Wilmington Savings Fund Society, FSB, Not In Its Individual Capacity But Solely as Trustee for the Primestar-H Fund I Trust v. Ty Bowling and Asset Acceptance, LLC

Jun 30 2015, 10:56 am

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEES Leanne S. Titus Charles E. McFarland Bryan K. Redmond New Castle, Kentucky Feiwell & Hannoy, P.C. Mary Jean Stotts Indianapolis, Indiana Joas & Stotts Madison, Indiana

IN THE COURT OF APPEALS OF INDIANA

Wilmington Savings Fund June 30, 2015 Society, FSB, Not In Its Court of Appeals Case No. Individual Capacity But Solely 39A05-1409-MF-433 as Trustee for the Primestar-H Appeal from the Jefferson Circuit Fund I Trust, Court. The Honorable Fred H. Hoying, Appellant-Defendant, Senior Judge. Cause No. 39C01-1210-MF-945 v.

Ty Bowling and Asset Acceptance, LLC, Appellees-Plaintiffs.

Garrard, Senior Judge [1] Ty Bowling executed a promissory note and secured the note by executing a

mortgage on property located in Madison, Indiana. He later defaulted on the

note. A complaint was filed naming Bowling and a judgment lien holder, Asset

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1 Acceptance, LLC, as defendants to the action. Wilmington Savings Fund

Society, FSB, not in its individual capacity but solely as Trustee for the Prime

Star-H Fund I Trust, brings this interlocutory appeal from the trial court’s order

granting partial summary judgment in favor of Wilmington on the issue of

enforcement of the note but finding genuine issues of material fact existed

precluding entry of summary judgment on the mortgage foreclosure. We

affirm. [2] Bowling executed a promissory note in the principal amount of $166,500 on

March 31, 2006, with Oak Street Mortgage LLC as the named payee. The

parties dispute whether the note was endorsed in blank. Wilmington claims

that the note is endorsed in blank and that it holds the original note that is

signed but not endorsed. Bowling agreed in his affidavit that the original

promissory note is endorsed in blank, but argues that there should be an allonge

containing special endorsements by the various intervening holders that he

claims are part of a real estate mortgage investment conduit, or REMIC.

Bowling claims that the prospectus for the pertinent REMIC requires a special

endorsement which would convert the bearer instrument to one payable to the

identified payee, and that the trial court erred by concluding that the note was a

1 Asset Acceptance, LLC is a judgment lienholder as to Bowling and was named a defendant to answer to its interest in the mortgaged property. Asset did not participate in the proceedings below and has not participated in this appeal. However, pursuant to Indiana Appellate Rule 17(A) “[a] party of record in the trial court . . . shall be a party on appeal.”

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bearer instrument without waiting for the completion of additional discovery

about the allegedly missing allonge. [3] The mortgage document listed Mortgage Electronic Registration Systems, Inc.

as a nominee for Oak Street, and MERS was also named a mortgagee. MERS

assigned the mortgage as nominee for Oak Street to LaSalle Bank National

Association, as Trustee for Certificateholders of Bear Stearns Asset Backed

Securities I LLC, Asset Backed-Certificates, Series 2006-HE5. JPMorgan

Chase Bank, NA, attorney-in-fact for U.S. Bank National Association, as

Trustee, successor in interest to Bank of America, National Association as

Trustee as successor by merger to LaSalle Bank National Association, as

Trustee for Certificateholders of Bear Stearns Asset Backed Securities I LLC,

Asset Backed-Certificates, Series 2006-HE-5 assigned the mortgage to EMC

Mortgage LLC f/k/a EMC Mortgage Corporation. Each of these assignments

was recorded. [4] Later, Bowling executed a loan modification agreement with EMC Mortgage

Corporation. After Bowling stopped making payments, EMC Mortgage filed a

complaint on the promissory note and sought a decree to foreclose the

mortgage on the secured real estate. The various assignments were attached to

the complaint. EMC Mortgage subsequently assigned the note to Wilmington,

the assignment was recorded, and Wilmington was substituted as party plaintiff

to the action.

Court of Appeals of Indiana | Opinion 39A05-1409-MF-433 | June 30, 2015 Page 3 of 9 [5] Wilmington filed a motion for summary judgment, and the trial court granted

its motion in part, but denied its motion in part. Wilmington appeals from the

trial court’s order. Bowling also raises cross-appeal issues. [6] Our review of the trial court’s order on a motion for summary judgment

involves the same analysis used by the trial court. Cherokee Air Prods., Inc. v.

Buchan, 14 N.E.3d 831, 833-34 (Ind. Ct. App. 2014). Summary judgment is

appropriate only if there is no genuine issue as to any material fact and the

moving party is entitled to judgment as a matter of law. Id. at 834. The moving

party bears the burden of making a prima facie showing of those two

requirements. Id. Upon that showing, the burden shifts to the non-moving

party to show the existence of a genuine issue of material fact by way of

specifically designating facts. Id. We accept as true those facts alleged by the

non-moving party, construe the evidence in favor of the non-moving party, and

resolve all doubts against the moving party. Id. [7] The trial court granted summary judgment as to the enforcement of the

promissory note. Bowling admitted that he defaulted on the note secured by

the mortgage by failing to make the required payments. However, he cross-

appeals from the trial court’s partial grant of summary judgment, contending

that the trial court erred by concluding that Wilmington was the holder of a

bearer instrument. Wilmington contends that the trial erred by failing to enter a

decree of foreclosure after concluding that Wilmington was entitled to enforce

the note.

Court of Appeals of Indiana | Opinion 39A05-1409-MF-433 | June 30, 2015 Page 4 of 9 [8] The evidence designated to the trial court established that Wilmington was in

possession of the original promissory note that was endorsed in blank, and the

complete chain of recorded assignments, which was designated, established

who held the note and mortgage at various times. JPMorgan Chase assigned

the mortgage to EMC on September 20, 2012, and EMC filed the complaint on

October 11, 2012. EMC was the holder of the note and mortgage at the time

the complaint was filed. [9] Bowling argues that his online research of the prospectus of the pertinent

REMIC pooling and servicing agreement reflects that the assignees of the

mortgage and note were required to transfer possession by a special

endorsement that must be reflected on an allonge. In other words, Bowling

challenges Wilmington’s standing to foreclose on the note and mortgage

because of a breach of the pertinent PSA, which is reflected by the absence of

the allonge. 2 [10] In general, only the parties to a contract or those in privity with the parties have

rights under the contract. Evan v. Poe & Assocs., Inc., 873 N.E.2d 92, 98 (Ind. Ct.

App. 2007). Only where it can be demonstrated that the parties clearly

intended to protect a third party by imposing an obligation on one of the

contracting parties can the third party enforce the agreement. Id. Here, the

designated evidence does not establish that Bowling was a party to the PSA nor

2 Indiana Code section 26-1-3.1-204 (1993) defining endorsement includes “a paper affixed to the instrument.” None was attached to the note in this case.

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was there an intent to protect him as a third party such that he can enforce any

obligation under the PSA. [11] In Wells Fargo Bank, N.A. v. Strong, 89 A.3d 392, 398 (Conn. App. Ct. 2014), the

court cited D. Caron & G. Milne, Connecticut Foreclosures (5th Ed. 2011) § 30-

3. p. 401, which discussed borrowers’ attempts to attack the holder status of a

plaintiff seeking to foreclose on mortgaged property by invoking the terms of a

PSA, also referred to as a trust document. The borrower, who is not a party to

such an agreement, may not challenge its enforcement. Id. The parties to the

PSA are the certificateholders, a trustee, and a servicer, and a borrower has no

contractual privity with them. Id. Further, in In re Walker, 466 B.R. 271, 285

(Bankr. E.D. Pa 2012), the court noted an apparent judicial consensus that had

developed “holding that a borrower lacks standing to (1) challenge the validity

of a mortgage securitization or (2) request a judicial determination that a loan

assignment is invalid due to noncompliance with a pooling and servicing

agreement, when the borrower is neither a party to nor a third party beneficiary

of the securitization agreement, i.e., the PSA.” We find these holdings

persuasive and conclude that Bowling cannot attack Wilmington’s holder status

by way of invoking the PSA. The trial court properly found that the designated

evidence established that the note was a bearer instrument and as a holder of it

Wilmington was entitled to enforce the note. Ind. Code § 26-1-3.1-301 (1993). [12] Two of Bowling’s cross-appeal issues contest the trial court’s grant of partial

summary judgment in the absence of Bowling receiving satisfactory discovery

responses from Wilmington. More specifically, Bowling sought discovery from

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Wilmington about the alleged allonge reflecting the trail of special

endorsements made pursuant to the applicable REMIC prospectus. [13] Bowling correctly cites Boyd v. WHTIV, Inc., 997 N.E.2d 1108, 1113 (Ind. Ct.

App. 2013) for the proposition that summary judgment should only be granted

where the parties have adequate time to complete discovery. Trial courts

generally will deny summary judgment when there are pending discovery

requests that might impact the trial court’s ability to rule on the motion. Collins

v. HSBC Bank USA, Nat’l Ass’n, 974 N.E.2d 537, 541 (Ind. Ct. App. 2012).

Here, Bowling, as the borrower, could not challenge the enforcement of the

PSA or noncompliance with it. Therefore, to the extent Bowling did not have

the discovery responses he sought, the responses would not have had an impact

on the trial court’s ability to rule on the issue of enforcement of the note. [14] Further, other options were available to Bowling to complete the discovery to

his satisfaction. Bowling could have requested the production of documents to

EMC, now a non-party, by way of Indiana Trial Rule 34. Bowling also could

have moved under Indiana Trial Rule 56(F) for additional time in which to

complete discovery prior to responding to the summary judgment motion or

could have filed another motion to compel under Indiana Trial Rule 37.

Neither of these cross-appeal arguments support a reversal of the trial court’s

grant of partial summary judgment as to the promissory note. [15] Next, Bowling asks whether a substituted party plaintiff, in this case substituted

under Indiana Trial Rule 25(C), who stands in the shoes of the original party,

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can avoid providing discovery requested of the original party, but not provided.

However, Bowling frames the issue as trial court error in partially granting the

motion for summary judgment when discovery was not yet complete. The trial

court’s order that is the subject of this interlocutory appeal is the partial grant

and partial denial of summary judgment, not an order pertaining to discovery.

To avoid waiver and receive proper review on appeal, an argument should be

raised first at the trial court level to allow the opposing party the opportunity to

respond and allow the trial court the opportunity to consider the issue and reach

a decision before it is taken up on appeal. Lunsford v. Deutsche Bank Trust Co.

Americas as Trustee, 996 N.E.2d 815, 819 (Ind. Ct. App. 2013). Bowling has

waived this cross-appeal issue. [16] Wilmington argues that the trial court determined that it was not entitled to

foreclose the mortgage. Its assertion is incorrect. The trial court determined

that as simply a holder of the note, Wilmington was not entitled to summary

judgment on the foreclosure question. It determined that there remained

genuine factual disputes concerning the defenses alleged by Bowling that were

available against a holder. If at a trial on the merits Wilmington prevailed

against the defenses, it would be entitled to foreclosure. [17] Furthermore, this result is not altered by the provision in the mortgage

concerning foreclosure. We suspect this argument was advanced due to

Wilmington’s belief that the court had determined it could not foreclose the

mortgage. The provision merely provides that upon an uncured default the

lender may accelerate the balance due and may foreclose the mortgage by

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judicial proceeding. It is an advisement to the mortgagor and is not intended to

expand the right of foreclosure beyond the otherwise applicable judicial

proceedings. [18] The trial court did not err by denying summary judgment on foreclosure of the

mortgage and granting it on the note. [19] Affirmed.

Najam, J., and Riley, J., concur.

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