Stein v. Chase Home Fin. LLC _8th Cir., 2011_ Show-Me-The-Note-Stuff

7/29/2019 Stein v. Chase Home Fin. LLC _8th Cir., 2011_ Show-Me-The-Note-Stuff

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Stein v. Chase Home Fin. LLC (8th Cir., 2011)

Kenath Richard Stein, Appellant,v.

Chase Home Finance, LLC; National City Bank, Appellees.

No. 11-1292

United States Court of Appeals FOR THE EIGHTH CIRCUIT

Submitted: October 20, 2011Filed: December 1, 2011

Summaries:Source: Justia

Plaintiff sued in state court challenging the validity of both the foreclosure of his home byChase and the redemption of his home by a junior lienholder, National. The district court

subsequently granted Chase's and National's respective motions for summary judgment.Plaintiff contended that Minnesota law required Chase to hold both the mortgage and thepromissory note at the time of the foreclosure, and genuine issues of material fact remainedas to whether Chase held the note. Plaintiff also contended that National's redemption wasinvalid because the foreclosure itself was invalid. The court held that Chase was the partyentitled to commence a foreclosure by advertisement under Minnesota law, even if thepromissory note had been transferred to someone else. Assuming arguendo Minnesota lawrequired Chase to possess the note, the district court correctly granted Chase's motion forsummary judgment in any event because plaintiff did not raise any genuine issues of materialfact showing Chase was not the holder of the note at the time of the foreclosure. The court

declined to address plaintiff's argument regarding redemption because plaintiff neverchallenged it in the district court.

Appeal from the United StatesDistrict Court for theDistrict of Minnesota.

Before BYE, SMITH, and COLLOTON, Circuit Judges.

BYE, Circuit Judge.

Kenath Stein brought this lawsuit in state court challenging the validity of both theforeclosure of his home by Chase Home Finance, LLC (Chase), and the redemption of hishome by a junior lienholder, National City Bank (National). After Chase and National jointlyremoved the case to federal court, the district court1

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granted their respective motions for summary judgment concluding the foreclosure andredemption were both valid. Stein appeals contending Minnesota law required Chase to hold


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both the mortgage and the promissory note at the time of the foreclosure, and genuine issuesof material fact remain as to whether Chase held the note. Stein further contends National'sredemption was invalid because the foreclosure itself was invalid. We affirm.

I

In October 2006, Stein refinanced his home in Orono, Minnesota, with Chase Bank USA,

N.A. (Chase Bank). In exchange for a loan of $484,000, Stein signed a promissory note andgranted Chase Bank a mortgage on his home to secure payment of the note. The mortgagewas dated October 18, 2006, and was duly recorded in the Hennepin County Recorder'sOffice on November 15, 2006. Under the terms of the note and mortgage, Stein was obligatedto make monthly payments until the note was paid in full. Failure to make a payment wouldresult in a default, in which case Chase Bank could accelerate the debt and foreclose themortgage. The terms of the note and mortgage also provided both instruments were freelyassignable or otherwise transferable without prior notice to Stein.

In January 2007, Stein obtained a loan from National in the amount of $100,000, signinga promissory note and granting National a second mortgage on his home to secure paymentof the loan. The second mortgage, like the first mortgage, was duly recorded in the HennepinCounty Recorder's Office on February 15, 2007.

Stein defaulted on Chase Bank's mortgage by failing to make a loan payment due onMarch 1, 2008. Although Stein subsequently paid some amounts due on his loan, he did notcure the default entirely. By August 28, 2008, Stein had missed several loan payments andowed nearly $30,000 under Chase Bank's mortgage and

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note. On September 17, 2008, Chase Bank notified Stein by letter his loan was in default andforeclosure proceedings would be commenced.

On September 28, 2008, pursuant to its contractual right to transfer the note andmortgage, Chase Bank executed an "Assignment of Mortgage" in favor of Chase HomeFinance (Chase). The assignment indicates Chase Bank "hereby sell, assigns and transfersto Chase . . . the Assignor's interest in the Mortgage dated 10/18/2006 executed by KenathRichard Stein . . . together with all right and interest in the note[.]" Chase's App. at 61. Thisassignment was duly recorded in the Hennepin County Recorder's Office on October 3, 2008.

After receiving the assignment, Chase commenced a foreclosure by advertisement

pursuant to Chapter 580 of the Minnesota Statutes. After publishing the required notices offoreclosure, a sheriff's sale was held on January 21, 2009. Chase was the highest bidder atthe sheriff's sale, purchasing Stein's home for $524,558.22. Following the sale, Chaseobtained a sheriff's certificate of sale, which under Minnesota law serves as prima facieevidence of the validity of the foreclosure. See Minn. Stat. 580.19 ("Every sheriff's certificateof sale . . . shall be prima facie evidence that all the requirements of law . . . have beencomplied with, and prima facie evidence of title in fee thereunder in the purchaser at suchsale, the purchaser's heirs or assigns, after the time for redemption therefrom has expired.").


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Stein had six months to redeem the property by paying Chase the amount it paid at thesheriff's sale plus interest. See Minn. Stat. 580.23 subd.1. Stein did not exercise hisstatutory right of redemption within the six-month period. On July 22, 2009, after six monthshad passed, National exercised its statutory right of redemption as a junior lienholder, seeMinn. Stat. 580.24, and purchased Stein's home for the amount Chase paid at the sheriff'ssale plus the required fees and interest.

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Acting pro se, Stein filed a complaint against Chase and National in Hennepin CountyDistrict Court challenging the validity of the foreclosure. Chase and National jointly removedthe action to federal court and filed motions for summary judgment. Still representing himselfpro se, Stein opposed the motions. Both matters were referred to a magistrate judge for areport and recommendation.

The magistrate judge characterized Stein's pro se claim against Chase as what hasbeen colloquially termed a "show me the note" claim, in which foreclosures are challengedwhen the original paperwork evidencing a note and mortgage has been lost due to thewidespread practice of reselling and bundling mortgages. A "show me the note" plaintifftypically alleges a foreclosure is invalid unless the foreclosing entity produces the originalnote. The magistrate judge found there was no evidence of forgery, irregularity, or bad faith inStein's case.2Instead, the magistrate judge recommended granting Chase's motion forsummary judgment after finding Chase became the holder in due course of both the note andthe mortgage pursuant to a valid assignment from Chase Bank. The magistrate judge furtherdetermined the sheriff's certificate of sale was prima facie evidence of the validity of theforeclosure of Stein's home, and Stein failed to rebut the presumption of validity.

Similarly, the magistrate judge recommended granting National's motion for summary

judgment. Stein alleged National violated the Minnesota Uniform Commercial Code when it"foreclosed" on his mortgage. The magistrate judge rejected this claim because National didnot participate in the foreclosure but merely redeemed its interest in the property after Steinfailed to redeem within the six-month statutory redemption period. The magistrate judgedetermined Stein failed to produce any evidence to indicate National did not comply with thestatutory requirements for redemption under Minn. Stat. 580.24.

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The district court adopted both recommendations, entered orders granting the motionsfor summary judgment, and dismissed Stein's claims with prejudice. Stein, now representedby counsel, filed timely appeals.

IIWe review the district court's grant of summary judgment de novo. Macheca Transp. v.

Phila. Indem. Ins. Co., 649 F.3d 661, 667 (8th Cir. 2011).

On appeal, Stein raises both an issue of law and an issue of fact to challenge the validityof Chase's foreclosure. Stein first contends Minnesota law requires a mortgagee to possessboth the note and the mortgage in order to foreclose by advertisement under Chapter 580 of


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the Minnesota Statutes. In addition, Stein contends he has raised genuine issues of materialfact as to whether Chase actually possessed the note at the time it instituted foreclosureproceedings.

AWe first address Stein's contention Minnesota law requires the holder of legal title to a

mortgage to possess the corresponding promissory note before it can institute non-judicial

foreclosure by advertisement. To answer this question, we look no further than the MinnesotaSupreme Court's decision in Jackson v. Mortgage Electronic Registration Systems, Inc., 770N.W.2d 487 (Minn. 2009). In Jackson, the Minnesota Supreme Court answered a questioncertified to it by a federal district court pursuant to Minn. Stat. 480.065 subd.3.Paraphrasing, the certified question was whether the transfer of a promissory note, without anaccompanying transfer of the mortgage, must be recorded before a foreclosure byadvertisement could be commenced under Chapter 580 of the Minnesota Statutes. 770N.W.2d at 489. To resolve that question, the court engaged in a lengthy discussion andanalysis of Minnesota real property law which focused in large part on whether the legal and

Page 6equitable interests in a mortgage could be separated. Id. at 497-501. The court then reachedseveral conclusions which were essential to its final holding that an assignment of a noteneed not be recorded. Id. at 501.

As relevant to the issue we must resolve, i.e., whether the legal title holder of a mortgagemust also possess the corresponding promissory note to commence a foreclosure byadvertisement, the Minnesota Supreme Court clearly stated "a party can hold legal title to the[mortgage] without holding an interest in the promissory note." Id. at 500. Before reaching thatconclusion, the court analyzed Minnesota cases which "held that a mortgagee of record doesnot lose legal title when the mortgagee transfers interests in the promissory note," id. at 498

(discussing Morrison v. Mendenhall, 18 Minn. 232 (1872)), and which "allowed the mortgageeof record to foreclose by advertisement" despite a partial assignment of the note because the"assignment does not affect either legal or record title [in themortgage]." Id. (discussing Bottineau v. Aetna Life Ins. Co., 16 N.W. 849 (Minn. 1883)).

In other words, the right to enforce a mortgage through foreclosure by advertisement lieswith the legal, rather than equitable, holder of the mortgage. The assignment of thepromissory note to another "operates as an equitable assignment of the underlying[mortgage]," id. at 497, but the right to enforce the mortgage remains with the legal holder ofthe mortgage. "[A]ny disputes that arise between the mortgagee holding legal title and theassignee of the promissory note holding equitable title do not affect the status of the

mortgagor for purposes of foreclosure by advertisement." Id. at 501.

It is undisputed Chase was the mortgagee of record and held legal title to Stein'smortgage. Chase Bank assigned the mortgage to Chase on September 28, 2008. Theassignment was duly recorded in the Hennepin County Recorder's Office. Thus, Chase wasthe party entitled to commence a foreclosure by advertisement under

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Minnesota law, even if the promissory note (and the corresponding equitable interest in themortgage) had been transferred to someone else.

B

Assuming arguendo Minnesota law required Chase to possess the note, the district courtcorrectly granted Chase's motion for summary judgment in any event because Stein did not

raise any genuine issues of material fact showing Chase was not the holder of the note at thetime of the foreclosure. As recited above, the record indicates Chase Bank transferred boththe mortgage and the promissory note to Chase on September 28, 2008, before Chasecommenced its foreclosure by advertisement. The "Assignment of Mortgage" clearly statesChase Bank "hereby sells, assigns and transfers to Chase . . . the Assignor's interest in theMortgage dated 10/18/2006 executed by Kenath Richard Stein . . . together with all right andinterest in the note[.]" Chase App. at 61 (emphasis added). The record further reflects Chaseproduced the original note during discovery, signed in blue ink by Stein, and allowed him toexamine it.

In support of his claim that Chase did not possess the note in September 2008 before itcommenced foreclosure proceedings, Stein contends Chase Bank had already transferredthe promissory note to JP Morgan Chase Bank on December 1, 2006. The record clearlydispels this claim. The document upon which Stein relies is a "Notice of Assignment, Sale orTransfer of Servicing Rights." Appellant's App. at 74. As the document's title suggests, theonly interest in the Stein transaction transferred to JP Morgan was the right to service themortgage. Nothing in the document suggests the promissory note itself was ever transferredto JP Morgan. Thus, Stein did not present any evidence in the district court to contradict theclear language of the September 2008 "Assignment of Mortgage" from Chase Bank to Chase.In addition, Stein did not present any evidence in the district court to

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overcome the presumption of validity created by the sheriff's certificate of sale pursuant toMinn. Stat. 580.19.

We conclude the district court did not err in granting Chase's motion for summaryjudgment. Minnesota law did not require Chase to possess Stein's promissory note at thetime it commenced foreclosure by advertisement, and even if Minnesota law imposed such arequirement the undisputed facts establish Chase possessed the note.

C

Finally, we address Stein's challenge to National's redemption of the property as a juniorlienholder. In large part, Stein's challenges to National's redemption are directly tied to hisclaim that Chase's foreclosure was invalid. Because we conclude Chase's foreclosure wasvalid, Stein's arguments regarding the validity of National's redemption necessarily fail.

Stein's one untethered argument focuses on National's merger with PNC Bank. Nationalmerged with PNC Bank in November 2009, after the redemption of Stein's home on July 22,2009. Stein contends National may not have owned the second mortgage and note at the


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time of its redemption, however, because he alleges PNC Bank acquired National through anasset sale in December 2008. Thus, even though the merger was not complete until after theredemption, Stein claims National's assets, including Stein's mortgage and note, may havealready been transferred to PNC Bank at the time of the redemption.

We decline to address this argument because Stein never challenged National'sredemption in the district court on the grounds that the asset transfer between PNC and

National occurred prior to the July 2009 redemption. This is an argument he developed for thefirst time on appeal. As a result, National did not have a chance to

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develop a factual record on this issue in the district court, and the record on appeal does "notcontain the findings necessary to an evaluation of the validity of [Stein's]arguments." Campbell v. Davol, Inc., 620 F.3d 887, 892 (8th Cir. 2010) (quotation marks andcitation omitted).

III

We affirm the district court's judgment.

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Notes:

1. The Honorable Michael J. Davis, Chief Judge, United States District Court for the District ofMinnesota, adopting the reports and recommendations of the Honorable Jeanne J. Graham, UnitedStates Magistrate Judge for the District of Minnesota.

2.During discovery, Chase produced the original promissory note, signed by Stein in blue ink, and

allowed him to examine it.


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KENATH RICHARD STEIN, Plaintiff,v.

CHASE HOME FINANCE, LLC, and NATIONAL CITY BANK Defendants.

Civil File No. 09-1995 (MJD/JJG)

UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

Dated: January 7, 2011

ORDERKenath Richard Stein, pro se.Ben I. Rust, Peterson, Fram & Bergman, Counsel for Defendant National City Bank.

The above-entitled matter also comes before the Court upon the Report and Recommendation of United StatesMagistrate Judge Jeanne J. Graham dated November 22, 2010. [Docket No. 220] Stein filed objections to the Report andRecommendation.

Pursuant to statute, the Court has conducted a de novo review upon the record. 28 U.S.C. 636(b)(1); Local Rule72.2(b). Based upon that review, the

Court ADOPTS the Report and Recommendation of United States Magistrate Judge Jeanne J. Graham datedNovember 22, 2010.

Accordingly, based upon the files, records, and proceedings herein, IT IS HEREBY ORDERED:1. The Court ADOPTS Magistrate Judge Jeanne J. Graham's Report and Recommendation dated November 22, 2010[Docket No. 220].2. Defendant National City Bank's Motion for Summary Judgment [Docket No. 166] is GRANTED, and all claims againstDefendant National City Bank are DISMISSED WITH PREJUDICE.3. Defendant's letter request to strike Plaintiff's supplemental filings [Docket No. 229] is DENIED.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: January 7, 2011

Michael J. DavisChief JudgeUnited States District Court


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KENATH RICHARD STEIN, Plaintiff,v.

CHASE HOME FINANCE, LLC,and NATIONAL CITY BANK Defendants.

Civil File No. 09-1995 (MJD/JJG)

UNITED STATES DISTRICT COURTDISTRICT OF MINNESOTA

Dated: November 16, 2010

ORDER

Kenath Richard Stein, pro se.

Aleava Rael Sayre, Calvin P. Hoffman, and Marc D. Simpson, Leonard Street and Deinard, PA, Counsel forDefendant Chase Home Finance, LLC.

Ben I. Rust, Peterson, Fram & Bergman, Counsel for Defendant National City Bank.

I. Appeals of Orders

This matter comes before the Court on Plaintiff Kenath Richard Stein's appeals of United States Magistrate JudgeJeanne J. Graham's August 13, 2010 Order [Docket No. 164] and September 10, 2010 Order [Docket No. 184]. ThisCourt will reverse a magistrate judge's order on a nondispositive issue if it is

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clearly erroneous or contrary to law. 28 U.S.C. 636(b)(1)(A); D. Minn. L.R. 72.2(a).

A. August 13, 2010 Order

In the August 13, 2010 Order, Magistrate Judge Graham ruled on multiple motions by Stein. Stein appeals theportions of the Order denying Stein's motion to compel discovery, motion to continue, and motion to strike Defendants'defenses. The Court has reviewed the submissions and the record in this case and concludes that Magistrate JudgeJeanne J. Graham's August 13, 2010 Order [Docket No. 164] is neither clearly erroneous nor contrary to law. Therefore,the August 13 Order is affirmed.

In Stein's appeals of the August 13 Order, he also requests certain relief, premised on his assertion that the Order iserroneous. The Court affirms the August 13 Order and denies Stein's additional requests for relief contained within hisappeals.

B. September 10, 2010 Order

In the September 10, 2010 Order, Magistrate Judge Graham reiterated that Stein could not file a proposed Second

Amended Complaint without leave of Court and explained that no hearing would be granted on the proposed Second

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Amended Complaint because the deadline had passed, Stein had failed to move to extend the deadline to amend,and Stein had failed to file a motion to amend his Amended Complaint. After reviewing the submissions and the record inthis case, the Court concludes that Magistrate Judge Jeanne J. Graham's September 10, 2010 Order [Docket No. 184] isneither clearly erroneous nor contrary to law. Therefore, the September 10 Order is affirmed.

In Stein's appeals of the September 10 Order, he also requests certain relief, premised on his assertion that theOrder is erroneous. The Court affirms the September 10 Order and denies Stein's additional requests for relief contained


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within his appeals. Because the Court affirms the September 10 Order, it also denies Stein's letter request to suspendproceedings until he can be heard regarding his proposed Second Amended Complaint [Docket No. 205].

II. August 13, 2010 Report and Recommendation

The above-entitled matter also comes before the Court upon the Report and Recommendation of United StatesMagistrate Judge Jeanne J. Graham dated August 13, 2010. [Docket No. 165] Stein filed objections to the Report andRecommendation.

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Pursuant to statute, the Court has conducted a de novo review upon the record. 28 U.S.C. 636(b)(1); Local Rule72.2(b). Based upon that review, the Court ADOPTS the Report and Recommendation of United States Magistrate JudgeJeanne J. Graham dated August 13, 2010.

Accordingly, based upon the files, records, and proceedings herein, IT IS HEREBY ORDERED:1. Magistrate Judge Jeanne J. Graham's August 13, 2010 Order [Docket No. 164] is AFFIRMED.2. The Court ADOPTS the Report and Recommendation dated August 13, 2010 [Docket No. 165].3. Defendant Chase Home Finance, LLC's Motion for Summary Judgment [Docket No. 84] is GRANTED, and all claimsagainst Defendant Chase Home Finance, LLC are DISMISSED WITH PREJUDICE.4. Plaintiff's Motion for Summary Judgment [Docket No. 108] is DENIED.5. Plaintiff's Appeal of Order (Doc. #164) Dated August 13, 2010 [Docket No. 170] is DENIED.6. Plaintiff's Appeal of Order (Doc. #164) Dated August 13, 2010 [Docket No. 174] is DENIED.

7. Magistrate Judge Jeanne J. Graham's September 10, 2010 Order [Docket No. 184] is AFFIRMED.

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8. Plaintiff's Appeal of Order Dated September 10, 2010 [Docket No. 187] is DENIED.9. Plaintiff's Appeal of Order Dated September 10, 2010 [Docket No. 192] is DENIED.10. Plaintiff's letter request to suspend proceedings until he can be heard regarding his proposed Second AmendedComplaint [Docket No. 205] is DENIED.

Dated: November 15, 2020

Michael J. Davis

Chief Judge

United States District Court

Stein v. Chase Home Fin. LLC _8th Cir., 2011_ Show-Me-The-Note-Stuff

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