A note secured by a mortgage is a "negotiable instrument" governed by Pennsylvania’s Uniform Commercial Code, the state Superior Court has ruled in an apparent case of first impression in Pennsylvania.
Led by Judge David N. Wecht, the unanimous three-judge panel ruled that the holder of a note that is secured by a mortgage may assert an ownership and enforcement interest in it, when the indorsement is blank. This is in contrast to a special indorsement, which names a specific creditor as the exclusive payable party to an instrument at issue.
In JPMorgan Chase Bank v. Murray, a Berwyn, Pa., man argued that several broken links in the chain of possession by which JPMorgan Chase Bank came to hold his mortgage invalidated the bank’s claim to the note it sought to execute when it foreclosed on the man’s property.
The panel said it did not need to confront all of the contentions raised by Francis X. Murray, who was a pro se plaintiff in the case.
But it agreed to reverse summary judgment that had been entered in favor of the bank.
"We find that one flaw suffices to create a question of fact regarding appellee’s standing, and we reverse on that basis," Wecht wrote.
Because the possession of the note was in question, a genuine issue of material fact remained as to JPMorgan’s ability to enforce the note and the court reversed a Chester County judge’s grant of summary judgment in favor of the bank, remanding the case for further proceedings.
Murray has not disputed that he defaulted on his mortgage, only that JPMorgan is not postured to foreclose on him.
The panel concluded that because JPMorgan failed to establish possession of the original note, neither it nor any of the "putative predecessor holders" could act in foreclosure.
Wecht noted the limited jurisprudence from Pennsylvania state courts guiding the exact issue, but turned to several federal cases and those from other states in carving out a he-who-holds-it-owns-it standard.
For example, pointing to a New Jersey Superior Court case from 2010, Wecht said: "Further reinforcing the right of a possessor of a note to enforce it, at least one court has held that one need not be a ‘holder’ as defined by the UCC to enforce a note in its possession, notwithstanding doubts regarding how it came to be transferred to the possessor."
Essentially, the two main disputed facts landing Murray back in the Chester County Court of Common Pleas were whether the note produced for Murray was the original and whether the "loose allonge" produced for Murray was original and whether it did in fact reflect an indorsement of the note in question.
In this instance, a "loose allonge" was a slip of paper JPMorgan provided to Murray purporting to indorse the note that Murray said was not attached to any other document; hence it was "loose."
That fact is set to be examined further.
"Should [JPMorgan] successfully establish that it holds the original note, and that it is indorsed in blank, under the UCC it will be entitled to enforce the note against Murray, even if there remain questions as to the chain of possession of the note from the time of its making to its arrival in [JPMorgan's] figurative hands," Wecht said. "Should [JPMorgan] fail to establish possession of the original, or should it fail to establish that the indorsement in blank that refers only generically to an unidentified note in fact is appurtenant to the note at issue, then a full examination of the chain of possession may be necessary."
In reversing the grant of summary judgment, the court stressed its order on remand was without prejudice, allowing JPMorgan to again pursue summary judgment after further development of the record.
Wecht also vacated the trial court’s order permitting JPMorgan to substitute itself for the originally captioned plaintiff on the foreclosure complaint: Deutsche Bank National Trust Co.
Murray, who said he was disputing the case without the assistance of a lawyer, pointed to a host of case law in arguing the complaint was not properly verified and, accordingly, such precluded judgment against him.
The defendant argued the signatory to the complaint was, in Wecht’s analysis of his argument, "at best" an agent of the plaintiff rather than a qualified officer and, thus, was required to meet criteria listed under Pa.R.C.P. 1024(c). Murray argued JPMorgan’s signatory, a vice president of the bank, had failed to do so.
The court agreed, but again left JPMorgan room to amend its pleadings by ruling against it without prejudice.
The instant case got to this point, as Wecht laid out the facts, after the complaint listed a pair of assignments of the mortgage that Murray contested. First, it went from Great Western Bank to Deutsche Bank Trust Co. Americas. Then it went from Deutsche Bank Trust Co. Americas to Deutsche Bank National Trust Co., which was a trustee for Washington Mutual Mortgage Securities Corp.
Meanwhile, JPMorgan had substituted itself for the originally captioned plaintiff, holding itself out as its agent.
Here’s how Wecht described the path of the relevant documents: "The mortgage and note allegedly passed, following a succession by merger, two subsequent assignments, and yet another succession by merger, to [JPMorgan].
"[JPMorgan] then substituted itself in this action," he added.
According to Wecht, the foreclosure action alleges Murray defaulted on his mortgage from September 2009 through April 2010. Total damages alleged were more than $700,000, plus interest.
Murray’s argument was that links in the chain were defective, with the assignee in one assignment not being the assignor in the next one.
Reached for comment, Murray said the court got it right.
"I think the court understood my argument and I wish the trial court would have understood it better in the first place," Murray said, adding the matter was submitted on briefs. "In my case, the simple fact is the promissory note stated who the lender was and the assignment of mortgage reflected entities such that it’s obvious that the entity of one name was trying to pass it in another name to someone else."
"In other words, there was a broken chain of assignments and the plaintiff acknowledged these were different entities," he said.
Brett L. Messinger, a Duane Morris attorney representing JPMorgan, declined comment.
(Copies of the 30-page opinion in JPMorgan Chase Bank v. Murray, PICS No. 13-0644, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •