Firstar Bank, N.A. (pay close attention to the names) lent Linda Shaw funds to purchase her home subject to a Deed of Trust. When Ms. Shaw died, the property passed subject to her will to Theresa Hall, who took possession of the property and commenced making mortgage payments. In December of 2008, Ms. Hall entered into a loan modification agreement with Sovereign Bank, assuming all obligations under the note and Deed of Trust. After Ms. Hall was subsequently injured in 2009 and unable to work, she again sought a loan modification from Sovereign Bank, but was told she could only be considered if she was at least three months delinquent. Ms. Hall made no further payments and in October 2018, Wilmington Savings Fund Society initiated a judicial foreclosure action, attaching five allonges to the Note with the complaint, which included this footnote:
Said Note and Mortgage may have been originated by Star Bank, N.A. and/or assigned to Star Banc Finance, Inc. Effective 2/12/99, Star Bank, N.A. changed its name to Firstar Bank, N.A. and Star Banc Finance, Inc. changed its name to Firstar Finance, Inc. These are the same legal entity, and addresses and responsible individuals remain unchanged.
Subsequent allonges were attached to the complaint asserting transfers of the Note from Sovereign Bank to “State Street Bank and Trust Company as Trustee for Sovereign Bank Home Equity Loan Trust 2000-1” (undated); from “Sovereign Bank as Attorney in fact for US Bank as successor in interest to State Street Bank and Trust Company as Trustee for the Sovereign Bank Home Equity Loan Trust 2000-1” to Sovereign Bank (30 September 2008); from “Santander Bank, N.A., formerly known as Sovereign Bank,” to MTGLQ Investors, L.P. (undated); and from MTGLQ Investors, L.P. to WSFS (undated). Further, an “Assignment of Note and Deed of Trust” transferring all of Firstar Bank, N.A.’s “rights, title and interest in” the Note to Sovereign Bank. Firstar Bank, N.A. executed the assignment on 25 July 2007, prior to execution of the Loan Modification Agreement.
Answering that while she had not made any mortgage payments for eight years, Ms. Hall denied that Wilmington Savings Fund Society was the holder of the note or entitled to foreclose. Both parties sought summary judgment, with the Superior court holding that Wilmington Savings Fund Society was the holder of the Note, as it possessed the Original Note which had been property endorsed.
Ms. Hall appealed, arguing that the chain of indorsements was broken because while the transfers from Firstar Finance, Inc. to Sovereign Bank is documented, there is no earlier allonge transferring the Note from Firstar Bank, N.A. to Firstar Finance, Inc
The Court of Appeal began by noting that “[m]ere possession of a note payable to order does not suffice to prove ownership or holder status[,]” Econo-Travel Motor Hotel Corp., 301 N.C. at 203, 271 S.E.2d at 57, “[i]t is the fact of possession which is significant in determining whether a person is a holder, and the absence of possession defeats that
status[,]” In re Foreclosure of Connolly v. Potts, 63 N.C. App. 547, 550, 306 S.E.2d
123, 125 (1983). The Court of Appeals, while commenting that the footnote was not the model of clarity, agreed with Wilmington Savings Fund Society that Firstar Bank, N.A. and Firstar Finance, Inc. were the same legal entity, with the authority to indorse the Note.
Further, the Court of Appeals held that Ms. Hall had voluntarily and explicitly ratified the holder status of Sovereign Bank (and thereby the subsequent transfers to Wilmington Savings Fund Society) by entering into a loan modification with it in 2008.
Accordingly, the summary judgment in favor of Wilmington Savings Fund Society was affirmed.
That a loan modification agreement would have the impact of ratifying the status of the current holder of the note and essentially laundering any previous mortgage problems, is something for debtor's counsel to remain mindful of. It is also another reason why mortgage servicers should consider granting loan modifications, as that would remedy these potential problems.
It is important to remember that since the vast majority of foreclosures are conducted in North Carolina quasi-judicially, through a special proceeding before the Clerk of Court, that an formal judicial foreclosure is a red flag that there is something problematic with the underlying mortgage documents.
Under the Dodd-Frank Act and the regulations from the CFPB, Ms. Hall would have been determined to be a "successor in interest" and would have been entitled to all of the loss mitigation and loan modification options without being required to become a borrower on the note.
For a copy of this opinion, please click here: