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Wisconsin: Appellate Court Reviews “Holder of the Note”

Posted By USFN, Monday, September 9, 2013
Updated: Monday, November 30, 2015

September 9, 2013


by Patricia C. Lonzo
Gray & Associates, L.L.P. – USFN Member (Wisconsin)

A recent Wisconsin Court of Appeals decision gives insight as to what is necessary to prove possession of a note endorsed in blank and, ultimately, that a party is a holder of the subject note. [Dow Family v. PHH Mortgage Corporation, 2013AP221 (Wis. Ct. App. Aug 6, 2013)]. On the appeal of a summary judgment of foreclosure entered in favor of PHH, the court held that PHH did not authenticate the note nor prove possession and remanded the case for trial on the issue. The appellate court further held that “if PHH can show it is entitled to enforce the note, it is also entitled to enforce the mortgage under the doctrine of equitable assignment.” Equitable assignment continues to be a well-rooted legal doctrine.

In Dow Family, PHH was the note holder for a first mortgage on a property that was sold by PHH’s borrower to the Dow Family. The title commitment obtained during the sale process revealed a number of mortgages on title. The first mortgage on title was from 2001 and to MERS as nominee to US Bank. The title commitment did not reference MERS, only US Bank. This first mortgage to MERS was the mortgage of which PHH was the note holder. The mortgage was later assigned to PHH. There was a subsequent mortgage on title to US Bank from 2003. The Dow Family was persuaded to believe that the first mortgage from 2001 had been paid off but just had not been satisfied of record. The sale to the Dow Family went through without paying off the first mortgage on title. Thereafter, a declaratory judgment case was filed by the Dow Family and a foreclosure action was commenced by PHH. The two lawsuits were consolidated.

Consistent with the UCC, to establish that it was the note holder and entitled to enforce the note, PHH had to prove possession of the original note that was endorsed “in blank.” Two affidavits had been submitted to the circuit court relevant to the issue. First, an affidavit of PHH had been submitted, containing the averment that “PHH is the current holder of said note and mortgage.” The affidavit incorporated a copy of the note with the “in blank” endorsement and a copy of the Notice of Assignment, Sale or Transfer of Servicing Rights from MERS to PHH. Next, an affidavit of PHH’s attorney (who is also the author of this article) was submitted. It contained the averment that “what appear to be the original note and mortgage have been received by my office from the plaintiff for the purposes of proceeding in these actions.” The appellate court determined that these averments and copy of the note did not present a prima facie case to prove possession.

The appellate court’s conclusion, in part, was based upon a finding that the copy of the note was not authenticated. Authentication is a prerequisite for determining that a document is admissible evidence. The court also considered multiple factors leading to its rejection of the copy of the note and averments in lieu of the submission of the original note into evidence. These included inconsistencies in the copy of the note attached to the complaint (which did not bear any endorsements) and the endorsed copy attached to the affidavits.

Ultimately, when the facts of a case are such that they cast doubt upon whether the copy of the note is a true and correct copy of the original document, a copy may not suffice. Following the best evidence rule, the original note may be required to authenticate the note and prove possession.

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