April 4, 2013
by Robert E. Lastelic
South & Associates, P.C. – USFN Member (Kansas, Missouri)
The Kansas Court of Appeals recently handed down a decision that a “holder” of a note had “standing” to enforce a note secured by a mortgage despite the fact that the beneficial interest in the note had been sold to Federal Home Loan Mortgage Corporation (Freddie Mac).
In Bank of America v. Inda, No. 107,999, WL 856468 (Kan. Ct. App. Mar. 8, 2013), the borrower, Inda, challenged Bank of America’s standing to foreclose the mortgage, among other defenses. The district court held in favor of the bank and the borrower appealed. The court of appeals essentially validated the Freddie Mac business model; that is, the beneficial interest in the note was sold to Freddie Mac and the note was endorsed “in blank” and put into possession of the bank to service the loan and to enforce the note. The court found that the bank was the “holder” of the note as defined in the Uniform Commercial Code as adopted by Kansas. The court went on to state that the bank was entitled to enforce the note, as the holder, despite the fact that Freddie Mac was the “owner” of the note and had a beneficial interest therein, because the note was endorsed “in blank” (thus, payable to the bearer) and the note was in possession of the bank, citing K.S.A. § 84-3-301 and In re Martinez, 455 B.R. 755, at 763 (Bankr. D. Kan. 2011).
Furthermore, the court held that the bank was entitled to foreclose the mortgage securing the note because, under Kansas law, the holder of the note is the holder of the mortgage, citing Kurtz v. Sponable, 6 Kan. 395, 397 (the mortgage follows the note) and Federal Land Bank of Wichita v. Krug, 253 Kan. 307, 314; 856 P.2d 111 (a perfected claim to the note is equally perfected as to the mortgage). In addition, the court held that the bank had sufficiently proven that it was the successor to the original mortgagee by virtue of an assignment to it. See K.S.A. § 58-2323 (assignment of mortgage carries with it the secured debt). Therefore, because the record established that the bank was the holder of the note and the successor to the mortgage and that Inda was in default on the note, the court upheld the trial court’s entry of summary judgment in favor of the bank.
Inda also claimed that the bank committed fraud, engaged in deceptive acts and practices, was guilty of unclean hands, and failed to comply with a procedural rule. However, the court rejected each of those claims.
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