10-07059 Williams et al v. BAC Home Loans Servicing Inc (Doc. # 58) - Document Text

SIGNED this 1st day of March, 2012.


In the United States Bankruptcy Court
for the District of Kansas

In re, )
Bruce Kevin Williams and ) Case No. 09-41548
Candice Sue Williams, )
Debtors. )
______________________________________ )
Bruce Kevin Williams and )
Candice Sue Williams, )
Plaintiffs, )
v. ) Adv. No. 10-7059
BAC Home Loans Servicing, L.P.1 and )

1 The Complaint named only one defendant, “BAC Home Loans Servicing, L.P.,” butin the body of the Complaint, Plaintiffs indicated “defendant is a wholly owned subsidiary ofBank of America.” In reply to BAC Home Loans Servicing, L.P.’s Motion for SummaryJudgment, Plaintiffs added the following language in the caption, immediately following BAC:
“n/k/a Bank of America, N.A.” There has been no motion to change the name of the party-
defendant, and no pleading filed by either Defendant has added the language. No one disputesthat BAC Home Loans Servicing, L.P. merged with Bank of America. Accordingly I haveelected to use the name originally used by Plaintiffs for Defendant —BAC Home LoansServicing, L.P., without the addition of the new “n/k/a” moniker.

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Mortgage Electronic )
Registration Systems, Inc., )
Defendant-Intervenor. )
_______________________________________ )

Memorandum Opinion and Order Granting
Defendants’ Motion for Summary Judgment
But Giving Plaintiffs a Limited Opportunity to Amend Complaint

This case involves an attempt by Plaintiffs, Bruce and Candice Williams, to have
the loan they intended to be secured by the first mortgage on their home deemed
unsecured and the accompanying mortgage found unenforceable.2 The only basis
articulated in their Complaint for this result 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 Defendants, BAC Home Loans Servicing, L.P. (“BAC”) and
Mortgage Electronic Registration Systems, Inc. (“MERS”), have jointly moved for
summary judgment claiming that no such split ever occurred, and that BAC has
authority to enforce the note and the mortgage.

I have 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 recently granted summary judgment to the only defendant in a companion caseinvolving the second mortgage on the Debtors’ home. See Williams v BAC Home Loans
Servicing, LP, Case No. 10-7060, issued February 14, 2012.


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I. Findings of Fact
On February 24, 2003, Bruce and Candice Williams executed a promissory note
in favor of Countrywide Home Loans, Inc. (“Countrywide”) in the amount of
$144,000.00. On that same date, they executed a mortgage on their home to secure
repayment of the note. The mortgage was executed in favor of MERS, acting “solely as
nominee for [Countrywide] and [Countrywide’s] successors and assigns.” When the
note and mortgage were executed by the Williamses, Countrywide was a member of
MERS, and it remained a member of MERS during the entire time it was an owner of
the note. The mortgage was properly recorded with the Register of Deeds for Douglas
County, Kansas.

Countrywide sold the note to BAC, which was also a member of MERS at all
times that it owned the note.3 The note was then sold to Fannie Mae, with BAC
retaining possession of the original note as the servicer for Fannie Mae. Fannie Mae,
like BAC and Countrywide, was also a member of MERS when it owned the note. BAC
was merged into Bank of America, N.A., which took possession of the note and became
the servicer for Fannie Mae upon the merger. Bank of America was also a member of
MERS at all times it was in possession of the note and acted as servicer of it. Pursuant

3This fact—that Countrywide sold the note to BAC— was contained in BAC’s Statementof Fact ¶ 9, which also stated that “Countrywide then endorsed the Note in blank andtransferred possession of the Note to BAC.” The Williamses disputed the second portion of thisstatement of fact—pointing out that the copy of the note attached by BAC as an attachmentto their brief shows no endorsement by Countrywide. However, the Williamses did not dispute(by pointing to anything in the record, or making any arguments) the fact that the note wassold to BAC.


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to their agreements with MERS, Countrywide, BAC, Bank of America and Fannie Mae
all appointed MERS to serve as mortgagee on their behalf.

In September, 2009, the Williamses filed a Chapter 7 bankruptcy, which was
later converted to Chapter 13 proceeding. The Williamses filed a proof of claim on
behalf of Bank of America in the amount of $125,000, indicating that the claim was
secured by a mortgage.4 The Williamses filed this adversary proceeding in November

In their Complaint, they allege that “Defendant Bank claims interest in the real
estate is subject to a first lien arising out of a mortgage in favor of Mortgage Electronic
Registration Systems, Inc. in the amount of $125,000.”5 The Williamses further allege
that “Mortgage (sic) Registration Systems, Inc. holds the mortgage, but not the
promissory note.”6 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.”7 As a result of these alleged facts, the
Williamses then ask me to find that Bank of America’s claim under the note is

4 The Defendants initially claimed as a material fact that Bank of America had itselffiled a Proof of Claim. This is one of only two facts the Williamses elected to contest. While theyare correct that their lawyer, not Bank of America, actually filed the proof of claim, any disputeover who actually filed the Proof of Claim is immaterial to the issues before me.

5 Adversary Complaint ¶ 9. There is apparently some typographical error, as thissentence is difficult to understand.

6 Id. at ¶ 11.

7 Id. ¶ 13.


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unsecured and that the mortgage—held in the name of MERS—should be cancelled
when Plaintiffs receive their discharge upon completion of their confirmed plan.8

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, I view 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

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

8 Debtors’ confirmed plan provides that they will pay the Trustee sufficient amountseach month so that the Trustee can, in turn, pay the amounts due on both notes during thependency of this case.

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).
13 Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)).

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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, summary judgment is not a “disfavored procedural shortcut.” But
instead is an important procedure “designed to secure the just, speedy and inexpensive
determination of every action.”17

III. Plaintiffs’ Complaint does not state a theory entitling them to relief.
Plaintiffs’ Complaint states its purpose is “to determine the value of the interest
of the Defendant in the residential real estate of the debtor (sic) and determine the

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).


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amount of the allowed secured claim of the Defendant.”18 It then alleges that BAC has
no interest in the residential real estate, and thus no secured claim, because of how the
note and mortgage were originally drawn.

The Defendants contend they are entitled to summary judgment because (1) the
mortgage remained tied to the note despite the fact that the mortgage was made in
favor of MERS and the note was made in favor of Countrywide, BAC’s predecessor, and

(2) BAC qualifies as a holder of the note under Kansas law, and thus has the authority
to enforce the note and mortgage. The Williamses respond that, under Kansas law, the
note and mortgage were split and no longer function together, and that there are
factual questions surrounding BAC’s status as a holder of the note.
The Williamses essentially raise three arguments in opposition to the motion for
summary judgment. First, they claim that K.S.A. 58-2323 in some way requires a
finding that the note is unsecured because MERS is not the holder or the owner of the
note. This argument is directly tied to the claim they raised in the Complaint—that the
note and mortgage have been split, the mortgage is no longer (and never was)
enforceable, and the note is no longer secured. Second, they claim that because Fannie
Mae is now the beneficial owner of the note, BAC cannot enforce it because it is not a
“holder” under Kansas law. Finally, they claim that “an intervening entity” in the
merger of Countrywide to Bank of America—Red Oak Merger Corporation—creates

18 Doc. 1. There are actually two debtors in this case. In addition, MERS sought andreceived permission to intervene without objection, so that is why the Complaint speaks of onlyone Defendant, but this opinion often refers to “Defendants,” plural. See Docs.25, 26 and 34.


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doubt as to the chain of title to this property. The second and third claims were not
raised in their Complaint; they were raised for the first time when opposing summary

A. The note and mortgage have not been irrevocably split.
The only claim actually raised by the Williamses in their Complaint is that the
mortgage was rendered unenforceable, and the note unsecured, the instant the
mortgage was issued in favor of MERS and the note was issued in favor of
Countrywide. I decided this precise issue over a year ago in Martinez v. Mortgage
Electronic Registration Systems, Inc. (In re Martinez).19 In that case, I concurred with
the reasoning of In re Tucker,20 which held that issuing the note in favor of one entity
and the mortgage in favor of another did not result in the splitting of the note and
mortgage provided there was an agency relationship between the two entities.

The Williamses do not try to distinguish Martinez or argue that it was wrongly
decided; they simply elect to ignore it. Similarly, they never contest the fact that MERS
was acting as an agent for Countrywide, BAC, Bank of America or Fannie Mae at all
times relevant to this case. Instead, they rely on K.S.A. 58-2323 to support their
argument that a fatal splitting of the note and mortgage occurred. K.S.A. 58-2323
provides that “[t]he assignment of any mortgage as herein provided shall carry with
it the debt thereby secured.” The Williamses claim that “assignment” of the mortgage

19 444 B.R. 192 (Bankr. D. Kan. 2011).
20 441 B.R. 638, 643-44 (Bankr. W.D. Mo. 2010).


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to MERS “carries with it” the debt secured by the mortgage.21 Advancing that
argument, they then claim that because MERS does not claim to own the note, whoever
does own the note “holds it as a general unsecured creditor to be paid pro rata in the
main case along with other general unsecured creditors.”

The Williamses’ legal argument is difficult to follow, but appears to ignore
longstanding Kansas common law that holds that the transfer of a debt secured by the
mortgage also carries with it the mortgage securing the debt.22 Contrary to what the
Williamses appear to argue, the common law proposition that an assignment of a note
carries with it the mortgage that was intended to secure the note and the statutory
provision that the assignment of a mortgage carries with it the note secured by the
mortgage are not necessarily at odds with each other. In fact, both of these principles
are taken directly from the Restatement (Third) of Property (Mortgages) § 5.4. Taken
together, they recognize “that it is nearly always sensible to keep the mortgage and the
right of enforcement of the obligation it secures in the hands of the same person.”23

21 It also appears that the mortgage was never “assigned” to MERS, but was madedirectly to it, as agent for the beneficial owner of the note, at the inception of the loan. Thus,
the “assignment” language in the statute does not even appear to apply to these facts.

22 See Bank Western v. Henderson, 255 Kan. 343, 354 (1994) and Army Nat. Bank v.
Equity Developers, Inc., 245 Kan. 3, 17 (1989) (holding that “[o]ur view is that the mortgage
follows the note.”). See also Kurtz v. Sponable, 6 Kan. 395, 396 (1870) (“Under our laws, themortgage is but appurtenant to the debt, a mere security; and, under ordinary circumstances,
whoever owns the debt owns the mortgage.”). I note that K.S.A. 58-2323 has been in theKansas statutes since 1899, well before the Bank Western v. Henderson and Army Nat. Bank

v. Equity Developers, Inc. decisions were decided by the Kansas Supreme Court.
23 Restatement (Third) of Property (Mortgages) § 5.4, Comment (a).

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I relied on the same section of the restatement in my prior analysis in Martinez
when I held that because MERS was only holding the mortgage as an agent for the
lender, there was no splitting of the note and mortgage. I do not find that K.S.A. 582323
requires a different result than I reached in Martinez.

I decline to decide theories that have not been raised in the
The Williamses’ second argument in response to the summary judgment motion
is that Fannie Mae now owns the note—again, an argument raised for the first time
in their summary judgment response.24 I have previously ruled that the fact that an
entity is not the beneficial owner of the note is immaterial to its ability to enforce the
note if that entity is a “holder” of the note under Kansas law.25 But in this case, I elect
not to proceed down this path, because 1) this is not a theory asserted in the
Complaint, and 2) even if BAC is not a holder of the note, the Williamses are not
entitled to the relief they seek at this time and against these parties.

The Williamses seek a judgment finding that no one has a secured claim against
their home. But they admit that Fannie Mae, which is not a party to this proceeding,
is the owner of the note. Given my decision that there has not been a “split” in the note

24 The Complaint has been on file since November 3, 2010. The final Pretrial Conferencewas first scheduled for June 24, 2011, then continued to December 15, 2011 after MERS
intervened, then again to January 31, 2012 and now to March 14, 2012. At no time havePlaintiffs sought leave to amend the Complaint to assert these, or any other, theories.

25 See Martinez v. Mortg. Elec. Registration Sys., Inc. (In re Martinez), 455 B.R. 755, 763
(Bankr. D. Kan. 2011). See also In re Hwang, 396 B.R. 757 (Bankr. C. D. Cal. 2008), overruled
on other grounds 438 B.R. 661 (C.D. Cal. 2010) (holding that party who was still in possessionof original mortgage note made payable to that party was entitled to enforce the mortgage notedespite the fact the beneficial interest in the note had been sold to a third party).


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and mortgage, even if BAC is not the holder,26 Fannie Mae is the owner and it can
enforce the note, which is secured by the mortgage. Although there may be questions
as to whether BAC also has the ability to enforce the note as a secured debt, there is
no dispute that Fannie Mae can do so.

Similarly, the Williamses’ third argument in response to the summary judgment
motion is to allege that the existence of “an intervening entity” in the merger of
Countrywide to Bank of America—Red Oak Merger Corporation—creates doubt as to
the chain of title to this property. Again, this issue cannot be found in the Williamses’
Complaint. They claim that

“the merger of Countrywide Financial Corporation to Bank of America, had anintervening entity in the merger, Red Oak Merger Corporation, which was atleast disclosed to the U.S. Securities and Exchange Commission. However, theDefendants see no defect in this missing link of ownership, despite their claimthat a third party, Fannie Mae now owns the Note.”

They then argue that Defendants have failed to demonstrate “an unbroken chain of
transfer of the Note of February 24, 2003 . . . from Countrywide Home Loans, Inc. to
Bank of America, N.A.”

Defendants claim that the Williamses have not created a genuine issue of
material fact by merely questioning, without more, Red Oak Merger Corporation’s
involvement in the merger of Countrywide and Bank of America. The Williamses

26 Plaintiffs correctly argue that the copy of the note attached to the original affidavitof Bank of America's Mortgage Servicing Unit Manager, who professed to have personalknowledge of the facts, contains no endorsement, in blank or otherwise. Defendants, in theirreply brief, now attach a copy that does contain an endorsement in blank, contending this copywas not originally attached through “inadvertence.”


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provide absolutely no factual or legal analysis as to how the existence of Red Oak is
material or relevant to the handling of the Williamses’ note and mortgage. They do not
address whether Countrywide owned the note at the time of the merger. Similarly,
they do not claim that the note was ever transferred to Red Oak as a holder, servicer,
or owner of the note, or that Red Oak ever had any involvement, whatsoever, with the
note. Instead, the Williamses simply throw this argument “against the wall,” hoping
I may find that enough of it sticks to survive a motion for summary judgment.27 I do
not so find, but elect to not further consider this issue because it was not raised in the
Complaint, and the Williamses have failed to develop the argument in any fashion.

The Williamses have failed to show how Red Oak Merger Corporation’s potential
involvement in the merger of Countrywide into Bank of America creates a question of
fact that is material to their loan.28 The Williamses never dispute that the note is
currently owned by Fannie Mae or that the mortgage remains with MERS as an agent
of Fannie Mae. Accordingly, I decline to decide whether there is something here that
Plaintiffs might some day be able to develop that might defeat Fannie Mae’s secured

27 See Dodd Ins. Services, Inc. v. Royal Ins. Co. of Am., 935 F.2d 1152, 1158 (10th Cir.
1991) (noting the “method of pleading plaintiffs employed in the case before us appears to bethe type known colloquially as “throw - as - much - mud - against - the - wall - as - you - can and
- hope - some - of - it - sticks.”). This kind of pleading did not work with the Circuit, andit does not work with me. Litigants cannot merely throw out “facts” that under some unknowntheory might put a dent into the opponent’s case or create a material issue of fact. Instead, theyneed to connect the dots and show how under the facts of this case, those facts are material.
This the Williamses have not done, although they have had more than adequate time toconduct whatever discovery they wanted on this issue to be in a position to connect the dotswhen the time came.

28 See Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (explainingthat a question of fact must be both genuine and material to preclude summary judgment).


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status. That issue is not properly before me. Similarly, I decline to decide the issue of
whether BAC has the authority to enforce the note in this case, as that issue is not
properly before me—and a finding in favor of the Plaintiffs would not result in the
relief they are seeking in their Complaint.

IV. Conclusion
Because I have found that the only claim in Plaintiffs’ Complaint fails to state
a claim, I will grant summary judgment to the Defendants. Out of an abundance of
caution, I will not today enter a Judgment on Decision in the event Plaintiffs desire to
assert that 1) they are entitled at this late stage to amend their complaint, 2) such an
amendment would not prejudice the Defendants, and 3) such an amendment would not
be legally futile. To that end, if they desire to assert that they should be allowed to
amend the Complaint to include claims that were first raised in the summary
judgment process, they shall serve a copy of their proposed amended complaint on
opposing counsel (with a copy to chambers) by March 12, 2012 at 5:00 pm. Plaintiffs
do not need to file a formal motion to amend by that time, but must at least provide the
Defendants and chambers with a copy of any proposed amended complaint.

I will convert the previously scheduled Pretrial Conference into a Status
Conference to take up any remaining issues in this case, including whether Plaintiffs
should be allowed to amend their Complaint, should they wish to do so in light of the
findings and holding in this opinion. That conference will be held on March 14, 2012
at 2:20 p.m. If a proposed amended complaint is not timely received, I will construe


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that as Plaintiffs’ decision not to seek to amend, and a Judgment on Decision will be
entered granting judgment in favor of the Defendants.



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