HSBC United States, N.A. v. Dennis

PER CURIAM

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R.1:36-3. Before Judges Carroll and Gooden Brown. On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. F-47492-09. Keiva Dennis, appellant pro se. Sandelands Eyet LLP, attorney for respondent (Robert D. Bailey, of counsel and on the brief). PER CURIAM

In this residential foreclosure matter, defendant Keiva Dennis appeals from an April 28, 2015 final judgment of foreclosure. We affirm.

I.

We discern the following facts and procedural history from the record on appeal. On January 14, 2005, defendant executed an adjustable rate note in the amount of $135,200 to Lehman Brothers Bank, F.S.B. (Lehman Brothers) payable over thirty years with an initial interest rate of 5.750% per annum. To secure payment of the note, on the same date, defendant executed a purchase money mortgage on property located at 249 Summer Avenue, Newark, New Jersey (the property), in favor of Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for Lehman Brothers. The mortgage was recorded on January 27, 2005 in the Essex County Register's Office. On August 19, 2009, the mortgage was assigned from MERS to Aurora Loan Services, LLC (Aurora), and recorded in the Essex County Register's Office on October 16, 2009.

Under the terms of the note, the interest rate was subject to change every six months but would never be greater than 11.750%.

On or about August 20, 2009, Aurora obtained and maintained possession of the original note. The note contained an agreement that if any installment payment should remain unpaid for thirty days, the whole principal sum, with all unpaid interest, fees, costs and advances, would become immediately due and payable. Defendant failed to make the installment payment due on January 1, 2009, and all payments due thereafter. As a result of defendant's default, on September 2, 2009, Aurora filed a complaint for foreclosure. On November 30, 2009, defendant filed an answer contesting Aurora's right to foreclose and asserting twelve affirmative defenses and six counterclaims.

Defendant's husband and Wells Fargo Bank, N.A., were named as defendants in the foreclosure complaint but neither party participated in the appeal. Defendant executed a mortgage on the property to Wells Fargo in the amount of $7 2,800, which mortgage was recorded on January 27, 2005. Defendant's husband did not execute the note or mortgage that is the subject of this appeal. --------

On June 23, 2010, Aurora moved for summary judgment, which included a request to strike defendant's answer, affirmative defenses, and counterclaims and to enter default judgment against defendant. Defendant opposed Aurora's motion arguing that the assignment of the mortgage was fraudulent and disputing Aurora's ownership interest in the note or mortgage. After reviewing the supporting certifications of Christopher Zimmerman, Assistant Vice President of Aurora Loan Services, LLC, and hearing oral argument, by order dated September 2, 2010, the court granted summary judgment in favor of Aurora, struck defendant's answer and counterclaims, entered default against defendant and directed that the matter be referred to the Office of Foreclosure as an uncontested matter. R. 4:64-1(d).

The court found:

[T]he following facts are undisputed. [Defendant] received a loan of $135,200 and executed a note in favor of [Lehman Brothers] on January 14, 2005, payable February 1, 2035.
On that same date she executed a mortgage in favor of plaintiffs['], [assignor] [MERS] as nominee for Lehman Brothers.
The mortgage was recorded on January 27, 2005. [Defendant] defaulted on the payment due January 1, 2009 and all payments thereafter.
[Aurora] has been the servicer of the loan from its inception. According to the amended affidavit of Christopher S. Zimmerman, Assistant Vice President of Aurora Loan Services, LLC, Aurora originally serviced the loan pursuant to a February 15, 2000 flow servicing agreement.
Supporting that statement is a "first payment notice" dated January 14, 2005 that directs [defendant] to make all payments to Aurora Loan Servicing, Inc.
The mortgage was assigned by MERS . . . to Aurora on August 19, 2009.
Aurora filed the foreclosure complaint on September 2, 2009. The assignment of the mortgage was signed by Nancy L. Walker, an Aurora employee, who on October 22, 1998 was appointed as a Vice President of MERS, pursuant to a corporate resolution.
The resolution contains the names of some 38 people who were also appointed at the same
time for that purpose, among others, of allowing them to assign mortgages.
The note was endorsed from Lehman Brothers Bank, FSB to Lehman Brothers Holdings, Inc. Lehman Brothers [Holdings], Inc. then endorsed the note in blank.
Christopher Zimmerman certifies that Aurora obtained possession of the original note on or about August 20, 2009.
Prior to filing the foreclosure complaint the note had been securitized and placed in a trust for that purpose. Aurora obtained the note from the trust document custodian.
As part of the securitization process a March 1, 2005 servicing agreement between Lehman Brothers and Aurora designated Aurora as the master servicer. Aurora was also designated as the master servicer in the trust agreement dated March 1, 2005.
Among the powers given to the master servicer by the trust agreement is the power, in pertinent part, "to effectuate foreclosure of the mortgaged property, securing any mortgage loan."

In rejecting defendant's challenge to Aurora's standing to bring the foreclosure action, the court reasoned:

Defendant contends without basis that [Aurora] has presented fraudulent documents[, h]as not produced the original note, and has not proven it is bearer paper.
[D]efendant will not defeat a motion for summary judgment merely by attempting to discredit the credibility of the movant's evidence.
The defendant must produce some affirmative evidence. In this case defendant has failed to do so.
Defendant explicitly acknowledges she borrowed $135,200 and signed the note and mortgage to [Lehman Brothers].
While defendant's papers are carefully worded to state she "denies that any amount of payments are due to the plaintiff" she has not disputed the default.
Notwithstanding defendant's arguments, this [c]ourt concludes plaintiff does have standing and is entitled to summary judgment.
[Aurora] has established it is the holder of the note, and that it is endorsed in blank. Therefore, [Aurora] has a right to enforce it, [N. J.S.A. 12A:3-301].
. . . .
[A]s the holder of the note entitled to enforce it, Aurora is a "real party in interest," because it has a sufficient stake in the matter and real adversariness.
. . . .
Defendant also challenges Aurora's status as an assignee of the mortgage, claiming MERS had no authority to assign it, and furthermore the assignment was from Aurora to itself, because the person who signed the document worked for Aurora.
The [c]ourt finds neither argument persuasive. That is because Aurora, as the holder of the note, did not need to have the mortgage in order to be able to foreclose.
. . . .
"[E]ven if the debt alone is assigned and not the mortgage[,] the assignee can foreclose because the security passes with the secured obligation." [citation omitted].
. . . .
"Since the secured obligation is the [principal] thing, and the mortgage securing it is only [']an incident which follows and attends the [principal],['] an assignment of the secured note operates as an equitable assignment, or assignment of the mortgage in equity." [citation omitted].
"In fact, equity will compel an assignment to the holder of the secured obligation which may be accomplished in the foreclosure action itself." [citation omitted].
. . . .
Thus, as the holder of the note Aurora had standing to foreclose even without the mortgage.
. . . .
I don't see, however, a real problem with an assignment of the mortgage by MERS. MERS is not only named as a nominee for Lehman Brothers, but is also named and designated as the mortgagee.
This is a system, and for whatever benefits have been achieved by changes to make it a better system, or make it a system that is not so confusing to homeowners and borrowers, it's still a system that for the purposes its intended makes sense.
And it is intended, as I understand it, to expedite the ability of the lenders to assign mortgages . . . .
And part of the process would necessarily include having individuals designated as officers of MERS to be able to actually sign documents that ultimately need to be signed to cause the assignment to take effect officially.
. . . .
I'm satisfied that there is no genuine issue of material fact with regard to the note, the endorsements on the note. Aurora being an appropriate party as servicer and as holder of the note prior to filing the complaint.

On September 19, 2013, Aurora assigned the note and mortgage to HSBC Bank USA, N.A. (HSBC), as trustee for the holders of the SARM 2005-07 Trust, and moved to substitute HSBC as plaintiff on October 24, 2013. In January 2014, defendant moved to vacate default judgment in lieu of objecting to the substitution. Defendant contended that (1) the notice of intention to foreclose did not meet the statutory requirements; (2) Aurora lacks the status as a holder in due course or a non-holder in possession and therefore has no standing to foreclose; (3) the assignment of the mortgage from MERS to Aurora and the subsequent assignment to HSBC was "fraudulently fabricated and forged" by individuals who are known "robo-signer[s]"; and (4) since the assignments are void, neither Aurora nor HSBC has a legal interest in this foreclosure action.

After noting that defendant's motion was "procedurally deficient because [d]efendant did not actually default, but rather . . . filed an [a]nswer with [c]ounterclaims which was subsequently stricken on the merits," the court treated defendant's motion as a motion for reconsideration and denied it on April 23, 2014. In a written decision, the court determined that "[d]efendant has not submitted any new evidence, pointed to evidence that the [c]ourt overlooked, or established that the [c]ourt's decision was irrational or palpably incorrect." Regarding defendant's claim that Aurora lacked standing, the court reiterated its prior ruling that "pursuant to the holding set forth in [Deutsche Bank Trust Co. Americas v. Angeles, 428 N.J. Super. 315, 318 (App. Div. 2012)] (holding that either possession of the note or an assignment of the mortgage predating the original complaint conferred standing)[,]" standing was properly conferred upon Aurora because Aurora "obtained possession of the original note . . . prior to the filing of the foreclosure complaint[.]"

The court also rejected defendant's argument that Aurora's "Notice of Intent to Foreclose ("NOI") failed to comply with the [Fair Foreclosure Act]" and determined that the NOI was compliant with N.J.S.A. 2A:50-56(c) in that the NOI "names the [p]laintiff entity, the holder of the note prior to filing of the complaint, and provides its address and contact information for a representative of the [l]ender and therefore is valid under [US Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 474-75 (2012)]." On December 5, 2014, the court allowed the substitution of HSBC as the party plaintiff and again denied defendant's request to vacate the orders previously entered on September 2, 2010 and April 23, 2014. On April 28, 2015, a final judgment of foreclosure was entered in favor of HSBC in the amount of $190,176.42 plus interest and counsel fees. This appeal followed.

On appeal, defendant raises the following arguments for our consideration:

I. THE TRIAL COURT LACKED SUBJECT MATTER JURISDICTION OVER THE INSTANT MATTER.
II. THE TRIAL COURT COMMITTED [REVERSIBLE] ERROR WHEN IT GRANTED AURORA A SUMMARY JUDGMENT WHERE AURORA FAILED TO PROVE ITS STANDING TO SUE.

A. AS AN AGENT ACTING FOR AN UNDISCLOSED PRINCIPAL, AURORA WAS REQUIRED TO PRESENT SOME EVIDENCE THAT THE PRINCIPAL ACQUIESCED TO ITS ACTIONS.
B. BECAUSE THE PROMISSORY NOTE IS NOT NEGOTIABLE, MERE POSSESSION ALONE DID NOT CONFER ONTO IT STANDING TO SUE.

i. THE PROMISORRY NOTE CONTAINS INSTRUCTIONS AND UNDERTAKINGS OTHER THAN THE PAYMENT OF MONEY.

ii. INTEGRATING THE TERMS OF THE MORTGAGE INTO ENFORCEMENT OF THE PROMISSORY NOTE DESTROYS ANY NEGOTIABILITY THE NOTE MIGHT HAVE.

C. ASSUMING, ARGUENDO, THAT THE PROMISSORY NOTE IS NEGOTIABLE, AURORA WAS NOT THE HOLDER BECAUSE THE NOTE WAS CONSTRUCTIVELY DELIVERED TO ITS UNDISCLOSED PRINCIPAL.
D. PLAINTIFF'S ALLEGED OWNERSHIP INTEREST IN THE NOTE, SUPPORTED ONLY BY AN ASSIGNMENT OF MORTGAGE, FAILS TO MEET THE REQUIREMENTS OF THE UNIFORM COMMERCIAL CODE AND DOES NOT GIVE RISE TO A CLAIM OF RELIEF AGAINST THE MAKER OF THE NOTE.

III. THE COURT MISAPPLIED THE HOLDER IN DUE COURSE DOCTRINE AND, HAVING FAILED TO SHOW THAT IT WAS THE HOLDER OF THE NOTE, PLAINTIFF ALSO FAILED TO SHOW THAT IT WAS A HOLDER IN DUE COURSE.

II.

We apply the same standard as the trial court when reviewing the disposition of a motion for summary judgment. W.J.A. v. D.A., 210 N.J. 229, 237 (2012). Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). Without making credibility determinations, the court considers the evidence "in the light most favorable to the non-moving party" and determines whether it would be "sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

Once the moving party satisfies its burden, the burden then shifts to the non-moving party to present evidence that there is a genuine issue for trial. Ibid. In satisfying its burden, the non-moving party may not rest upon mere allegations or denials in its pleading, but must produce sufficient evidence to reasonably support a verdict in its favor. R. 4:46-5(a); Triffin v. Am. Int'l Grp., Inc., 372 N.J. Super. 517, 523 (App. Div. 2004). The non-moving party's mere identification of a disputed fact of an insubstantial nature will not defeat a motion for summary judgment. Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 75 (1954). "If there is no genuine issue of material fact," we must then "decide whether the trial court correctly interpreted the law." DepoLink Court Reporting & Litig. Support Servs. v. Rochman, 430 N.J. Super. 325, 333 (App. Div. 2013) (citation omitted). It is against these principles that we evaluate defendant's substantive arguments.

On appeal, defendant reiterates the same arguments rejected by the trial court in granting summary judgment. Specifically, defendant asserts that HSBC and its predecessor, Aurora, lacked standing to foreclose because it was never in possession of the original note and the assignment of the mortgage was fraudulent. Like the trial court, we are unpersuaded by defendant's contentions.

To succeed on a motion for summary judgment in a foreclosure proceeding, the mortgagee must establish a prima facie case of the right to foreclose. Thorpe v. Floremoore Corp., 20 N.J. Super. 34, 37 (App. Div. 1952). In order to demonstrate this, the mortgagee must present proof of "execution, recording, and non-payment" of the note and mortgage. Ibid.

Generally, to initiate a foreclosure proceeding, the party "must own or control the underlying debt." Wells Fargo Bank, N.A. v. Ford, 418 N.J Super. 592, 597 (App. Div. 2011) (citation omitted). In foreclosure actions, standing is conferred by "either possession of the note or an assignment of the mortgage that predate[s] the original complaint . . . ." Angeles, supra, 428 N.J. Super. at 318 (citing Deutsche Bank Nat'l Trust Co. Americas v. Mitchell, 422 N.J. Super. 214, 216 (App. Div. 2011)).

Under New Jersey law, Article III of the Uniform Commercial Code (UCC), N.J.S.A. 12A:3-101 to -605, governs the transfer of negotiable instruments, including those secured by mortgages. N.J.S.A. 12A:3-104. There are three categories of persons entitled to enforce negotiable instruments: (1) "the holder of the instrument," (2) "a nonholder in possession of the instrument who has the rights of a holder," or (3) "a person not in possession of the instrument who is entitled to enforce the instrument pursuant to [N.J.S.A. 12A:3-309] or [N.J.S.A. 12A:3-418]." N.J.S.A. 12A:3-301. See Mitchell, supra, 422 N.J. Super. at 222-23. Under category one, the statute provides "that for a person other than the one to whom a negotiable instrument is made payable to become a 'holder,' there must be a 'negotiation[.]'" Mitchell, supra, 422 N.J. Super. at 223 (quoting Ford, supra, 418 N.J. Super. at 598.

Negotiation is a transfer of possession "of an instrument by a person other than the issuer to a person who thereby becomes its holder." N.J.S.A. 12A:3-201(a). "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." N.J.S.A. 12A:3-203(a). "[T]here can be constructive delivery or possession, through the delivery of the instrument to an agent of the owner" and "the actual delivery of the note to [the trust's] custodian, would presumably constitute constructive delivery to the . . . Trustee." Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 331, 339 (Ch. Div. 2010).

Here, Aurora established a prima facie case for foreclosure. Aurora clearly demonstrated its standing to foreclose on the property based on the assignment of the mortgage from MERS to Aurora on August 19, 2009, and Aurora's possession of the original note as of August 20, 2009, both predating the September 2, 2009 filing of the foreclosure complaint. Aurora then assigned the mortgage to HSBC on September 13, 2013. Upon that assignment and underlying transfer of possession, HSBC became "the holder of the instrument."

We have considered defendant's remaining contentions in light of the record and applicable legal principles and conclude they are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.

CLERK OF THE APPELLATE DIVISION