Wells Fargo Bank, N.A. v. Kenneth Burek , 81 A.3d 330 ( 2013 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2013 ME 87
Docket: Cum-12-489
Argued: September 10, 2013
Decided: October 24, 2013
Panel: LEVY, SILVER, GORMAN, and JABAR, JJ.
WELLS FARGO BANK, N.A.
v.
KENNETH BUREK et al.
LEVY, J.
[¶1] Kenneth and Shelley Burek appeal from a judgment of foreclosure and
sale entered in the Superior Court (Cumberland, Wheeler, J.) in favor of Wells
Fargo Bank, N.A. The Bureks contend that the court erred in finding that Wells
Fargo produced sufficient admissible evidence to merit a judgment of foreclosure
pursuant to 14 M.R.S. § 6321 (2012), and in denying a motion to alter or amend
judgment pursuant to M.R. Civ. P. 59(e). Because we conclude that Wells Fargo
proved that it had the right to enforce the note and mortgage and that the court did
not abuse its discretion in denying the Bureks’ Rule 59(e) motion, we affirm the
judgment.
I. BACKGROUND
[¶2] In July 2010, Wells Fargo filed a complaint for foreclosure against the
Bureks pursuant to 14 M.R.S. § 6321, alleging that the Bureks had defaulted on a
2
promissory note held by Wells Fargo, thereby breaching a condition of a
corresponding mortgage owned by Wells Fargo.1 To establish that it was the
owner of the mortgage and holder of the note, Wells Fargo described and attached
several documents, including an October 2004 promissory note and mortgage from
the Bureks in favor of the original lender, Union Federal Bank of Indianapolis
(UFBI); an October 2005 assignment of the mortgage by UFBI to the Mortgage
Electronic Registration Systems, Inc. (MERS); and a February 2009 assignment of
the mortgage by MERS to Wells Fargo. The Bureks contested Wells Fargo’s
status as the owner of the mortgage and holder of the note, but did not specifically
deny the authenticity of these documents.
[¶3] The Superior Court held a bench trial in April 2012 at which both
parties were represented by counsel. The court admitted in evidence the
promissory note, the mortgage, and a loan modification agreement between the
Bureks and Wells Fargo. It also admitted into evidence several assignments of the
mortgage and allonges to the note.
[¶4] The mortgage and note show that in October 2004, UFBI loaned
Kenneth Burek $324,000 in exchange for Burek’s promise to repay the loan,
1
The complaint also names three parties in interest: KeyBank, N.A., TD Banknorth, N.A., and the
State of Maine, Maine Revenue Services.
3
secured by a mortgage deed to Kenneth and Shelley Burek’s property in Gorham.
UFBI properly recorded the mortgage in the Registry of Deeds.
[¶5] Wells Fargo introduced two assignments of the mortgage into
evidence: (1) an October 2005 assignment by UFBI to MERS, purporting to assign
the mortgage “together with the note(s) and obligations therein described”; and (2)
a February 2009 assignment by MERS to Wells Fargo, purporting to assign the
mortgage “and the Note and claim secured thereby.” Both assignments were
recorded. Further, Wells Fargo introduced a November 2009 loan modification
agreement between the Bureks and Wells Fargo, which amended the original 2004
mortgage as well as “the Note bearing the same date as, and secured by,” the
mortgage. Wells Fargo’s witness testified that the loan modification agreement
reduced the interest rate of the loan and extended the original loan term as part of
what proved to be an unsuccessful effort to assist the Bureks in avoiding
foreclosure.
[¶6] The court also received in evidence an unrecorded October 2004
assignment of the mortgage from UFBI to the Federal National Mortgage
Association (“Fannie Mae”), which predated UFBI’s assignment to MERS. The
assignment was contained in Wells Fargo’s custodial file where the original note
and mortgage and other original documents were also kept. No mention of or
reference to this assignment was made by either party during the trial. The
4
custodial file, consisting of approximately sixty pages, was introduced into
evidence without objection from the Bureks, except for their specific challenge to
the admission of two allonges for not being affixed to the original note. The
Bureks did not bring to the court’s attention the unrecorded assignment from UFBI
to Fannie Mae until after the court had entered its judgment in favor of Wells
Fargo, at which time the Bureks filed a Rule 59(e) motion to alter or amend the
judgment.
[¶7] In addition, Wells Fargo introduced an undated allonge indicating that
Huntington National Bank, as a successor by merger to UFBI, had transferred the
note to Wells Fargo.2 The original allonge was contained in Wells Fargo’s
custodial file along with the original note, but the allonge was not attached by
staple or glue to the note, and the staple holes on it did not match the staple holes
on the note.
[¶8] The Bureks argued before the trial court that Wells Fargo had failed to
prove that it was a holder of the note with the right to enforce it because the
allonge purporting to show indorsement of the note to Wells Fargo was not affixed
to, and therefore was not part of, the assigning document. Wells Fargo countered
2
Wells Fargo also introduced a second allonge showing that Wells Fargo executed a blank
indorsement of the note.
5
that because the allonge and the note were kept in the same custodial file, they
were affixed to one another.
[¶9] The court entered a judgment of foreclosure for Wells Fargo pursuant
to 14 M.R.S. § 6321. The court found that Wells Fargo failed to prove that it was a
holder of the note because the allonge reflecting the indorsement of the note from
Huntington National Bank to Wells Fargo was not “affixed” to the note as required
by 11 M.R.S. § 3-1204(1) (2012).3 Nonetheless, the court concluded that Wells
Fargo was entitled to enforce the note as a nonholder in possession with the rights
of a holder pursuant to 11 M.R.S. § 3-1301 (2012):
Even though [Wells Fargo] has not established that it is a “holder” of
the Note, it has proven that it is entitled to enforce the Note because it
is a “nonholder in possession with rights of a holder.” 11 M.R.S.
§ 3-1301(2). [Wells Fargo] is in possession of the original Note (as
evidenced by the custodial file produced to the court at trial . . .) and
[Wells Fargo] acquired the rights of First Union Bank of Indianapolis,
as holder of the Note, through the assignments of the Mortgage . . . ,
which by their terms also conveyed all rights in the Notes that the
Mortgage secures.
[¶10] Accordingly, the court entered a judgment of foreclosure for Wells
Fargo in the amount of $308,211.21 plus attorney fees and expenses, amounts
advanced by Wells Fargo to protect its mortgage security, and post-judgment
interest.
3
The court also determined that even if the allonge were treated as having been affixed to the note,
Wells Fargo had failed to prove that Huntington National Bank was a successor bank to UFBI, the
original lender.
6
[¶11] After the court issued its judgment in favor of Wells Fargo, the
Bureks filed a motion for findings of fact and conclusions of law pursuant to M.R.
Civ. P. 52(a), which the court denied. The Bureks also filed a motion to alter or
amend the judgment pursuant to M.R. Civ. P. 59(e) and another motion seeking
findings of fact and conclusions of law, contending that the October 2004
assignment to Fannie Mae that was received in evidence as part of the Wells Fargo
custodial file constituted relevant evidence withheld by Wells Fargo. The court
denied the Bureks’ motions, and this appeal followed.
II. DISCUSSION
[¶12] The Bureks contend that the trial court erred in entering a judgment of
foreclosure because (A) the unrecorded assignment from UFBI to Fannie Mae
undermines the court’s findings of a chain of assignments from UFBI to MERS
and MERS to Wells Fargo, and (B) Wells Fargo failed to produce competent
evidence to establish that it was a nonholder in possession with the rights of a
holder pursuant to 14 M.R.S. § 6321 and 11 M.R.S. § 3-1301. We begin with the
Bureks’ contention regarding the unrecorded assignment.
A. The Unrecorded Assignment from UFBI to Fannie Mae
[¶13] The Bureks contend that Wells Fargo knew of the unrecorded
assignment from UFBI to Fannie Mae and purposefully withheld it from evidence,
and that the post-trial discovery of the assignment buried within Wells Fargo’s
7
custodial file undermines the trial court’s findings regarding the chain of
assignments to Wells Fargo. Wells Fargo argues that because the Bureks first
raised this issue in their Rule 59(e) motion after the court had entered its judgment,
the issue is unpreserved for appellate review.
[¶14] We agree with Wells Fargo’s contention that because the Bureks
failed to assert to the trial court prior to the entry of the judgment that the
UFBI-to-Fannie Mae assignment was relevant to the court’s determination of the
case, the court’s failure to treat it as such is unpreserved for appellate review.
What is preserved, however, is whether the court acted within its discretion in
denying the Bureks’ post-judgment Rule 52(a) and Rule 59(e) motions. We review
rulings on Rule 52 and Rule 59 motions for an abuse of discretion. See Desmond
v. Desmond, 2012 ME 77, ¶ 17, 45 A.3d 701 (applying Rule 52); Ten Voters of
Biddeford v. City of Biddeford, 2003 ME 59, ¶ 11, 822 A.2d 1196 (applying Rule
59).
[¶15] The Bureks do not dispute that they made no discovery requests of
Wells Fargo prior to trial, and that at no point during the trial did they introduce
testimony regarding or otherwise address the UFBI assignment of the Burek
mortgage to Fannie Mae. The Bureks further concede that the original unrecorded
assignment was part of Wells Fargo’s custodial file, which was admitted into
evidence. After the bench trial held on April 4, 2012, the Bureks filed a post-trial
8
memorandum on May 7, 2012, without raising the unrecorded assignment as an
issue. After the court entered its judgment on July 18, 2012, the Bureks filed a
motion for findings of fact pursuant to M.R. Civ. P. 52(a) on July 25, 2012, again
with no mention of the unrecorded assignment. The assignment was first raised as
an issue in the Bureks’ motion to alter and amend the judgment pursuant to M.R.
Civ. P. 59(e) filed on July 30, 2012, nearly four months after trial.
[¶16] Accordingly, there is simply no support in the record for the Bureks’
contention that Wells Fargo acted in bad faith by “withholding” the unrecorded
assignment.4 Further, there is no support for the Bureks’ additional contention that
the court was compelled to find that MERS and Wells Fargo had knowledge of the
unrecorded assignment before each recorded their respective assignments.
Because the UFBI-to-Fannie Mae assignment was part of an exhibit—Wells
Fargo’s custodial file—that was received in evidence, the Bureks should have
known of its existence prior to the close of evidence, and thereafter, prior to the
issuance of the court’s judgment. Because Wells Fargo did not withhold evidence
of the unrecorded assignment and the Bureks failed to raise the existence of the
unrecorded assignment as an issue until well after the court issued its judgment, the
4
Indeed, it was Wells Fargo that introduced into evidence its custodial file and, as part of it, the
unrecorded assignment.
9
court acted well within its discretion in denying the Bureks’ request for relief
pursuant to Rule 59(e).
B. Wells Fargo’s Right to Enforce the Promissory Note as a Nonholder in
Possession with the Rights of a Holder
[¶17] The Bureks next assert that the court erred in concluding that Wells
Fargo was a nonholder in possession of the note with the rights of a holder. Wells
Fargo responds that even if this conclusion was in error, the court should have
determined that Wells Fargo was a holder of the note and could enforce it on that
alternate basis. We review a trial court’s factual findings underlying a judgment of
foreclosure for clear error, see KeyBank Nat’l Ass’n v. Sargent, 2000 ME 153,
¶ 35, 758 A.2d 528, and we review questions of law de novo, see Toomey v. Town
of Frye Island, 2008 ME 44, ¶ 8, 943 A.2d 563.
[¶18] A party seeking foreclosure by civil action must be “the mortgagee or
any person claiming under the mortgagee,” and must “certify proof of ownership
of the mortgage note.” 14 M.R.S. § 6321; see also Bank of America, N.A. v.
Cloutier, 2013 ME 17, ¶¶ 11–16, 61 A.3d 1242. In Cloutier, we held that the
statutory phrase “certify proof of ownership of the mortgage note” requires a
foreclosure plaintiff to “identify the owner or economic beneficiary and, if it is not
itself the owner, prove that it has power to enforce the note.” Cloutier, 2013 ME
17, ¶ 21, 61 A.3d 1242. Cloutier continues a line of precedent in which we have
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connected a foreclosure plaintiff’s right to bring a foreclosure action with its right
to enforce the note, in accordance with the Maine Uniform Commercial Code
pursuant to 11 M.R.S. § 3-1301. See Cloutier, 2013 ME 17, ¶ 16, 61 A.3d 1242;
JPMorgan Chase Bank v. Harp, 2011 ME 5, ¶ 9 n.3, 10 A.3d 718; Mortg. Elec.
Registration Sys., Inc. v. Saunders, 2010 ME 79, ¶ 12, 2 A.3d 289.
[¶19] Section 3-1301 expressly grants the right to enforce the note to
nonholders who have possession and the rights of a holder.5 To qualify as a
nonholder, section 3-1203, entitled “Transfer of instrument; rights acquired by
transfer,” requires competent evidence that Wells Fargo is a transferee in
possession of the instrument:
(1) An instrument is transferred when it is delivered by a person other
than its issuer for the purpose of giving to the person receiving
delivery the right to enforce the instrument.
(2) Transfer of an instrument . . . vests in the transferee any right of
the transferor to enforce the instrument, including any right as a
holder in due course . . . .
5
Section 3-1301 states, in pertinent part:
“Person entitled to enforce” an instrument means:
(1) The holder of the instrument;
(2) A nonholder in possession of the instrument who has the rights of a holder;
...
A person may be a person entitled to enforce the instrument even though the person is not
the owner of the instrument . . . .
11 M.R.S. § 3-1301. Both parties agree that the note is a negotiable instrument for the purpose of this
section.
11
11 M.R.S. § 3-1203 (2012); U.C.C. § 3-203 cmt. 2, included with 11 M.R.S.A.
§ 3-1203 (1995) (“Proof of a transfer to the transferee by a holder is proof that the
transferee has acquired the rights of a holder.”).
[¶20] There is no dispute that Wells Fargo has possession of the note, which
it produced into evidence at trial. We therefore consider solely the issue of
whether Wells Fargo established a proper transfer of the note. A proper transfer
requires competent evidence that MERS, as a holder, delivered the note to Wells
Fargo for the purpose of giving Wells Fargo the right to enforce the note. See
11 M.R.S. § 3-1203(1); FDIC v. Houde, 90 F.3d 600, 605 (1st Cir. 1996)
(interpreting Maine law). The Bureks contend that MERS was not a holder
because there was no proof that MERS was itself a transferee of the note.6 We
disagree.
[¶21] The court received competent evidence from which it could deduce
that when UFBI, the original lender and holder of the note, assigned the Bureks’
mortgage to MERS, it also transferred “the note(s) and obligations therein
described.” Similarly, the court received competent evidence from which it could
deduce that when MERS assigned the Bureks’ mortgage to Wells Fargo, it also
6
The Bureks also contend that MERS could not have had an interest in the note because of the earlier
unrecorded assignment of the mortgage and note from UFBI to Fannie Mae. For reasons we have already
discussed, this issue was not preserved for appellate review.
12
transferred “the Note and claim secured thereby.”7 The proof of these transfers
was buttressed by the evidence of the November 2009 loan modification agreement
between the Bureks and Wells Fargo, which was introduced into evidence without
objection. That agreement plainly reflects the Bureks’ and Wells Fargo’s mutual
understanding that, at a point in time after MERS’s transfer of the note to Wells
Fargo, Wells Fargo had the right to enforce the note.
[¶22] The Bureks further assert that our decision should be controlled by the
First Circuit’s holding in FDIC v. Houde, 90 F.3d 600 (1st Cir. 1996). In that case,
the FDIC brought an action to enforce a note that was transferred to a bridge bank
as part of bankruptcy proceedings of the original lender, Maine National Bank, and
then purportedly from the bridge bank to the FDIC. Id. at 602. Although the FDIC
had possession of the note, it could not produce any admissible proof of the
transfer of the note from the bridge bank to it. Id. at 606. Accordingly, the court
in Houde found that “the FDIC was without admissible evidence of its ownership
of the Note” and that it, therefore, had failed to prove its right to enforce the note.
7
MERS’s status in this case is distinct from its status in other cases in which the express terms of the
assignment limited MERS’s role to that of a nominee. See, e.g., Saunders, 2010 ME 79, ¶¶ 9–10, 2 A.3d
289 (holding that because the assignment limited MERS’s role to that of a nominee, it held bare legal title
to the property for the sole purpose of recording the mortgage and was not vested with the rights of the
mortgage). Here, because the terms of the assignment of the mortgage did not make MERS a mere
nominee, and because the assignment expressly transferred the right to enforce the note secured by the
mortgage to MERS, we are not persuaded by the Bureks’ contention that MERS, in this case and as a
business practice, could not enforce or assign the mortgage or transfer the note.
13
Id. In this case, unlike in Houde, there was competent evidence to support the
court’s finding that a transfer from MERS to Wells Fargo had occurred.
[¶23] We are also unpersuaded by the Bureks’ contention that the court
erred in finding delivery of the note, an element of an effective transfer under
section 3-1203, because Wells Fargo did not introduce direct evidence of the
manner in which it obtained physical possession of the note. Delivery may be
established by either or both direct and circumstantial evidence, together with the
reasonable inferences that can be drawn from that evidence. See Field & Murray,
Maine Evidence § 401.1 at 91–92 (6th ed. 2007) (observing that judges “assess the
weight and reasonableness of the inference for which the evidence is offered”
when determining the relevance of evidence). Here, the circumstantial evidence
reasonably permitted the court to infer and therefore find that the note was
delivered and that Wells Fargo was a transferee in possession of the instrument for
purposes of section 3-1203.
[¶24] Thus, competent evidence supported the court’s conclusion that Wells
Fargo certified its proof of ownership of the mortgage note for purposes of
14 M.R.S. § 6321 by demonstrating that it was a nonholder in possession with the
rights of a holder pursuant to 11 M.R.S. § 3-1301. We affirm the judgment on this
basis and do not address whether, as Wells Fargo claims, the court erred in
concluding that Wells Fargo did not qualify as a holder of the note.
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The entry is:
Judgment affirmed.
On the briefs:
Thomas A. Cox, Esq., Portland, and L. Scott Gould, Esq., Cape Elizabeth,
for appellants Kenneth Burek and Shelley M. Burek
Mark A. Darling, Esq., Litchfield Cavo, LLP, Lynnfield, Massachusetts, for
appellee Wells Fargo Bank, N.A.
At oral argument:
Thomas A. Cox, Esq., for appellants Kenneth Burek and Shelley M. Burek
Mark A. Darling, Esq., for appellee Wells Fargo Bank, N.A.
Cumberland County Superior Court docket number RE-2010-513
FOR CLERK REFERENCE ONLY