February 22, 2013
Kentucky Court of Appeals Holds that Bank Lacked Standing Because it did Not Obtain an Interest in the Note Until after Commencing the Foreclosure Action
In Morgan v. HSBC Bank USA, NA, 2011 WL 3207776 (Court of Appeals of KY, 2011), the Court of Appeals of Kentucky reversed the trial court’s judgment as a matter of law that HSBC Bank USA, NA (“HSBC”) had standing to enforce a note against Morgan (“Borrower”) in a foreclosure action, and remanded for further proceedings.
In August 2005, Borrower executed a note to Ownit Mortgage Solutions, Inc. (“Ownit”), and granted a mortgage to MERS as nominee for Ownit. In early 2008, Borrower defaulted under the note.
On July 31, 2008, HSBC commenced foreclosure proceedings against Borrower. HSBC claimed to be holder of the note, but stated a copy was unavailable at the time it filed the complaint. Borrower moved to dismiss arguing, inter alia, there was no proof HSBC had standing because it failed to attach a copy of the note to its complaint. In its response, HSBC attached a copy of the note between Ownit and Borrower. HSBC was not a party to the note.
On August 11, 2008, an assignment of mortgage from Ownit to HSBC dated August 4, 2008 was recorded.
On December 3, 2008, HSBC moved for summary judgment, and attached a copy of the note to its motion. The note included an undated note allonge purportedly assigning it to HSBC.
The trial court denied Borrower’s motion to dismiss and granted HSBC’s motion for summary judgment holding the endorsement in the note allonge was sufficient proof that HSBC was the holder of the note.
The Court of Appeals reversed, describing the foregoing sequence of events a “troubling.” Specifically, the court was uneasy about the fact HSBC did not attach a copy of the note it its complaint, and then later the undated note allonge purportedly assigning the note to HSBC appeared in the record. Further complicating the issue was the fact HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action. As a result, the Court of Appeals held the trial court erred because (1) the record was insufficient to determine when HSBC obtained an interest in the note, and (2) HSBC did not obtain an interest in the mortgage until after it commenced the foreclosure action against Borrower.
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