KSB

Judge Berger

10-06146 Van Nostrand et al v. Seterus Inc f/k/a IBM Lender Business Process Serv (Doc. # 75) - Document Text

The relief described hereinbelow is SO ORDERED.
SIGNED this 30th day of April, 2012.


IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS


In re:

COREY VAN NOSTRAND and Case No. 09-24265
MISTY VAN NOSTRAND, Chapter 13
Debtors.

COREY VAN NOSTRAND and
MISTY VAN NOSTRAND,

Plaintiffs,

v. Adv. No. 10-6146
IBM LENDER BUSINESS PROCESS
SERVICES, INC., et al.,

Defendants.

ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT

Plaintiffs/Debtors Corey and Misty Van Nostrand seek a declaration invalidating a
mortgage lien against their homestead because the note and mortgage are held by different

12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 1 of 6


parties and the note’s ownership is unclear to Debtors. Defendants Seterus, Inc., f/k/a IBM
Lender Business Process Services, Inc., as servicer for Federal National Mortgage Association
(Fannie Mae), and Mortgage Electronic Registration Systems, Inc. (MERS), move for summary
judgment. The motion is granted because Defendants present uncontroverted evidence
establishing Fannie Mae owns the note, Seterus holds and services the note, and MERS holds the
mortgage as an agent of Seterus and Fannie Mae, thereby defeating Plaintiffs’ claim the note is
unsecured.

Findings of Fact

On March 1, 2007, Corey Van Nostrand borrowed $136,000 to apply toward Debtors’
homestead. He executed a promissory note to American Mortgage Network, Inc. To secure the
note, Corey and Misty Van Nostrand signed a mortgage dated March 1, 2007. The mortgage
states MERS is the mortgagee and “is a separate corporation that is acting solely as a nominee
for Lender and Lender’s successors and assigns.” Lender is defined as American Mortgage
Network, Inc. The mortgage states Van Nostrand “mortgages and warrants to MERS (solely as
nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of
MERS” the property. The mortgage states the note “can be sold one or more times without prior
notice” to Van Nostrand, and the covenants and agreements in the mortgage “shall bind . . . and
benefit the successors and assigns of Lender.” The mortgage was recorded on March 5, 2007.

American sold the note to Fannie Mae and endorsed it in blank. Seterus is the current
servicer on the note for Fannie Mae. Seterus is also the holder of the note and, through its
counsel, is in possession of the note. At all relevant times, American, Fannie Mae, and Seterus

-2


12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 2 of 6


were MERS members, subject to membership agreements with MERS. Pursuant to the
agreements, at the time they owned or held the note, American, Fannie Mae, and Seterus all
appointed MERS to act as their agent to serve as mortgagee on their behalf.

MERS’s business is to hold record legal title to mortgages and deeds of trust on behalf of
the beneficial owners. MERS is structured to allow its members, which include originators,
lenders, servicers and investors, to track transfers of servicing rights and beneficial ownership
interests in notes secured by the mortgages and deeds of trust held by MERS. MERS’s
membership agreements define the scope of its relationship with its members and require, among
other things, (1) members to “cause MERS to appear in the appropriate public records as the
mortgagee of record with respect to each mortgage loan that the Member registers on the
MERS® System”; (2) MERS to serve as mortgagee of record with respect to all such mortgage
loans solely as a nominee, in an administrative capacity, for the beneficial owner or owners; and

(3) MERS to comply with the instructions of the holder and beneficial owner of the notes.
Debtors filed for bankruptcy on December 23, 2009. They are attempting to invalidate
Defendants’ security interest in their homestead.

Conclusions of Law

A. Summary Judgment Standard.
Summary judgment is appropriate if the moving party demonstrates there is no genuine
issue as to any material fact, and he is entitled to judgment as a matter of law.1 All inferences are

1 FED. R. BANKR. P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
-3


12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 3 of 6


to be construed in favor of the non-moving party.2 Only when reasonable minds could not differ
as to the import of the proffered evidence is summary judgment proper.3

B.
Defendants’ Objection to Claim Alleged for the First Time in Summary
Judgment Pleadings.
A complaint can not be amended to raise a new claim for relief by summary judgment
pleadings. The Tenth Circuit requires a formal motion to amend under Rule 15(b).4 In their
complaint, Plaintiffs allege Defendants split the promissory note and mortgage between two
separate and independent parties, rendering the note unsecured. Plaintiffs cite K.S.A. § 58-2323.
Defendants’ motion addresses these allegations. In opposing summary judgment, Plaintiffs raise
a factual allegation that Misty Van Nostrand’s signature on the mortgage is not notarized.
Defendants object to the additional factual allegation. To the extent the fact is offered to defeat
summary judgment on the claim the note is unsecured as between the Plaintiffs and Defendants,
the lack of a notarized signature is immaterial. The mortgage is valid between the parties thereto
despite the lack of an acknowledgment.5 This fact would be material in an 11 U.S.C. § 544
avoidance action, but such an action is not alleged, and the trustee is not a party to this lawsuit.

C.
The Evidence of an Agency Relationship between MERS and Its Members
Demonstrates the Note and Mortgage Were Not Severed and Remain Valid
and Enforceable.
Under Kansas law, a promissory note and the mortgage securing it are, as a general rule,

2 Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000).
3 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51 (1986).
4 Green Country Food Market, Inc., v. Bottling Group, LLC, 371 F.3d 1275, 1280-81 (10th Cir. 2004).
5 K.S.A. § 58-2223.


-4


12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 4 of 6


inseparable.6 Even so, a note holder may appoint another to hold and enforce the mortgage on its
behalf.7 A note and mortgage are not split when the note is held by the principal and the
mortgage is held by its agent.8 Kansas statutory law is the complement to the general, common
law rule.9 The MERS system has been scrutinized and analyzed by other courts, and, provided
MERS can produce a complete evidentiary record, its system has been upheld as a valid way to
hold and enforce promissory notes secured by mortgages and deeds of trust. Debtors’ counsel
was involved in the most recent challenge to MERS in a case similar to this case.10 Williams and
its predecessor, Martinez, are well-reasoned, well-supported, and directly on point. This Court
adopts the reasoning of these opinions and so holds in this case.

Defendants present uncontroverted testimony stating Fannie Mae owns the note, Seterus
services the note, and MERS holds the mortgage as an agent of Seterus and Fannie Mae.
Plaintiffs/Debtors offer no evidence to raise a triable issue of fact over the agency relationship
between MERS, Fannie Mae, and Seterus. Debtors make no effort to address the case law cited
by Defendants which holds the note and mortgage may be held by separate entities, provided an
agency relationship exists between the two. Debtor does not distinguish, discuss, or even

6 Hamilton v. CitiMortgage, Inc. (In re Lieurance), 458 B.R. 757, 761-62 (Bankr. D. Kan. 2011); Bank
Western v. Henderson, 255 Kan. 343 (1994), citing Middlekauff v. Bell, 111 Kan. 206, 207 (1922); Kurtz v.
Sponable, 6 Kan. 395, 396 (1870).

7 Martinez v. Mortgage Electronic Registration Systems, Inc. (In re Martinez), 444 B.R. 192, 203-04
(Bankr. D. Kan. 2011).

8 Williams v. BAC Home Loans Servicing, LP (In re Williams), slip copy, 2012 WL 695832, at *3 (Bankr.

D. Kan. 2012); In re Tucker, 441 B.R. 638, 643-44 (Bankr. W.D. Mo. 2010).
9 Williams, slip copy, 2012 WL 695832, at *3, citing Bank Western v. Henderson, 255 Kan. 343, 354
(1994); Army Nat’l Bank v. Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that “[o]ur view is that the
mortgage follows the note”); Kurtz v. Sponable, 6 Kan. 395, 396 (1870) (“Under our laws, the mortgage is but
appurtenant to the debt,--a mere security; and, under ordinary circumstances, whoever owns the debt owns the
mortgage.”); and K.S.A. § 58–2323.
10 Williams, slip copy, 2012 WL 695832.

-5


12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 5 of 6


mention Martinez and Williams. Accordingly, Defendants have sustained their burden of
establishing they are entitled to judgment as a matter of law.

Conclusion

IT IS THEREFORE ORDERED Defendants’ Motion for Summary Judgment is
GRANTED.

###
ROBERT D. BERGER

U.S. BANKRUPTCY JUDGE
DISTRICT OF KANSAS
-6


12.04.27 Van Nostrand v IBM SJ.wpd
Case 10-06146 Doc# 75 Filed 04/30/12 Page 6 of 6

 

You are here: Home Opinions Judge Berger 10-06146 Van Nostrand et al v. Seterus Inc f/k/a IBM Lender Business Process Serv (Doc. # 75)