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Bank of New York Mellon v. Rogers

Court of Appeals of Illinois, Second District

September 27, 2016

THE BANK OF NEW YORK MELLON, f/k/a The Bank of New York, as Trustee for RBSGC Mortgage Loan Trust Mortgage Pass-Through Certificates, Series 205-RPI, Plaintiff-Appellee,

         Appeal from the Circuit Court of De Kalb County, No. 11-CH-448; the Hon. Bradley J. Waller, Judge, presiding.


          Randy K. Johnson, of Law Office of Randy K. Johnson, of West Dundee, and Amanda T. Adams, of Law Office of Amanda T. Adams, of DeKalb, for appellants

          Mayer Brown LLP, of Chicago (Charles M. Woodworth, Michelle V. Dohra, and Lucia Nale, of counsel), for appellee.

          Panel JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices Burke and Hudson concurred in the judgment and opinion.



         ¶ 1 Defendants David and Pamela Meixner (the Borrowers) appeal from the trial court's grant of a summary judgment, a judgment of foreclosure, and a confirmation of sale in favor of plaintiff, the Bank of New York Mellon (BNY Mellon). On appeal, the Borrowers argue that the trial court erred (1) when, during the hearing on BNY Mellon's motion for summary judgment, the court admitted an affidavit and business records that lacked proper foundation and authentication under Illinois law and (2) when it determined that BNY Mellon had standing to institute this lawsuit because it was a holder in due course of the original note and because the loan modification agreement (Modification Agreement) was not a negotiable instrument and thus did not have to be indorsed or otherwise negotiated. For the following reasons, we affirm.

         ¶ 2 I. BACKGROUND

         ¶ 3 The record reflects that in 2003 the Borrowers, along with Steven Scott Rogers and Dana M. Rogers, [1] obtained from Old Second Mortgage Company (Old Second) a mortgage for $164, 714, secured by their property. Mortgage Electronic Registration Systems, Incorporated (MERS), was the original mortgagee and nominee of Old Second. After originating the loan, Old Second specially indorsed the note to Washington Mutual. Washington Mutual later converted the note into bearer paper by attaching an allonge with a blank indorsement. The language of the allonge indicated that it was "attached to and made a part of that certain Note or Bond, or Lost Note Affidavit in lieu of that certain Note or Bond."

         ¶ 4 In 2005, Washington Mutual agreed to modify the Borrowers' mortgage and note after they fell behind on their mortgage payments. The Modification Agreement began by explicitly stating that it "amends and supplements (1) the Mortgage, Deed of Trust or Security Deed (the 'Security Instrument')" and "(2) the Note, *** as secured by the Security Instrument." The agreement provided, among other things, that "[t]he Borrower also will comply with all other covenants, agreements, and requirements of the Security Instrument (the mortgage) including without limitation the Borrower's covenants and agreement to make all payments of taxes, insurance premiums, assessments, escrow items [and] impounds." Under the terms of the Modification Agreement, the total indebtedness was increased to $171, 987.05. After the parties entered into the Modification Agreement, the Borrowers' mortgage and note were transferred to BNY Mellon.

         ¶ 5 Five years later, the Borrowers stopped making their mortgage payments. On August 9, 2011, BNY Mellon filed a foreclosure complaint, attaching copies of the mortgage, the blank-indorsed note, and the Modification Agreement. The Borrowers and the Rogerses were all served.

         ¶ 6 On February 2, 2012, the Borrowers and Dana Rogers filed a combined motion to dismiss under sections 2-615, 2-619, and 2-619.1 of the Code of Civil Procedure (735 ILCS 5/2-615, 2-619, 2-619.1 (West 2010)). In the motion, they claimed that BNY Mellon lacked standing because the mortgage and the Modification Agreement were not indorsed. After a hearing, the trial court denied the motion to dismiss without prejudice.

         ¶ 7 On July 10, 2012, the Borrowers filed a verified answer. The answer included the affirmative defense that BNY Mellon lacked standing, stating that there was "no written instrument presented by [BNY Mellon] to show [that BNY Mellon was the] holder in due course of the second mortgage note, refinancing the property, from Washington Mutual Bank." BNY Mellon filed a reply to the affirmative defense and denied that it lacked standing. It stated that it held "the note which is endorsed to bearer" and that a copy of that note was attached to the complaint.

         ¶ 8 BNY Mellon moved for summary judgment and a judgment of foreclosure. In support of its motion, it filed an "Affidavit of Amounts Due and Owing." The affidavit was executed by Tonya Feaster, a vice president of loan documentation at Wells Fargo Bank, as servicing agent to BNY Mellon. The affidavit included copies of two computerized business records from Wells Fargo, a "Judgment Quote, " and an "Account History" for the Borrowers' loan. In the affidavit, Feaster attested to her personal knowledge of the matters in the affidavit, based on her experience at Wells Fargo and her review of the Borrowers' file. She said that BNY Mellon held the blank-indorsed note and that Wells Fargo acquired the loan servicing rights from Washington Mutual on December 1, 2006, at which time the loan was current. She stated that the "Judgment Quote" and the "Account History" were generated and maintained in the ordinary course of Wells Fargo's business, using industry-standard software, Mortgage Servicing Platform. Based upon these business records, Feaster stated that as of March 7, 2014, the Borrowers owed $212, 319.87, which included interest accrued from October 1, 2010.

         ¶ 9 The Borrowers filed a response to the motion for summary judgment. In their response they argued that, although BNY Mellon had claimed that it possessed the original note, that note had been refinanced and BNY Mellon had never shown the Borrowers a copy of the original refinanced note indorsed in blank.

         ¶ 10 BNY Mellon replied and said that it had proven its standing based upon the original blank-indorsed note. It also noted that the Borrowers' liability was uncontested, given certain admissions in their answer as well as Feaster's uncontroverted affidavit as to the amounts due and owing.

         ¶ 11 At the hearing on the motion for summary judgment, BNY Mellon argued that it had standing because it possessed the original note that was indorsed in blank. Counsel for BNY Mellon then handed the trial court the original note and mortgage. It also claimed that the Borrowers had not submitted any counteraffidavits to disprove any allegations of their default. The only matter the Borrowers raised was standing, and based upon BNY Mellon's possession of the original note, it had standing.

         ¶ 12 The Borrowers argued that they had not stipulated to a default and that in their answer to the complaint, they had specifically denied that they were in default. Also, BNY Mellon's argument that summary judgment should be granted because the Borrowers had not produced proof of payment erroneously placed the burden of proof on them. The Borrowers claimed that BNY Mellon admitted that the refinanced note governed the terms of this transaction and that the refinanced note amended the original note. The refinanced note was the Modification Agreement, and the first page of that agreement said that it amended the original note from September 2003. However, the Modification Agreement included no indorsement, let alone an indorsement in blank. The Modification Agreement was a negotiable instrument within the meaning of the Uniform Commercial Code (UCC) (810 ILCS 5/1-101 et seq. (West 2010)). Specifically, it was payable to a definite party at a definite time for a specific amount, and it included no other consideration. Therefore, the refinanced note had no indorsement and mere possession of it, as a negotiable instrument not indorsed by a payee, was not evidence of legal or equitable title.

         ¶ 13 The Borrowers also argued that there were still issues as to default and the business records. Feaster's affidavit was from Wells Fargo, but there was no affidavit from Washington Mutual showing when and how much the Borrowers had defaulted. The burden is on the possessor of a note to prove equitable title. Also, only a mortgagee can foreclose on property, and pursuant to Illinois law, a mortgagee is defined as the holder of indebtedness secured by a mortgage or a successor. Since BNY Mellon had not shown proof that the Borrowers had defaulted to Washington Mutual, and because the Modification Agreement, according to its own language, amended and supplemented the original note, BNY Mellon had not established a default or that it had standing in this matter.

         ¶ 14 With regard to whether the Borrowers were in default, BNY Mellon argued that its complaint alleged that the Borrowers had been in default since November 2010. Also, the Borrowers did not submit a counteraffidavit to show that they were not in default. The Borrowers responded and again said that it was not their burden at the hearing on summary judgment to prove that they were not in default. Specifically, the Borrowers argued:

"MS. ADAMS [(the Borrowers' counsel)]: [Counsel for BNY Mellon is] saying that my clients have a burden on summary judgment to come forward with proof of payment, and our position is that based on Illinois case law interpreting summary judgment, it is the burden of the movant to prove that there is no triable issue as to payment.
And if the plaintiffs have business records to show with a foundation under Rule 902.11 that my clients have not paid specifically when they defaulted, then they're entitled to judgment, but that's the purpose of a trial. The purpose of summary judgment is to show that there's no issue as a matter of fact and a matter of law."

         ¶ 15 The trial court then asked the Borrowers whether it was their position that every defendant in a foreclosure action who was facing a summary judgment motion simply had to deny default in order to defeat the motion. Counsel for the Borrowers then said:

"No. But right now we do not have any business records from Washington Mutual Bank where the payments are supposed to go, according to the note that currently governs, showing that my clients did not mail payment in. And the exhibit they attach is something from Wells Fargo saying that it's transmitted by third parties with knowledge, and I really can't tell what those records mean or if there's a default."

         ¶ 16 On September 16, 2014, the trial court entered summary judgment in favor of BNY Mellon. On October 9, 2014, the trial court entered a judgment of foreclosure. The property was sold at a judicial sale on February 12, 2015. BNY Mellon moved to confirm the sale, and the Borrowers moved to deny the motion. In their motion opposing the confirmation of the sale, the Borrowers contended that the entry of summary judgment should be reconsidered because (1) "records of non-payments should have come from Washington Mutual *** not Wells Fargo" and (2) BNY Mellon lacked standing because "the amended note, the Modification Agreement, governing this transaction was never indorsed in blank."

         ¶ 17 On May 22, 2015, the trial court confirmed the judicial sale. A week later, the Borrowers moved to reconsider the confirmation. In their motion to reconsider, they reiterated their arguments that the Modification Agreement was a negotiable instrument that should have been indorsed and that Wells Fargo's records could not be used to establish default because Washington Mutual was the lender named in the Modification Agreement.

         ¶ 18 On June 19, 2015, a hearing was held on the Borrowers' motion to reconsider. At the hearing, the Borrowers' counsel suggested for the first time that Feaster had failed to lay an adequate foundation for the issue of "whether the computer software program was working properly at the dates and times in question." Specifically, counsel argued:

"MS. ADAMS: Well, the Wells Fargo affidavit was based on computer records and there's nothing in the affidavit that establishes that how the-whether the computer was working properly, whether the software was ...

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