August 1, 2013
by Richard M. Leibert
Hunt Leibert, P.C. – USFN Member (Connecticut)
For the first time, the Connecticut Supreme Court has ruled that a servicer who had the authority by virtue of the language in a pooling and servicing agreement and by virtue of Connecticut General Statutes §§ 42a-3-203 and 42a-3-301 (codified UCC) to foreclose a defaulted note and mortgage could initiate a foreclosure in its own name on behalf of the owner and holder of the note, even though the servicer was not the owner of the note nor had the mortgage assigned to it. [J.E. Robert Company, Inc. v. Signature Properties, LLC].
Background — On April 13, 2005, the defendant, Signature Properties, executed a promissory note in the amount of $8.5 million payable to the order of JP Morgan Chase Bank, N.A., secured by a mortgage on commercial property in New London, Connecticut. The note was guaranteed by defendants Andrew J. Julian and Michael Murray. On July 20, 2005, JP Morgan assigned the note and mortgage to LaSalle Bank National Association. A pooling and servicing agreement also executed on July 20, 2005, established a mortgage-backed security wherein JP Morgan Chase Commercial Mortgage Securities Corporation was identified as depositor, LaSalle as trustee and paying agent, and J.E. Robert Company, Inc. as special servicer for the loans in the security.
On August 15, 2007, following a default in payment, J. E. Robert commenced a foreclosure action against Signature. On October 17, 2007, LaSalle assigned the note and mortgage to Shaw’s New London LLC. On October 18, 2007, LaSalle filed a motion to substitute Shaw’s as the plaintiff in the foreclosure, which was granted by the trial court. The trial court also, at another date, entered a judgment of strict foreclosure. The defendants then moved to dismiss the case, claiming that J.E. Robert as a mere servicer of the loan, rather than the owner or holder of the note and mortgage, lacked standing to bring the foreclosure in its name. The trial court denied the motion to dismiss and all defendants appealed.
In the appeal, the defendants claimed that only the owner and holder of the note and mortgage (which at the time of the commencement of the case was LaSalle) has standing to bring the foreclosure. Because LaSalle neither endorsed the note to J.E. Robert nor assigned the note and mortgage to it, the defendants asserted that J.E. Robert lacked standing.
Ruling — The Connecticut Supreme Court disagreed, finding that through the language in the pooling and servicing agreement J.E. Robert had standing as a transferee of LaSalle’s right to enforce the note and mortgage in accordance with Connecticut General Statutes §§ 42a-3-203 and 42a-3-301.
Although the foreclosure in this case involved a commercial note and mortgage, the ruling clarifies standing in Connecticut regardless of the type of mortgage. Thus resolving the issue for the trial courts.
© Copyright 2013 USFN. All rights reserved.