposing of the defendant’s claim, relied upon Wachovia Bank, N.A. v. Burke, 414 F.3d 305 (2d Cir.2005), which concluded that regulations adopted under the National Bank Act preempted state banking laws intended to apply to operating subsidiaries of nationally-chartered banks.
For the first time on appeal, and contradicting the defendant’s position at trial, the defendant also asserted that Wachovia v. Burke had been legislatively overruled by the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The appellate court readily rejected the defendant’s argument, as several courts have already held that Dodd-Frank does not have retroactive application and that a court must consider the federal regulations in effect when the parties entered into the transaction.
Bliss shows that any witness appearing at trial must have a firm understanding of the policies and procedures of a servicer’s original document custodian in order to establish the plaintiff’s standing at the commencement of the foreclosure action when it possesses the original note endorsed in blank — as well as the importance for servicers and counsel to be familiar with not just current regulations but also with the regulations that existed when the loan originated.
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