Bank of New York Mellon v. Grund , 2015 Ohio 466 ( 2015 )

[Cite as Bank of New York Mellon v. Grund, 2015-Ohio-466.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
LAKE COUNTY, OHIO
THE BANK OF NEW YORK MELLON, : OPINION
SUCCESSOR IN INTEREST TO
JPMORGAN CHASE BANK, AS :
TRUSTEE FOR THE REGISTERED CASE NO. 2014-L-025
HOLDERS OF NOVASTAR MORTGAGE :
FUNDING TRUST, SERIES 2004-3
NOVASTAR HOME EQUITY LOAN :
ASSET-BACKED CERTIFICATES,
SERIES 2004-3, :
Plaintiff-Appellee, :
- vs - :
LOUIS F. GRUND, JR., et al., :
Defendant-Appellant. :
Civil Appeal from the Lake County Court of Common Pleas, Case No. 12 CF 001669.
Judgment: Affirmed.
James S. Wertheim and Kimberly Y. Smith Rivera, McGlinchey Stafford, PLLC, 25550
Chagrin Boulevard, Suite 406, Cleveland, OH 44122-4640 (For Plaintiff-Appellee).
Dennis M. Callahan, 7665 Mentor Avenue, PMB #203, Mentor, OH 44060 (For
Defendant-Appellant).
CYNTHIA WESTCOTT RICE, J.
{¶1} Appellant, Louis F. Grund, Jr., appeals the judgment of the Lake County
Court of Common Pleas granting appellee, The Bank of New York Mellon, Successor in
Interest to JP Morgan Chase Bank, As Trustee For the Registered Holders of Novastar
Mortgage Funding Trust, Series 2004-3 Novastar Home Equity Loan Asset-Backed
Certificates Series 2004-3 (“The Bank of New York”)’s motion for summary judgment on
its complaint for foreclosure against appellant. At issue is whether The Bank of New
York had standing when it filed this action. For the reasons that follow, we affirm.
{¶2} In August 2004, appellant obtained a mortgage loan from Novastar
Mortgage, Inc. to purchase a home in Willoughby, Ohio. On August 11, 2004, appellant
signed a note in favor of Novastar in the amount of $104,000. On that same date, in
order to secure the note, appellant signed a mortgage in favor of Mortgage Electronic
Registration Systems, Inc. (“MERS”), acting as nominee or agent of Novastar.
{¶3} Subsequently, Novastar endorsed the note in favor of JP Morgan Chase
Bank, while Novastar retained possession of the note.
{¶4} Appellant failed to make any of the monthly payments due on the note and
mortgage on and after October 1, 2011. On December 16, 2011, appellant was notified
of his default and the acceleration of the amount owed under the note.
{¶5} Thereafter, on March 21, 2012, Novastar executed an “allonge,” i.e., a
separate endorsement instrument, transferring the note to The Bank of New York. The
allonge was ineffective as a negotiation since Novastar, the original lender, had already
endorsed the note to JP Morgan Chase Bank. Thus, any subsequent endorsement
would have to be made by JP Morgan Chase Bank.
{¶6} With respect to the mortgage, on May 14, 2012, MERS, the original
mortgagee, assigned the mortgage to The Bank of New York. The assignment
contained an error in The Bank of New York’s name, incorrectly indicating that The
Bank of New York was the “successor in interest to” JP Morgan Chase Bank, when, in
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fact, it was the “successor trustee of” JP Morgan Chase Bank. The mortgage was duly
recorded on May 30, 2012.
{¶7} On June 19, 2012, The Bank of New York filed a complaint in foreclosure
against appellant, alleging that he was in default on the note and mortgage in the
amount of $95,000; that all conditions precedent were met; and that the balance due
was accelerated. A copy of the note in favor of Novastar was attached to the complaint
containing the endorsement to JP Morgan Chase Bank along with the March 21, 2012
allonge transferring the note to The Bank of New York. A copy of the mortgage in favor
of MERS was also attached to the complaint along with a copy of the May 14, 2012
assignment of the mortgage from MERS to The Bank of New York.
{¶8} Appellant filed an answer, admitting he signed the note and mortgage.
The answer included an affirmative defense alleging that The Bank of New York lacked
standing.
{¶9} Subsequently, JP Morgan Chase Bank transferred the note via a revised
allonge to the Bank of New York. While the revised allonge was undated, it was signed
on or about July 18, 2013. This revised allonge was necessary because the original
allonge purported to transfer the note directly from Novastar to The Bank of New York.
Since the note had already been endorsed by Novastar to JP Morgan Chase Bank, the
transfer to The Bank of New York had to be made by JP Morgan Chase Bank, not
Novastar, in order to complete the note’s chain of title.
{¶10} On July 18, 2013, The Bank of New York filed a notice of filing the revised
allonge.
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{¶11} Thereafter, on August 26, 2013, MERS executed a Corrective Assignment
of Mortgage to correct the error in The Bank of New York’s name that appeared in the
May 14, 2012 assignment of the mortgage. The Corrective Assignment did not change
the identity of the assignee; rather, it merely corrected its name to indicate that The
Bank of New York was the “successor trustee,” not the “successor in interest” to JP
Morgan Chase Bank.
{¶12} On October 7, 2013, The Bank of New York filed a “motion to substitute
the plaintiff.” The motion did not, however, seek to substitute a party (as provided for in
Civ.R. 25), but, rather, sought to correct The Bank of New York’s name as it appeared
on the assignment of mortgage.
{¶13} The Bank of New York subsequently filed a motion for summary judgment.
In support of its motion, The Bank of New York attached the affidavit of Stephen Lee,
who stated he was employed by The Bank of New York’s servicing agent. He
authenticated the records pertaining to appellant’s mortgage loan, which were attached
to his affidavit. He stated that the last payment appellant made on his mortgage loan
was two years ago in October, 2011; that appellant was in default by failing to pay his
monthly payments when due; that The Bank of New York had accelerated all amounts
owed under the loan in compliance with the terms of the note and mortgage; and that
appellant owes $95,000 plus interest. Appellant filed a brief in opposition, but did not
file any countervailing affidavits or other Civ.R. 56 evidentiary materials in support. The
trial court entered judgment on February 3, 2014, granting The Bank of New York’s
motion for summary judgment; entering judgment in favor of The Bank of New York in
the amount of $95,000; and issuing a decree in foreclosure.
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{¶14} Appellant appeals the court’s judgment, asserting two assignments of
error. Because they are related, they are considered together. They allege:
{¶15} “[1.] The trial court committed prejudicial error in granting Plaintiff-Appellee
The Bank of New York Mellon’s motion for summary judgment where lack of standing
and a fraudulent allonge to the promissory note had been raised as affirmative
defenses, and more than a year after the complaint was filed, plaintiff-appellee
introduced a new undated allonge by way of simply filing a ‘notice.’
{¶16} “[2.] The trial court committed prejudicial error in granting Plaintiff-Appellee
Bank of New York Mellon’s motion for summary judgment where lack of standing and a
faulty assignment of mortgage had been raised as affirmative defenses, and more than
a year after the complaint was filed, plaintiff-appellee introduced a new assignment of
mortgage by way of a misleading motion to substitute a new party plaintiff.”
{¶17} Summary judgment is a procedural device intended to terminate litigation
and to avoid trial when there is nothing to try. Murphy v. Reynoldsburg, 65 Ohio St. 3d
356, 358 (1992). Summary judgment is proper when: (1) there is no genuine issue of
material fact; (2) the moving party is entitled to judgment as a matter of law; and (3)
reasonable minds can come to but one conclusion, and that conclusion is adverse to
the nonmoving party, that party being entitled to have the evidence construed most
strongly in his favor. Civ.R. 56(C); Leibreich v. A.J. Refrigeration, Inc., 67 Ohio St. 3d
266, 268 (1993).
{¶18} The party seeking summary judgment on the ground that the nonmoving
party cannot prove his claim bears the initial burden of informing the trial court of the
basis for the motion and of identifying those portions of the record that demonstrate the
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absence of a genuine issue of material fact on the essential elements of the nonmoving
party’s claim. Dresher v. Burt, 75 Ohio St. 3d 280, 292 (1996).
{¶19} The moving party must point to some evidence of the type listed in Civ.R.
56(C) that affirmatively demonstrates that the nonmoving party has no evidence to
support his claim. Dresher, supra, at 293.
{¶20} If this initial burden is not met, the motion for summary judgment must be
denied. Id. However, if the moving party meets his initial burden, the nonmoving party
must then produce competent evidence showing there is a genuine issue for trial.
Civ.R. 56(E). When a motion for summary judgment is made and supported as
provided in Civ.R. 56, the adverse party may not rest upon the mere allegations or
denials of his pleadings. The adverse party’s response must set forth specific facts by
affidavit or as otherwise provided by Civ.R. 56, showing that there is a genuine issue for
trial. Id. If the adverse party does not so respond, summary judgment, if appropriate,
shall be entered against him. Id.
{¶21} Since a trial court’s decision ruling on a motion for summary judgment
involves only questions of law, we conduct a de novo review of the judgment. DiSanto
v. Safeco Ins. of Am., 168 Ohio App. 3d 649, 2006-Ohio-4940, ¶41 (11th Dist.).
{¶22} In Ohio, courts of common pleas have jurisdiction over justiciable matters.
Ohio Constitution, Article IV, Section 4(B). “Standing to sue is part of the common
understanding of what it takes to make a justiciable case.” Steel Co. v. Citizens for a
Better Environment, 523 U.S. 83, 102 (1998). Standing involves a determination of
whether a party has alleged a personal stake in the outcome of the controversy to
ensure the dispute will be presented in an adversarial context. Mortgage Elec.
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Registration Sys., Inc. v. Petry, 11th Dist. Portage No. 2008-P-0016, 2008-Ohio-5323,
¶18.
{¶23} In a mortgage foreclosure action, the mortgage lender must establish an
interest in the promissory note or the mortgage in order to have standing to invoke the
jurisdiction of the common pleas court. Fed. Home Loan Mortg. Corp. v. Schwartzwald,
134 Ohio St. 3d 13, 2012-Ohio-5017, ¶28. Further, because standing is required to
invoke the trial court’s jurisdiction, standing is determined as of the filing of the
complaint. Id. at ¶24. This court has repeatedly followed these holdings in
Schwartzwald. Fed. Home Loan Mortg. Corp. v. Rufo, 11th Dist. Ashtabula No. 2012-A-
0011, 2012-Ohio-5930, ¶18 (overruled in part on other grounds in CitiMortgage, Inc. v.
Oates, 11th Dist. Trumbull No. 2013-T-0011, 2013-Ohio-5077, ¶19); JPMorgan Chase
Bank, N.A. v. Blank, 11th Dist. Ashtabula No. 2013-A-0060, 2014-Ohio-4135, ¶17; Bank
of N.Y. Mellon v. Veccia, 11th Dist. Trumbull No. 2013-T-0101, 2014-Ohio-2711, ¶10.
Accord CitiMortgage, Inc. v. Patterson, 8th Dist. Cuyahoga No. 98360, 2012-Ohio-5894,
¶21. “The requirement of an ‘interest’ can be met by showing an assignment of either
the note or mortgage.” Fed. Home Loan Mtge. Corp. v. Koch, 11th Dist. Geauga No.
2012-G-3084, 2013-Ohio-4423, ¶24.
{¶24} The Supreme Court of Ohio recently clarified its holding in Schwartzwald
in Bank of America, N.A. v. Kuchta, __Ohio St.3d __, 2014-Ohio-4275. In Kuchta, the
Court held that, while standing is a jurisdictional requirement in that a party’s lack of
standing will prevent him from invoking the court’s jurisdiction over his action, a party’s
ability to invoke the court’s jurisdiction involves the court’s jurisdiction over a particular
case, not subject-matter jurisdiction. Id. at ¶22.
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{¶25} Whether standing exists is a matter of law that we review de novo. Bank
of Am., NA v. Barber, 11th Dist. Lake No. 2013-L-014, 2013-Ohio-4103, ¶19.
{¶26} Appellant argues the trial court erred in relying on the revised allonge to
transfer the note to The Bank of New York because, as he alleged in his answer, the
allonge was “unlawfully fabricated” and endorsed by one who lacked authority to sign it.
As a result, he argues The Bank of New York did not hold the note when the complaint
was filed and thus did not have standing. However, a party cannot rest on the
allegations of his pleadings in summary judgment proceedings. Civ.R. 56(E). Because
appellant failed to present any affidavits or other Civ.R. 56(C) evidentiary materials in
support of these allegations in his answer, the allegations are insufficient to avoid
summary judgment.
{¶27} However, The Bank of New York concedes that the original allonge, dated
March 21, 2012, attached to the note purporting to transfer it from Novastar, the original
lender, to The Bank of New York was ineffective as a negotiation because the note itself
shows an endorsement by Novastar to JP Morgan Chase Bank. Thus, any subsequent
negotiation of the note was required to be made by JP Morgan Chase Bank, not
Novastar. Such a transfer was made via a revised allonge, pursuant to which JP
Morgan Chase Bank transferred the note to The Bank of New York. However, as
appellant correctly argues, this revised allonge is not dated. The only evidence of its
date is that it was filed in the trial court on July 18, 2013, one year after the complaint
was filed. This court has stated that every assignment in the chain of title of a
promissory note must be proved. Premier Capital, LLC v. Baker, 11th Dist. Portage No.
2011-P-0041, 2012-Ohio-2834, ¶39. Because there is no evidence the revised allonge
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was executed before the complaint was filed, The Bank of New York could not rely on it
to give it standing as a holder of the note.
{¶28} The Bank of New York’s Standing as a Non-Holder in Possession of
the Note
{¶29} However, this is not the end of the analysis. R.C. 1303.31 provides in
pertinent part:
{¶30} (A) “Person entitled to enforce” an instrument means any of the
following persons:
{¶31} (1) The holder of the instrument; [or]
{¶32} (2) A non holder in possession of the instrument who has the rights
of a holder * * *.
{¶33} Further, R.C. 1303.22(A) provides: “An instrument is transferred when it is
delivered by a person other than its [maker] for the purpose of giving to the person
receiving delivery the right to enforce the instrument.” Moreover, “[t]ransfer of an
instrument, whether or not the transfer is a negotiation, vests in the transferee any right
of the transferor to enforce the instrument * * *.” R.C. 1303.22(B).
{¶34} A “holder” is “[t]he person in possession of a negotiable instrument that is
payable either to bearer or to an identified person that is the person in possession.”
R.C. 1301.201(B)(21).
{¶35} The Second District in LaSalle Bank Natl. Assn. v. Brown, 2d Dist.
Montgomery No. 25822, 2014-Ohio-3261, stated, “a person need not be a ‘holder’ of the
instrument in order to be entitled to enforce it. Instead, a person can be a non-holder in
possession of the instrument who has the rights of a holder. This status can be
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bestowed in various ways.” Id. at ¶36. By way of explanation, the Second District in
Brown quoted In re Veal, 450 B.R. 897 (Bankr.9th Dist.Ariz. 2011), as follows:
{¶36} [A] person becomes a nonholder in possession if the physical
delivery of the note to that person constitutes a “transfer” but not a
“negotiation.” * * * Under the UCC, a “transfer” of a negotiable
instrument “vests in the transferee any right of the transferor to
enforce the instrument.” UCC § 3-203(b). As a result, if a holder
transfers the note to another person by a process not involving an
Article 3 negotiation * * * that other person (the transferee) obtains
from the holder the right to enforce the note even if no negotiation
takes place and, thus, the transferee does not become an Article 3
“holder.” Brown, supra at ¶36, quoting Veal at 911.
{¶37} To further explain the point, the Second District in Brown quoted Fifth
Third Mtge. Co. v. Bell, 12th Dist. Madison No. CA2013-02-003, 2013-Ohio-3678, as
follows:
{¶38} An instrument is transferred when it is delivered by a person, other
than the [maker], for the purpose of giving the person receiving the
delivery the right to enforce. R.C. 1303.22(A). If the transferee is
not a holder because the transferor did not endorse, the transferee
is nevertheless a person entitled to enforce the instrument if the
transferor was a holder at the time of transfer. R.C. 1303.22(B);
R.C. 1303.22 cmt. 2.
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{¶39} [Fifth Third’s] allegations that it was in possession of a note and
entitled to enforce it, combined with the copy of the unendorsed
note, at the very minimum, demonstrated that [Fifth
Third] was entitled to enforce as a nonholder in possession. See
R.C. 1303.22(B) * * *. The note attached to the complaint was
payable to State Savings Bank. Therefore, State Savings Bank
was the initial holder because the note was payable to it as an
identified person. R.C. 1303.25(A). The fact that [Fifth Third] was
in possession of the unendorsed note along with language used in
the mortgage and the assignment of the mortgage showed a chain
of custody and indicated that State Savings Bank or some other
person transferred the note to [Fifth Third] with the intent that [Fifth
Third] be entitled to enforce the note. Bell [the defendant
mortgagor] never challenged [Fifth Third’s] possession of this
unendorsed note. Based on these facts, [Fifth Third] had an
interest in the note as a non-holder in possession. Brown at ¶37,
quoting Bell at ¶20-22.
{¶40} Here, Mr. Lee stated in his affidavit that at the time of the filing of the
complaint and continuously since, The Bank of New York has been in possession of the
original promissory note. Moreover, appellant never challenged The Bank of New
York’s possession of the note. Further, the note was endorsed by Novastar to The Bank
of New York on March 21, 2012, when Novastar was still the holder of the note. The
March 21, 2012 allonge (which was incorporated into the note) states that the allonge
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transfers the note from “the present Owner and Holder of the Note, NOVASTAR
MORTGAGE, INC. (‘Transferor’) as of [March 21, 2012]. As a result of said transfer,
NOVASTAR MORTGAGE, INC. has no further interest in the Note.” The problem with
the purported negotiation from Novastar to The Bank of New York is that the note was
previously endorsed by Novastar to JP Morgan Chase Bank. Thus, the March 21, 2012
endorsement from Novastar to The Bank of New York by allonge was ineffective as a
negotiation. However, Novastar’s transfer of the note to The Bank of New York via the
March 21, 2012 allonge coupled with Novastar’s delivery of the note to The Bank of
New York evidenced Novastar’s intent to give The Bank of New York the right to
enforce it. As a result, pursuant to R.C. 1303.22(B), The Bank of New York was a non-
holder in possession with the right to enforce the note as of March 21, 2012, and thus
had standing when it filed the complaint two months later.
{¶41} The Bank of New York’s Standing as the Mortgage Holder
{¶42} In any event, even if the note was not transferred to The Bank of New
York when the complaint was filed, The Bank of New York had standing because the
mortgage was assigned to it on May 14, 2012, one month before the complaint was
filed. Appellant argues the mortgage did not confer standing on The Bank of New York
because the revised assignment correcting The Bank of New York’s name was
executed after the complaint was filed. However, appellant cites no case law holding
that a party cannot correct its name on a mortgage assignment. In fact, Ohio case law
supports the opposition conclusion. In Wells Fargo Bank NA v. Arlington, 5th Dist.
Delaware No. 13CAE030016, 2013-Ohio-4659, the name of the assignor was corrected
after the complaint was filed. The Fifth District stated:
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{¶43} On March 20, 2007, MERS assigned the Mortgage to Wells Fargo.
The original Assignment of Mortgage stated, “Mortgage Electronic
Registration Systems, Inc. * * * does hereby sell, assign, transfer
and set over unto Wells Fargo Bank, N.A. * * * a certain mortgage
from Dean E. Arlington * * *.” * * * [Wells Fargo filed its complaint in
foreclosure on January 11, 2008.] On July 20, 2010, Wells Fargo
executed a corrective Assignment of Mortgage * * *. The correction
changed the name of the assignor to: “Mortgage Electronic
Registration Systems, Inc., as nominee for Taylor, Bean &
Whitaker Mortgage Corp., its successors and assigns.”
***
{¶44} A reading of the Mortgage and the Assignment of Mortgage shows
that MERS, as nominee for TBW, assigned the Mortgage to Wells
Fargo prior to the filing of the complaint in foreclosure. (Emphasis
added.) Id. at ¶32, ¶34.
{¶45} It is worth noting that appellant concedes in his brief, “There wasn’t a new
plaintiff. The original plaintiff and the substitute plaintiff were the same, The Bank of
New York Mellon.” Although the Bank of New York inartfully referred to its motion to
correct its name as a “motion to substitute the plaintiff,” appellant concedes the motion
did not substitute another party for the original plaintiff, but simply corrected The Bank of
New York’s name.
{¶46} Applying the Fifth District’s rationale in Arlington, supra, to the facts of this
case, the mortgage, the May 14, 2012 mortgage assignment, and the August 26, 2013
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corrected assignment, when read together, show that MERS assigned the mortgage to
The Bank of New York under its corrected name, effective May 14, 2012. Because The
Bank of New York held the mortgage one month before the filing of the complaint, it had
standing to file this action.
{¶47} The Bank of New York’s Standing Based on The Assignment of the
Mortgage To The Bank
{¶48} Further, MERS’ assignment of the mortgage to The Bank of New York on
May 14, 2012, was sufficient to transfer both the mortgage and the note. Bank of New
York v. Dobbs, 5th Dist. Knox No. 2009-CA-000002, 2009-Ohio-4742, ¶28. In Dobbs,
the Fifth District stated:
{¶49} The Restatement [III, Property (Mortgages)] asserts as its
essential premise * * * that it is nearly always sensible to keep the
mortgage and the [note] it secures in the hands of the same party.
This is because in a practical sense separating the mortgage from
the [note] destroys the efficacy of the mortgage, and the note
becomes unsecured. The Restatement concedes on rare
occasions a mortgagee will disassociate the [note] from the
mortgage, but courts should reach this result only upon evidence
that the parties to the transfer agreed. Far more commonly, the
intent is to keep the rights combined * * *. Thus, the Restatement
[provides] that transfer of the [note] also transfers the mortgage
and vice versa. Section 5.4(b) [provides] “Except as otherwise
required by the Uniform Commercial Code, a transfer of a
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mortgage also transfers the [note] the mortgage secures unless
the parties to the transfer agree otherwise.” Thus, [the note]
follows the mortgage if the record indicates the parties so
intended. (Emphasis added.) Dobbs, supra, at ¶28. (Emphasis
added.)
{¶50} The Fifth District in Dobbs held that the assignment of a mortgage, without
an express transfer of the note, is sufficient to transfer both the mortgage and the note,
if the record indicates that the parties intended to transfer both. Id. at ¶31.
{¶51} Here, the mortgage provides that it secures to the Lender, Novastar, the
performance of appellant’s agreements under the promissory note. Further, the note
provides that the mortgage, dated the same date as the note, protects the holder of the
note from loss that might result if appellant does not keep the promises made in the
note.
{¶52} In addressing the provisions in the note and mortgage at issue in Dobbs,
supra, which are virtually identical to those at issue here, the Fifth District held:
"Because the note refers to the mortgage and the mortgage, in turn, refers to the note,
we find a clear intent by the parties to keep the note and mortgage together, rather than
transferring the mortgage alone." Id. at ¶36.
{¶53} We therefore hold that the instant note and mortgage evidenced the
parties’ intent to keep the instruments together. Thus, the assignment of the mortgage
to The Bank of New York on May 14, 2012, even without an express transfer of the
note, was sufficient to transfer both the mortgage and the note. Thus, The Bank of New
15
York had an interest in the note and mortgage before filing the complaint. It therefore
had standing, pursuant to Schwartzwald, supra, to file this foreclosure action.
{¶54} Based on the foregoing analysis, the trial court did not err in granting
summary judgment in favor of The Bank of New York.
{¶55} For the reasons stated in this opinion, the assignments of error lack merit.
It is the order and judgment of this court that the judgment of the Lake County Court of
Common Pleas is affirmed.
COLLEEN MARY O’TOOLE, concurs in judgment only,
DIANE V. GRENDELL, J., concurs with a Concurring Opinion.
_______________________
DIANE V. GRENDELL, J., concurs with a Concurring Opinion.
{¶56} I concur in the majority’s decision, affirming the judgment of the trial court,
and its holding that the Bank of New York Mellon had standing in this matter. I write
separately to expand upon and clarify one important issue regarding how the Bank
acquired standing.
{¶57} In this case, the majority concludes that, although the March 21, 2012
allonge which purported to transfer Novastar’s interest in the note to the Bank of New
York was ineffective as a negotiation, the transfer of the note via the allonge coupled
with its delivery evidenced Novastar’s intent to give the Bank of New York the right to
enforce the note. While I agree with the proposition that a non-holder, who has not
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obtained holder status due to an ineffective negotiation, may be permitted to enforce the
note, certain conditions must be met for a party to become entitled to enforce.
{¶58} Importantly, the transfer of the note under such circumstances must be
from a holder, as is outlined by the majority. Supra at ¶ 36-38; R.C. 1303.22. Thus,
Novastar was required to be a holder at the time it transferred possession of the note to
the Bank of New York. This is a logical application of the law, since holding otherwise
would allow a party to transfer a note in which it does not hold an interest.
{¶59} With this in mind, it is important to thoroughly consider whether Novastar
was the holder at the time of the transfer to the Bank of New York. As to this critical
issue, the majority states only that Novastar was the holder of the note on March 21,
2012, at the time of the allonge, relying solely on Novastar’s statement in the allonge
that it “transfers the note from ‘the present Owner and Holder of the Note, NOVASTAR
MORTGAGE, INC.’” Supra at ¶ 40. The fact that Novastar claimed to be the holder in
the allonge is, alone, insufficient to establish that it actually was the holder.
{¶60} This is especially true given the facts of this case, where Novastar
endorsed the note to another party, JP Morgan, previously and then still claimed to be
the holder at the time it endorsed the note to the Bank of New York. The holder is “[t]he
person in possession of a negotiable instrument that is payable either to bearer or to an
identified person that is the person in possession.” R.C. 1301.201(B)(21)(a). Here, the
note was neither payable to bearer, since it had been endorsed to JP Morgan, nor was
it payable to the party in possession, Novastar.
{¶61} However, it is still appropriate to find that Novastar could grant the rights
of a holder to the Bank of New York. Novastar claimed at the summary judgment stage
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to always have been the holder of the note, with JP Morgan having been a trustee.
Grund admitted in his motion for summary judgment that Novastar never transferred
possession of the mortgage to JP Morgan and that he was unaware of where the note is
located. He does not claim that it was in the possession of JP Morgan. If the note was
not given to JP Morgan, the note would not have been properly negotiated and
Novastar would presumably remain the holder, in the absence of any evidence that it
was acting as JP Morgan’s agent. See R.C. 1303.21(A); U.S. Bank Natl. Assn. v. Gray,
10th Dist. Franklin No. 12AP-953, 2013-Ohio-3340, ¶ 25, citing UCC Official Comment,
Section 3-201, Comment 1 (1990) (“[n]egotiation always requires a change in
possession of the instrument because nobody can be a holder without possessing the
instrument, either directly or through an agent”) (emphasis omitted).
{¶62} With the foregoing clarification, I concur in the majority’s judgment.
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