Today the Wisconsin Supreme Court heard arguments in Dow Family LLC v. PHH Mortgage Corp., 2013AP221, a case involving the Mortgage Electronic Registration System (MERS), an electronic mortgage tracking system operated by MERSCORP. (The oral argument is available on WisconsinEye here.) The result in the case could affect mortgage lending throughout Wisconsin.
Dow Family LLC purchased a condominium in 2009 that was subject to two mortgages relevant to the appeal, one from 2001 and one from 2003. The sellers represented to Dow that the 2003 mortgage was a refinance of the 2001 mortgage. Only the 2003 mortgage was satisfied at closing, and Dow did not obtain a title insurance policy. Shortly thereafter, PHH Mortgage Corp., which had been servicing the 2001 mortgage, wrote to Dow informing it that the loan underlying the 2001 mortgage had not been paid in full. Dow filed an action for declaratory judgment, PHH filed a foreclosure action, and the cases were consolidated. Dow argued that because one entity owned the 2001 note (PHH) while another was the mortgagee of record (MERS), the mortgage was unenforceable. The question in the case was whether PHH was assigned the mortgage either actually or through equitable assignment when it became the holder of the note.
The circuit court ruled in favor of PHH on summary judgment and entered judgment of foreclosure. The court of appeals reversed and remanded the case for trial because PHH had not made a prima facie case that it was entitled to enforce the note. PHH submitted two affidavits that were insufficient to authenticate the note and provide evidence that PHH actually held the note. The court of appeals, however, held that the doctrine of equitable assignment would apply to permit PHH to foreclose the 2001 mortgage if PHH could establish that it was entitled to enforce the note.
The supreme court is expected to take up the issue of whether Wisconsin law recognizes equitable assignment of a mortgage. This issue is important for foreclosure cases in which the plaintiff is in possession of the original note, endorsed specifically or in blank, but no assignment of mortgage from the original mortgagee has been recorded. A separate issue in this case is Dow’s attack on the MERS system itself, an argument that has been rejected by a number of other courts.
A decision is expected by mid-July.