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Williams et al v. BAC Home Loans Servicing, LP, 10-07060 (Bankr. D. Kan. Feb. 14, 2012) Doc. # 50
SIGNED this 14th day of February, 2012.
In the United States Bankruptcy Court
for the District of Kansas
Bruce Kevin Williams and ) Case No. 09-41548
Candice Sue Williams, )
Bruce Kevin Williams and )
Candice Sue Williams, )
) Adv. No. 10-7060
BAC Home Loans Servicing, L.P.,1 )
Memorandum Opinion and Order Granting
The caption in the Complaint named only one defendant, “BAC Home LoansServicing, L.P.,” but in the body of the Complaint, Plaintiffs indicated “defendant is a whollyowned subsidiary of Bank of America.” In reply to BAC Home Loans Servicing, L.P.’s Motionfor Summary Judgment, Plaintiff added the following language to their caption “n/k/a Bankof America, N.A.” There has been no motion to change the name of the party-defendant, andno pleading filed by Defendant has added the language. Accordingly the Court uses the samecaption originally used by Plaintiffs.
Case 10-07060 Doc# 50 Filed 02/14/12 Page 1 of 12
Defendant’s Motion for Summary Judgment
This case involves an attempt by Plaintiffs, Bruce and Candice Williams, to have
the loan they intended to be secured by a second mortgage on their home deemed
unsecured and the accompanying mortgage found unenforceable. The basis for their
claim is that the note was made in favor of one entity and the mortgage in favor of a
different entity. They contend this results in an irrevocable split of the two
instruments, making the note unsecured, and the mortgage unenforceable. The
Defendant, BAC Home Loans Servicing, L.P. (“BAC Home Loans Servicing”), has
moved for summary judgment claiming that no such split ever occurred, and that it has
authority to enforce the note and the mortgage. Because there are no disputed material
issues of fact, and for the reasons set forth below, the Court grants summary judgment
to BAC Home Loans Servicing.
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C.
§§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (K).
I. Findings of Fact
In 2003, the Williamses executed a Home Equity Credit Line Agreement and
Disclosure Statement (“note”) in the amount of $20,000 to Countrywide Home Loans,
Inc. (“Countrywide”). To secure repayment of that sum, the Williamses executed a
second mortgage on their home. That mortgage clearly identifies Countrywide as the
Case 10-07060 Doc# 50 Filed 02/14/12 Page 2 of 12
mortgagee, although the Williamses stated in their Complaint, without more, that
Mortgage Electronic Registration Systems, Inc. (“MERS”) was the mortgagee.2
Countrywide later endorsed the note in blank. Possession of the note, with the
blank endorsement, was transferred to BAC Home Loans Servicing.3 BAC Home Loans
Servicing was merged into Bank of America, N.A. (“Bank of America”) in July, 2011,
and Bank of America is thus the successor to BAC Home Loans Servicing.4 Bank of
America currently has possession of both the original note and mortgage,
notwithstanding the Williamses’ wholly unsupported denial of this fact.5 Bank of
2 The Williamses no longer claim MERS was the original (or subsequent) mortgagee,
or explain why they alleged that fact in the first instance.
3 In its Memorandum in Support of its Motion for Summary Judgment, BAC HomeLoans Servicing claims that Countrywide sold the loan to BAC Home Loans Servicing. Insupport of this assertion, BAC Home Loans Servicing relies on the affidavit of KatherineCacho. Ms. Cacho’s affidavit, however, actually states that Countrywide changed its name toBAC Home Loans Servicing, not that Countrywide sold the loan to BAC Home Loans Servicing.
However, this apparent inconsistency in the precise manner the note was transferred fromCountrywide to BAC Home Loans Servicing is immaterial for purposes of this motion. Theoutcome would be the same under either scenario.
4 In this Memorandum, the Court will therefore treat BAC Home Loans Servicing andBank of America as the same entity, since all parties have elected to do so.
5 The Williamses’ only attempt to controvert this statement of fact is the affidavit ofMrs. Williams, where she attempts to show that Fannie Mae may own the note, and byexcerpts from a hearing transcript from a wholly unrelated proceeding in New Jerseyconducted in August 2009 concerning the sale, transfer, and custody of a note and mortgagerelating to property at issue in that New Jersey case. The Williamses also cite generally to theconclusion of a Conditional Approval of the merger between BAC Home Loans Servicing andBank of America, in which the Comptroller of the Currency conditionally approved the mergerof those two entities subject to additional approval by the FDIC. Nothing presented by theWilliamses comes close to contradicting (or creating a factual dispute about) the direct evidencepresented by BAC Home Loans Servicing. The Williamses make no effort to show that theprocedures followed by Countrywide and/or Bank of America in the 2009 New Jersey case werefollowed by the parties in relation to the note and mortgage at issue in this case. And even ifthey were followed, that fact would not contradict Ms. Cacho’s assertion that Bank of Americacurrently holds both the note and the mortgage, some two years after the hearing in New
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America’s claim that it has possession of the note and mortgage is supported by the
affidavit of Ms. Cacho and by supporting documents, including a copy of both the
note—with the blank endorsement—and the mortgage.
In September, 2009, the Williamses filed a Chapter 7 bankruptcy, which was
later converted to Chapter 13. In their sworn schedules, they identified Bank of
America as the creditor holding a $20,000 claim secured by a mortgage on their home.
After a change of heart, they filed this adversary proceeding contesting the claim of
Bank of America. Their Complaint alleges that Bank of America “claims interest in the
real estate is subject to a second lien arising out of a mortgage in favor of Mortgage
Electronic Registration Systems, Inc. in the amount of $20,000.”6 The Williamses
further allege that “Mortgage (sic) Registration Systems, Inc. holds the mortgage, but
not the promissory note.”7 They then claim that “[t]he interest in the note and
mortgage are held by two separate and distinct parties and result in an unsecured debt
in favor of [Bank of America] pursuant to K.S.A. 58-2323.”8 As a result of these alleged
facts, the Williamses then ask the Court to find that Bank of America’s claim under the
Jersey. In addition, the fact that Fannie Mae may own the beneficial interest in the note isirrelevant to the issue of whether Bank of America is entitled to enforce the note, as will be
discussed more fully below. Finally, the Williamses make no attempt to explain how theconditional approval of the merger between BAC Home Loans Servicing and Bank of Americaby the Comptroller of the Currency in any way contradicts the fact that Bank of America is thecurrent holder of the note and mortgage.
Adversary Complaint ¶ 9. There is apparently some typographical error, as thissentence is difficult to understand.
7 Id. at ¶ 11.
8 Id. ¶ 13.
Case 10-07060 Doc# 50 Filed 02/14/12 Page 4 of 12
note is unsecured and that the mortgage—allegedly held by MERS—should be
cancelled when Plaintiffs receive their discharge.
Defendant’s summary judgment motion simply argues that the Williamses’
complaint must fail, as a matter of law, because the mortgage was never issued in
favor of MERS and was thus never “separated” from the Note. In addition, Bank of
America demonstrates that it is the current holder of the note, which has been
endorsed in blank. Under those facts, Defendant claims it is entitled to enforce the note
and the mortgage pursuant to Kansas law.
Additional facts will be discussed below, when necessary.
II. Standard for Summary Judgment
Summary judgment is appropriate if the moving party demonstrates that there
is “no genuine issue as to any material fact” and that it is “entitled to a judgment as
a matter of law.”9 In applying this standard, the Court views the evidence and all
reasonable inferences therefrom in the light most favorable to the nonmoving party.10
An issue is “genuine” if “there is sufficient evidence on each side so that a rational trier
of fact could resolve the issue either way.”11 A fact is “material” if, under the applicable
substantive law, it is “essential to the proper disposition of the claim.”12
9 Fed. R. Civ. P. 56(c). Fed. R. Civ. P. 56(c) is made applicable to adversary proceedingspursuant to Fed. R. Bankr. P. 7056.
10 Lifewise Master Funding v. Telebank, 374 F.3d 917, 927 (10th Cir. 2004).
11 Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
12 Id. (citing Anderson, 477 U.S. at 248).
Case 10-07060 Doc# 50 Filed 02/14/12 Page 5 of 12
The moving party bears the initial burden of demonstrating an absence of a
genuine issue of material fact and entitlement to judgment as a matter of law.13 In
attempting to meet that standard, a movant that does not bear the ultimate burden of
persuasion at trial need not negate the other party's claim; rather, the movant need
simply point out to the court a lack of evidence for the other party on an essential
element of that party's claim.14
If the movant carries this initial burden, the nonmovant that would bear the
burden of persuasion at trial may not simply rest upon its pleadings; the burden shifts
to the nonmovant to go beyond the pleadings and “set forth specific facts” that would
be admissible in evidence in the event of trial from which a rational trier of fact could
find for the nonmovant.15 To accomplish this, sufficient evidence pertinent to the
material issue “must be identified by reference to an affidavit, a deposition transcript,
or a specific exhibit incorporated therein.”16
Finally, the court notes that summary judgment is not a “disfavored procedural
shortcut;” rather, it is an important procedure “designed to secure the just, speedy and
inexpensive determination of every action.”17
13 Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).
14 Id. (citing Celotex, 477 U.S. at 325).
15 Id. (citing Fed. R. Civ. P. 56(e)).
16 Diaz v. Paul J. Kennedy Law Firm, 289 F.3d 671, 675 (10th Cir. 2002).
17 Celotex, 477 U.S. at 327 (quoting Fed. R. Civ. P. 1).
Case 10-07060 Doc# 50 Filed 02/14/12 Page 6 of 12
Because the involvement of MERS is central to Plaintiffs’ claim, and
because MERS was never a party to this loan, Plaintiffs’ Complaint fails
to state a claim.
Defendant contends that it is entitled to judgment because the Williamses’
complaint fails to establish a basis for finding that it is not a secured creditor. The
Complaint, which has never been amended, clearly sets out one, and only one
claim—that the note and mortgage were irrevocably split when the note was issued in
favor of Countrywide and the mortgage was issued in favor of MERS. The
uncontroverted evidence, however, clearly establishes that both the note and the
mortgage were issued in favor of Countrywide. MERS was never involved in this loan.
Therefore, the Williamses’ only claim fails because the factual basis upon which it is
built is completely baseless.
Because Defendant is the holder of the note under Kansas law, it may
enforce the note even though it may not be the beneficial owner.
Although never mentioned in their Complaint, the Williamses appear to have
changed the entire basis for their action by raising an entirely new claim in response
to the motion for summary judgment. They now claim that the beneficial interest in
the note may have been sold to the Federal National Mortgage Association
(“FannieMae”) and because FannieMae is now the true owner of the note, Bank of
America, as its servicer, has no interest to enforce.
But this Court has previously held that an entity that qualifies as a holder of a
negotiable instrument (such as the note in this case) is entitled to take action on that
Case 10-07060 Doc# 50 Filed 02/14/12 Page 7 of 12
instrument even if it is not the owner of the beneficial interest in the note.18 As fully
discussed in Martinez, the note in this case is a negotiable instrument,19 and, as such,
is subject to Article 3 of the Kansas Uniform Commercial Code (“UCC”).20
Under the UCC, an instrument may be enforced by “(a) the holder of the
instrument, (b) a nonholder in possession of the instrument who has the rights of a
holder, or © a person not in possession of the instrument who is entitled to enforce the
instrument pursuant to K.S.A. 84-3-309 or 84-3-418(b).”21 Further, a person is “entitled
to enforce the instrument even if the person is not the owner of the instrument or is in
wrongful possession of the instrument.”22 “Holder means a person who is in possession
of . . . an instrument . . . issued or indorsed to the person or the person’s order or to
bearer or in blank.”23 “[A] person who is a holder remains a holder although that
person has made an assignment of a beneficial interest therein.”24 “Consequently, the
payee in possession of a note is the holder and may bring suit on the note even though
18 See Martinez v. MERS (In re Martinez), 455 B.R. 755 (Bankr. D. Kan. 2011).
19 K.S.A. 83-3-104 (Supp. 2010).
20 K.S.A. 84-1-101 et seq.
21 K.S.A. 84-3-301 (1996).
23 K.S.A. 84-1-201 (Supp. 2010).
24 1 Anderson U.C.C. § 1-201:259 (3d. ed. 2010).
Case 10-07060 Doc# 50 Filed 02/14/12 Page 8 of 12
the payee had already assigned the note as the holder of an instrument whether or not
he is the owner may . . . enforce payment in his own name.”25
Based upon the clear provisions of the UCC, Bank of America is entitled to
enforce the note against the Williamses upon a showing that (1) the note is made
payable to Bank of America or is endorsed in blank, and (2) Bank of America remains
in possession of the note. The fact that Bank of America may no longer be the beneficial
owner of the note is immaterial as to its ability to enforce the note.26 The Williamses
make no attempt to distinguish Martinez or argue it is wrongly decided; they simply
ignore it. The Court believes it was and remains a correct statement of the law.27
Bank of America has submitted evidence through the affidavit of Katherine
Cacho that it currently holds both the note and the mortgage in this case. In addition,
the affidavit by Ms. Cacho indicates the note is signed in blank, which is consistent
25 Id. (citing Edwards v. Mesch, 763 P.2d 1169 (N.M. 1988)). The UCC does notdistinguish between whether the “holder” is the holder for his or her own use and benefit orwhether the holder holds as a fiduciary for another. The holder is entitled to sue on theinstrument regardless whether it is entitled to keep the proceeds, and this is true even thoughthe holder does not have any express authorization from the beneficial owner of the paper tobring suit. Id. at § 3-301:7 (internal citations omitted).
26 See In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008), overruled on other grounds438 B.R. 661 (C.D. Cal. 2010) (holding that party who was still in possession of originalmortgage note made payable to that party was entitled to enforce the mortgage note despitethe fact the beneficial interest in the note had been sold to a third party).
27 See also, Meis v. Fowler State Bank (In re Meis), 2011 WL 6148654, *4 (Bankr. D.
Kan. 2011) (holding that as long as the defendant had possession of the note that was endorsedin blank, it had the authority to enforce the note regardless of whether it was the beneficialowner) and Miller v. Deutsche Bank National Trust Company (In re Miller) ___ F.3d ___, 2012
WL 286865, *5-6 (10th Cir. 2012) (noting that under Colorado law, which is similar to Kansaslaw in this regard, an entity in possession of a note endorsed in blank has the authority toenforce that note).
Case 10-07060 Doc# 50 Filed 02/14/12 Page 9 of 12
with the copy of the note submitted in support of the summary judgment motion.
Therefore, based on the reasoning set forth above and in the Martinez decision, Bank
of America is entitled to enforce the note and the mortgage in this case.
The outcome of this case is not altered by the recent opinion by the Tenth Circuit
Court of Appeals in Miller v. Deutsche Bank National Trust Company (In re Miller).28
In Miller, the debtor contested Deutsche Bank’s ability to enforce a note and mortgage.
The debtor claimed, at least in part, that Deutsche Bank did not qualify as a holder of
the note and questioned whether Deutsche Bank had actual possession of the original
note. The Circuit found that although Deutsche Bank had “offered proof that IndyMac
assigned the Note in blank, it elicited no proof that Deutsche Bank in fact obtained
physical possession of the original Note from IndyMac, either voluntarily or
otherwise.”29 As a result, the Court held that Deutsche Bank had “failed to show that
it is the current holder of the Note.”30
In this case, Bank of America has presented evidence, though the affidavit of Ms.
Cacho, that Bank of America has actual possession of the note and is the holder of the
note. The Williamses nominally contest this fact in their response,31 but their
references to exhibits that purportedly support their denial simply fail to address this
28 ___ F.3d ___, 2012 WL 286865 (10th Cir. 2012).
29 Id. at 6.
31 See Memorandum in Support of Plaintiffs’ Reply in Opposition to Defendant’s Motion
for Summary Judgment (Doc. 45) at 1-2.
Case 10-07060 Doc# 50 Filed 02/14/12 Page 10 of 12
statement. Furthermore, their denial is inconsistent with another argument they
make—that“the practice of Countrywide and continuing into the practice of the
Defendant, the possession of the loan and mortgage remained with Defendant, its
predecessor, and/or its successor, despite transfer to another.”32
The issues raised in support of their claim against Bank of America are (1) that
the mortgage and note were irrevocably split because the note was made in favor of
Countrywide and the mortgage in favor of MERS and (2) that the note has potentially
been sold to Fannie Mae.33 Because Bank of America is the holder of the original note
and the Williamses have never properly disputed that fact, the Court finds that Miller
is distinguishable from this case.34
BAC Home Loans Servicing, L.P. or its successor in interest, Bank of America,
is entitled to summary judgment. The allegation that the note and the mortgage were
32 Id. at 3-4 (emphasis added).
33 The Court again notes that this second argument was never included in anycomplaint, and is thus not properly before the Court. The Williamses do raise one finalargument that “the Defendant may have [a] number of names it is calling itself these days.”
This argument is based solely on the transcript from the New Jersey proceeding in which anemployee of Bank of America made a comment in which she claimed temporary confusion overwhether her employer was Countrywide or Bank of America. The Court finds this argumentcompletely meritless on the basis that (1) the witness herself clarified that the company wasBank of America during that hearing and (2) the hearing in question took place over two andone-half years ago, and is in no way proof that the Defendant may go by different names at thistime.
34 The parties sought, and received, over four months to conduct discovery, and thensought and received an extension of another five months to complete discovery. See Doc. 31.
Discovery has expired, without any suggestion by Plaintiffs that they have been deprived ofthe right or ability to confirm the sworn statement that Defendant is in possession of theoriginals of these documents.
Case 10-07060 Doc# 50 Filed 02/14/12 Page 11 of 12
split at their inception is simply not supported by any evidence. Instead, the
undisputed evidence is that the note and mortgage were both made in favor of
Countrywide and subsequently transferred to Bank of America. In addition, Bank of
America has produced sworn and uncontroverted evidence establishing it is the holder
of the note under Kansas law, and as such has the right to enforce the note, and thus
It is, therefore, by the Court ordered that Defendant’s Motion for Summary
Judgment is granted.
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