The Bank of New York Mellon Trust Company, National Association v. Rangel et al
Filing
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MEMORANDUM Opinion and Order Signed by the Honorable Virginia M. Kendall on 9/14/2012.(tsa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE BANK OF NEW YORK MELLON
TRUST COMPANY, National
Association, as grantor trustee of the
Protium Master Grantor Trust,
Plaintiff,
v.
JACK RANGEL, PATRICIA RANGEL,
Defendants.
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11 CV 6437
Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
Plaintiff Bank of New York Mellon Trust Company, National Association, as grantor trustee
of the Protium Master Grantor Trust (the “Bank of NY”), brought suit against Defendants Jack and
Patricia Rangel (the “Defendants”) to foreclose a Mortgage on the Defendants’ residential property.
The Defendants filed their Answer to the Bank’s Complaint, in which they disputed the Bank’s
standing to foreclose. (Doc. 18). The Bank of NY then filed a Motion for Summary Judgment
presently before the Court. (Doc. 21). For the following reasons, the Court grants the Bank of NY’s
Motion for Summary Judgment.
I. MATERIAL UNDISPUTED FACTS
On March 13, 2008, the Defendants received a loan from Equifirst Corporation of
approximately $345,990 in exchange for a Note in favor of Equifirst.1 (NY ¶¶1-15; Ex. 1). The
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The Defendants did not file any response to the Bank of NY’s Local Rule 56.1 State of Facts; consequently
all of the Bank of NY’s facts are deemed admitted. See Local Rule 56.1(b)(3)(C); accord Ammons v. Aramark Unif.
Servs., Inc., 368 F.3d 809, 817 (7th Cir. 2004). The Bank of NY’s Local Rule 56.1 Statement of Material Facts is
referred to as “NY ¶ _.” Pursuant to the Local Rules, the Defendants were permitted to respond with up to 40 assertions
of additional facts that they contend requires the denial of summary judgment. See Local Rule 56.1(b)(3)(C); accord
Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 808-810 (7th Cir. 2005) (outlining the procedure for complying
Defendants agreed to make monthly payments to reimburse the principal plus interest at a yearly rate
of 9.875% as an adjustable rate floor. (Ex. 1). The Note states that the Defendants “understand that
the Lender may transfer this Note” and that the “Lender or anyone who takes this Note by transfer
and who is entitled to receive payments under this Note is called the ‘Note Holder.’” (Doc. 22-1, Ex.
1, p. 1). On March 24, 2008, Equifirst secured its interest in the Note with a Mortgage on the
Defendants’ property in Chicago, Illinois, which Equifirst’s nominee Mortgage Election Registration
System, Inc. (“MERS”) filed with the Cook County Recorder. (NY ¶¶6-8; Ex. 2). The Mortgage
secured to Equifirst “the repayment of the debt evidenced by the Note . . . and the performance of
Borrower’s covenants and agreements under this Security Instrument and the Note.” (Ex. 2, p. 3).
On January 22, 2009, MERS, as nominee for Equifirst, executed a written assignment that
“grants, assigns and transfers to Sutton Funding LLC all the rights, title and interest of [MERS] in
and to that certain real estate mortgage dated 3/13/2008 executed by [the Defendants] to Equifirst
Corporation.” (NY ¶ 11; Doc. 22-3, Ex. 3). This first assignment was “[t]ogether with the note or
notes therein described or referred to, the money due and to become due thereon with interest, and
all rights accrued or to accrue under said Real Estate Mortgage.” (Doc. 22-3, Ex. 3). In turn, on
November 17, 2011, Sutton Funding LLC executed a written assignment that “assigns to [the Bank
of NY] the mortgage executed by [the Defendants] and also transfers and endorses, to said assignee
all obligations secured by said mortgage.” (NY ¶12; Doc. 22-4, Ex. 4).
with Local Rule 56.1). The Defendants’ Response presented four facts without specific citation to the record. Those
four facts are cumulative rather than controversial by stating only the chronology of events. The Bank of NY did not
reply to or controvert any of the four facts alleged by the Defendants, and therefore those facts are deemed admitted.
See Ammons, 368 F.3d at 817. The Defendants’ additional facts are referred to as “Def ¶ _.”
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On August 1, 2010, the Defendants failed to send their monthly payment and have failed to
make any payments since that time. (NY ¶13). The Bank of NY brought the present foreclosure
action on September 15, 2011, seeking a judgment of foreclosure of the Defendants’ property
pursuant to the Illinois Mortgage Foreclosure Law. See 735 ILCS 5/15-1504. The Bank of NY seeks
an award for the principal balance plus accrued interest, foreclosure costs, late charges, advances,
expenses and attorneys’ fees, as permitted by the terms of the Mortgage. (Doc. 1). On February 14,
2011, the Defendants filed their Answer to the Bank’s Complaint, in which they disputed the Bank’s
standing to foreclose by arguing that Complaint lacked an assignment of the Mortgage to the Bank
of NY. (Def. ¶3; Doc. 18). As of November 14, 2011, there remains an outstanding principal
balance of approximately $375,000, with interest accruing. (NY ¶14).
II. STANDARD OF REVIEW
Federal courts exercising diversity jurisdiction apply state law to contract disputes and
employ the choice-of-law principles used by the forum state. See United States Textiles, Inc. v.
Anheuser-Busch Cos., 911 F.2d 1261, 1269 (7th Cir. 1990). The parties do not dispute that the
Mortgage contains a governing Illinois law provision, that the property in dispute is located in
Illinois and that Illinois contract law applies. See Belleville Toyota v. Toyota Motor Sales, U.S.A.,
199 Ill. 2d 325 (2002) (“Generally, choice of law provisions will be honored.”). Consequently this
Court will apply Illinois law to this contract dispute. See Auto-Owners Ins. Co. v. Webslov
Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009).
Summary judgment is proper when “the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ.
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P. 56(a). In determining whether a genuine issue of fact exists, the Court must view the evidence
and draw all reasonable inferences in favor of the party opposing the motion. Bennington v.
Caterpillar Inc., 275 F.3d 654, 658 (7th Cir. 2001); see also Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 255 (1986). The Court, however, will “limit its analysis of the facts on summary judgment
to evidence that is properly identified and supported in the parties’ [Local Rule 56.1] statement.”
Bordelon v. Chicago Sch. Reform Bd. of Trustees, 233 F.3d 524, 529 (7th Cir. 2000). Where a
proposed statement of fact is supported by the record and not adequately rebutted, the court will
accept that statement as true for purposes of summary judgment. An adequate rebuttal requires a
citation to specific support in the record; an unsubstantiated denial is not adequate. See Albiero v.
City of Kankakee, 246 F.3d 927, 933 (7th Cir. 2001); Drake v. Minn. Mining & Mfg. Co., 134 F.3d
878, 887 (7th Cir. 1998) (“‘Rule 56 demands something more specific than the bald assertion of the
general truth of a particular matter[;] rather it requires affidavits that cite specific concrete facts
establishing the existence of the truth of the matter asserted.’”).
Factual disputes “are genuine only if the evidence is such that a reasonable jury could return
a verdict for the non-movant.” CAE, Inc. v. Clean Air Engineering, Inc., 267 F.3d 660, 676 (7th Cir.
2001) (quoting Anderson, 477 U.S. at 248) (citations omitted). The existence of a materially disputed
issue of fact will be sufficient to avoid summary judgment only if the disputed fact is determinative
of the outcome under the applicable law. See Montgomery v. American Airlines, Inc., 626 F.3d 382,
389 (7th Cir. 2010). Contractual disputes are well suited to resolution by way of summary judgment
because such disputes essentially involve only contract interpretation and thus liability often presents
solely legal questions. See Zemco Mfg., Inc. v. Navistar Intern. Transp. Corp., 270 F.3d 1117, 1123
(7th Cir. 2001); Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1388 (7th Cir. 1993). The Court may
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resolve a dispute on summary judgment where the parties do not dispute the facts that actually
occurred, but merely dispute the legal significance of those facts. That the parties differ on the legal
ramifications to be drawn from the undisputed facts in the record is not a bar to summary judgment.
III. DISCUSSION
The Defendants do not dispute that they were required to make monthly payments under the
contractual terms of the Note, that they have failed to make any payments since July 2010, and that
there remains an outstanding balance on their loan that continues to accrue interest. Nor do they
dispute that the Bank of NY has possession of the Note or that the Note is authentic. The Defendants
only argue that a genuine issue of material fact exists as to whether the Bank of NY is in fact the
lender or the holder or has capacity to foreclose the Mortgage. To support their argument, the
Defendants point to the Mortgage and Note naming Equifirst as the lender and Note holder and
naming MERS as the mortgagee–and not naming the Bank of NY. The Defendants also argue that
the Bank of NY failed to file with its Complaint either a supporting affidavit or deposition testimony
to establish that the Bank of NY owns the Note. This is a factual issue, they argue, that indicates the
Bank of NY’s lack of standing to bring the foreclosure action, which would preclude summary
judgment.
The Bank of NY argues that its possession of the Note, albeit unendorsed, is sufficient to
confer standing to foreclose on the Note, citing century-old Illinois law. See Martin v. Martin, 174
Ill. 371, 374 (1898) (“The right to the possession and full beneficial interest in an unendorsed
negotiable paper may pass by manual delivery of the paper, and in the absence of testimony tending
to disprove that the notes were delivered the presumption will obtain that one in the possession of
such paper came rightfully into possession.”).
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In general, under Illinois law, a negotiable instrument like a note may be enforced by either
(1) the holder of the instrument, or (2) a non-holder in possession of the instrument who has the
rights of a holder. See 810 ILCS 5/3-301. To qualify as a “holder,” one must receive the note
through “negotiation” from the original issuer. See 810 ILCS 5/3-201(a). Where, as here, a note is
payable to the order of a specific individual or entity, negotiation requires both the transfer of
possession and the endorsement of the note by the named entity. See 810 ILCS 5/3-201(b). The
Note that the Bank of NY has in its possession is not endorsed to a named entity nor is it endorsed
in blank. When the Bank of NY filed its initial Complaint, it attached the second assignment of the
Mortgage from Sutton Funding LLC to the Bank of NY but did not attached the first assignment of
the Mortgage from Equifirst to Sutton Funding LLC. Therefore, at the time of filing its Complaint,
the Bank of NY had not presented evidence that it was the legal holder of the Note. However, “a
non-holder in possession of the instrument who has the rights of a holder” may also enforce the Note.
810 ILCS 5/3-301(ii); see Cogswell v. CitiFinancial Mortg. Co., Inc., 624 F.3d 395, 404 (7th Cir.
2010) (citing Locks v. N. Towne Nat’l Bank of Rockford, 115 Ill.App.3d 729 (1983)). The Bank of
NY can qualify as a non-holder in possession if “under applicable law [it] is a successor to the holder
or otherwise [acquired] the holder’s rights.” 810 ILCS 5/3-301 Official Comment. Furthermore,
Illinois law defines “mortgagee” more broadly than just the holder of a note of indebtedness to
include “any person designated or authorized to act on behalf of such holder.” 735 ILCS 5/15-1208;
accord Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1, 7(1st Dist.
2010). In Barnes, the Illinois Appellate Court held that the plaintiff, MERS, had standing to bring
its foreclosure action against the defendants, even though MERS did not own the note at issue,
because the mortgage identified MERS as the mortgagee and provided that it was acting as the
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nominee for the lender and had the authority to foreclose and sell the property. 406 Ill. App. 3d at
7-8. In effect, Illinois law permits a plaintiff to bring a foreclosure action even if it does not own the
note at issue but can prove that it acquired the holder’s rights to repayment as the mortgagee. See
Id. at 7 (citing Stalzer v. Blue, 312 Ill. App. 563 (1942)); see also Deutsche Bank Nat’l Trust Co. v.
Khan, 2012 Ill. App. Unpub. LEXIS 145 at *9 (1st Dist. 2012) (where district court found plaintiff
bank lacked standing due to the unendorsed note, appellate court reversed summary judgment for
defendants because plaintiff bank’s assignment of the mortgage was executed prior to the filing of
the original complaint).
As explained above, the Note names Equifirst as the legal holder of the Defendants’
indebtedness. The Note states that the Defendants “understand that the Lender may transfer this
Note” and that the “Lender or anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is called the ‘Note Holder.’” (Doc. 22-1, Ex. 1, p. 1). The Defendants do
not argue that these contract terms are ambiguous in any way. To secure the payments under this
Note, the Defendant’s Mortgage names MERS as the nominee for Equifirst and grants to MERS the
right to foreclose and sell the Defendant’s property. (Ex. 3, p.3). Therefore, by the contractual terms
of the Mortgage, the Defendants agreed that if they defaulted on their obligations under the Note and
Mortgage, MERS and its assigns had the right to foreclose on their property. See Barnes, 406 Ill.
App. 3d at 7. MERS, as nominee for Equifirst, subsequently effectuated an assignment of the
Mortgage to Sutton Funding LLC “[t]ogether with the note or notes therein described or referred to,
the money due and to become due thereon with interest, and all rights accrued or to accrue under said
Real Estate Mortgage.” (Doc. 22-3, Ex. 3). By its terms, then, Sutton Funding LLC acquired the
rights of the holder of the Note to foreclose and sell the Defendants’ property. The Defendants do
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not challenge the validity of this first assignment. Likewise, Sutton Funding LLC assigned to the
Bank of NY “all obligations secured by [the Defendants’] mortgage.” (Doc. 22-4, Ex. 4). The
Defendants do not challenge the validity of this second assignment to the Bank of NY.
The relevant terms of the Mortgage in this case are identical to those in Barnes where the
mortgage provides that MERS was the mortgagee and was acting as the nominee for the lender and
that the defendants understood and agreed that MERS had the right to foreclose and sell the property
at issue. 406 Ill. App. 3d at 7-8. There, MERS had the right bring a foreclosure action against the
defendants even though the Note was owned by a lending bank. Similarly, in this case, the
Defendants understood and agreed that MERS and its assigns had the right to bring a foreclosure
action regardless of the identity of the lending bank–whether the lender was Equifirst, or a successor
bank to Equifirst. Furthermore, the Defendants understood and agreed that the lending bank could
transfer the Note and that anyone entitled to received payments on the Note would be called the
“Note Holder.” Although the second assignment of the Mortgage was not included with the Bank
of NY’s Complaint, both assignments were executed prior to the date of filing and relate that the
Bank of NY acquired the right to foreclose prior to that date. The Defendants do not challenge the
authenticity or the validity of the assignments of the Mortgage. Nor do the Defendants challenge the
admissibility or the accuracy of the affidavit from the mortgage loan servicing company, in which
an authorized agent attests to the Bank of NY’s possession and ownership of the Defendants’ Note
and Mortgage. (Doc. 22-5, Ex. 5, p. 1). The undisputed facts before the Court indicate that the Bank
of NY acquired the rights under the Defendant’s Mortgage to foreclose and sell the property at issue
in satisfaction of the Defendants’ Note. Because the Bank of NY has acquired the right to foreclose
on the Defendants’ property through its assignment of the Mortgage, and the Defendants do not
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dispute that the Bank of NY possesses the unendorsed Note, these factual circumstances suffice for
the Court to find that, as a matter of law, the Bank of NY has standing to enforce the Note as a nonholder in possession. See Resolution Trust Corp. v. Hardisty, 269 Ill. App. 3d 613, 616 (1995) (“A
mortgage foreclosure is an equitable action commenced in order to enforce the lien placed on the
mortgaged property . . . Its purpose is to enforce the payment of the mortgagor’s debt.”); accord
Deutsche Bank National Trust Company v. Khan, No. 1-11-1639, 2012 Ill. App. Unpub. LEXIS 145,
at *8 (1st Dist. January 25, 2012).
The Defendants have not presented any facts or arguments to refute that they are default of
the repayment of their loan and that the non-holder in possession of their Note with the rights granted
by the Mortgage may foreclose upon their property in accordance with the terms of the Note and the
Mortgage. The Defendants do not dispute or refute the calculations of the outstanding sums due on
their loan. (Doc. 22-5, Ex. 5, p. 2). There is no genuine issue as to any material fact and
consequently the Bank of NY is entitled to summary judgment.
IV. CONCLUSION
For the reasons stated above, the Court grants the Bank of NY’s Motion for Summary
Judgment.
________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: September 14, 2012
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