Editor: David Reiss
Brooklyn Law School

February 11, 2013

Eighth Circuit Court of Appeals Holds that Bank, as Holder of legal Title, could Commence Foreclosure-by-Advertisement

By Robert Huberman

In Stein v. Chase Home Fin., LLC, 662 F.3d 976 (8th Cir. 2011), The United States Court of Appeals, Eighth Circuit, held that the holder of legal title to a mortgage did not need to possess the corresponding promissory note before instituting non-judicial foreclosure by advertisement.

In October 2006, Stein (mortgagor) refinanced his home. In exchange for a $484,000 loan, Stein signed a promissory note and granted Chase Bank a mortgage on his home to secure payment of the note. The terms of the note and mortgage made both instruments freely assignable or otherwise transferable without giving prior notice to Stein. In January 2007, Stein obtained a loan from National City Bank in the amount of $100,000, signed a promissory note, and granted National a second mortgage on his home to secure payment of the loan. Both mortgages were recorded in Hennepin County.

Stein defaulted on Chase’s mortgage by failing to make a loan payment. Chase notified him that a foreclosure proceeding would commence. On September 28, 2008, Chase Bank assigned the Mortgage to Chase Home Finance. Subsequently, Chase Home Financial commenced foreclosure and bought the property. Stein had six months to redeem the property by paying Chase the amount it paid at the sheriff’s sale plus interest. After Stein failed to exercise his right of redemption, National exercised its statutory right of redemption as a junior lienholder and purchased Stein’s home from Chase.

Stein then brought this law suit in state court challenging the validity of both the foreclosure of his home by Chase Home Financial, LLC, and the redemption of his home by a junior lienholder, National City Bank. The case was removed to District Court where Chase’s motion for summary judgment was granted. Stein appealed alleging that: Minnesota law required Chase to hold both the mortgage and the promissory note at the time of foreclosure, genuine issues of material fact remained as to whether Chase held the note, and National’s redemption was invalid because the foreclosure was invalid.

First, the court cited Jackson v. Mortgage Electronic Registration Systems, Inc., 770 N.W.2d 487 (Minn.2009) for the proposition that a party can hold legal title to the mortgage without holding an interest in the promissory note. The court stated that a mortgagee of record does not lose legal title when the mortgagee transfers interest in the promissory note. In other words, the right to enforce the mortgage through foreclosure by advertisement lies with the legal, rather than equitable, holder of the mortgage. Here, Chase Bank was the mortgagee of record and held legal title to Stein’s mortgage. Chase Bank then assigned the mortgage to Chase Home Financial. Thus, Chase Home Financial was the party entitled to commence a foreclosure by advertisement, even if the promissory note had been transferred to someone else.

Second, the court held that the District Court properly granted Chase Home Financial’s motion for summary judgment, because Stein failed to raise genuine issues of material fact showing Chase Home Financial was not the holder of the note at the time of foreclosure. The record indicated that Chase Bank transferred the mortgage and the promissory note to Chase Home Financial on September 28, 2009—before they commenced foreclosure by advertisement. Additionally, Stein did not present any evidence in District Court that contradicted the clear language of the September 2008 “Assignment of Mortgage” from Chase Bank to Chase Home Financial.

Finally the court rejected Stein’s arguments regarding the validity of National’s redemption. Because Stein’s challenge directly tied to his claim that Chase Home Financial’s foreclosure was invalid—and considering that the court concluded that the foreclosure was valid—Stein’s arguments failed.

| Permalink