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Aurora Loan Services, LLC v. Bernice Toledo

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


October 18, 2011

AURORA LOAN SERVICES, LLC, PLAINTIFF-RESPONDENT,
v.
BERNICE TOLEDO, DEFENDANT-APPELLANT, AND MR. TOLEDO, HUSBAND OF BERNICE TOLEDO, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR LEHMAN BROTHERS BANK FSB; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR AURORA LOAN SERVICES LLC, DEFENDANTS.

On appeal from Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. F-10005-09.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted September 26, 2011

Before Judges Alvarez and Skillman.

Defendant appeals from an order entered on August 31, 2010, which granted a summary judgment in this mortgage foreclosure action declaring that defendant's answer "sets forth no genuine issue as to any material fact challenged and that [plaintiff] is entitled to a judgment as a matter of law." There is no indication in the record before us that plaintiff ever secured a final judgment of foreclosure. Therefore, the appeal appears interlocutory. See Wells Fargo Bank, N.A. v. Garner, 416 N.J. Super. 520, 523-24 (App. Div. 2010). However, because defendant did not move to dismiss on that basis and the appeal has been pending for a substantial period of time, we grant leave to appeal as within time and address the merits. See R. 2:4-4(b)(2).

The record before us is rather sparse and disjointed. However, the following facts may be gleaned from that record.

Defendant owns a home in the Borough of Prospect Park. On July 24, 2006, defendant executed two promissory notes payable to Lehman Brothers Bank, the first for $320,000, which was payable on August 1, 2036, and the second for $60,000, which was payable on August 1, 2021. Both notes were secured by mortgages on defendant's home.

On September 1, 2006, plaintiff began servicing the notes on behalf of Lehman.

Sometime in 2008, defendant went into default in the payment of her obligations under the notes.

On January 30, 2009, plaintiff purportedly obtained an assignment of the $320,000 note from Lehman and the mortgage securing that note.*fn1 This assignment was signed by a person named Joann Rein, with the title of Vice-President of Mortgage Electronic Systems, Inc. (MERS). MERS was described in the assignment document as a "nominee for Lehman Brothers Bank." This document is discussed in greater detail later in the opinion.

On February 23, 2009, plaintiff filed this mortgage foreclosure action. The parties subsequently engaged in negotiations to resolve the matter. Those negotiations were unsuccessful and are not relevant to our disposition of this appeal.

Plaintiff filed a motion for summary judgment to strike defendant's answer on the ground there was no contested issue of fact material to plaintiff's right to foreclose upon defendant's property. In support of this motion, plaintiff relied primarily upon an affidavit by Laura McCann, one of its vice-presidents, and exhibits attached to that affidavit, which are discussed later in this opinion. Defendant submitted an answering certification.

After hearing oral argument, the trial court issued a brief written opinion and order granting plaintiff's motion. This appeal followed.

To have standing to foreclose a mortgage, a party generally must "own or control the underlying debt." Wells Fargo Bank, N.A. v. Ford, 418 N.J. Super. 592, 597 (App. Div. 2011) (quoting Bank of N.Y. v. Raftogianis, 418 N.J. Super. 323, 327-28 (Ch. Div. 2010)). If the debt is evidenced by a negotiable instrument, such as the promissory notes executed by defendant, the determination whether a party owns or controls the underlying debt "is governed by Article III of the Uniform Commercial Code (UCC), N.J.S.A. 12:3-101 to -605, in particular N.J.S.A. 12A:3-301." Ibid. Under this section of the UCC, the only parties entitled to enforce a negotiable instrument are "[1] the holder of the instrument, [2] a nonholder in possession of the instrument who has the rights of the 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 subsection d. of [N.J.S.A.] 12A:3-418." N.J.S.A. 12A:3-301 (brackets added).

In this case, it is clear for the same reasons as in Ford, 418 N.J. Super. at 598, that plaintiff is neither a "holder" of the promissory notes executed by defendant nor a "person not in possession" of those notes who is entitled to enforce them pursuant to N.J.S.A. 12A:3-309 or N.J.S.A. 12A:3-418(d). Therefore, as in Ford, plaintiff's right to foreclose upon the mortgages defendant executed to secure those notes depends upon whether plaintiff established that it is "a nonholder in possession of the instrument[s] who has the rights of a holder." N.J.S.A. 12A:3-301; see Ford, supra, 418 N.J. Super. at 498-99.

To establish its right to foreclose upon the mortgage defendant executed to secure her $320,000 note to Lehman, plaintiff relied upon an affidavit by Laura McCann, a vice-president of plaintiff. McCann's affidavit states that she has "custody and control of the business records of [plaintiff] as they relate to [defendant's] loans." Regarding each of the copies of defendant's notes and mortgages attached to her certifications, McCann asserts that it is a "true and correct copy." However, McCann does not state that she personally confirmed that those attachments were copies of originals in plaintiff's files.

McCann's affidavit also has attached a copy of a document that purports to be a "Corporate Assignment of Mortgage" from MERS, as Lehman's nominee, to plaintiff. Again, McCann's affidavit asserts that this document "is a true and correct copy of the instrument assigning the Mortgage and Note to [plaintiff]," but does not state that she personally confirmed that it was a copy of the original.

A certification in support of a motion for summary judgment must be based on "personal knowledge." Ford, supra, 418 N.J. Super. at 599 (quoting R. 1:6-6); see also Deutsche Bank Nat'l Trust Co. v. Mitchell, ___ N.J. Super. ___, ___ (App. Div. 2011) (slip op. at 17-19). Our Supreme Court has recently reaffirmed the need for strict compliance with this requirement in mortgage foreclosure actions by adopting, effective December 20, 2010, a new court rule which specifically states that an affidavit in support of a judgment in a mortgage foreclosure action must be "based on a personal review of business records of the plaintiff or the plaintiff's mortgage loan servicer." R. 4:64-2(c)(2). McCann's affidavit does not state that she conducted such a "personal review of [plaintiff's] business records" relating to defendant's notes and mortgages.

Furthermore, even if plaintiff had presented adequate evidence that the purported assignment of the mortgages and notes attached to McCann's affidavit was a copy of the original in plaintiff's files, this would not have been sufficient to establish the effectiveness of the alleged assignment. This document was signed by a JoAnn Rein, who identifies herself as a vice-president of MERS, as nominee for Lehman Brothers, and was notarized in Nebraska. Plaintiff's submission in support of its motion for summary judgment did not include a certification by Rein or any other representative of MERS regarding her authority to execute the assignment or the circumstances of the assignment. In the absence of such further evidence, we do not view the purported assignment of the mortgages and notes to be a self-authenticating document that can support the summary judgment in plaintiff's favor. N.J.R.E. 901; see 2 McCormick on Evidence § 221 (6th ed. 2006).

There is an additional potential problem with this purported assignment. The assignment was not made by Lehman, as payee of the promissory notes secured by the mortgage, but rather by MERS, "as nominee for Lehman." Although the notes and mortgages appointed MERS as Lehman's nominee, Lehman filed a petition for bankruptcy protection in September 2008, see Andrew Ross Sorkin, Lehman Files for Bankruptcy; Merrill is Sold, N.Y. Times (Sept. 14, 2008), which was before the purported assignment of defendant's mortgage and note on January 30, 2009.

Therefore, we question whether Lehman's designation of MERS as its nominee remained in effect after Lehman filed its bankruptcy petition, absent ratification of that designation by the bankruptcy trustee. On remand, the trial court should address the question whether MERS was still Lehman's nominee as of the date of its purported assignment of defendant's note and mortgage to plaintiff.

Accordingly, we reverse the August 31, 2010 order granting plaintiff's motion for summary judgment and remand to the trial court for further proceedings in conformity with this opinion.


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