CPT ASSET BACKED CERTIFICATES, SERIES 2004-EC1 v. KHAM 2012 OK 22 – Assignment of Mortgage By MERS Is Insufficient To Establish Right To Foreclose

“¶21 In the present case, Appellee claims they are the holder of the note and mortgage. The note found in the record contains no indorsements. Appellants state, in their Reply Brief, that an alleged original “blue ink” copy of the note was with Appellee’s counsel at the hearing on the motion/petition to vacate with a belated indorsement; however, the “blue ink” copy does not appear in the record and is not before this Court for review. For the above reasons, and more specifically because there is no indorsement on the note in the record, Appellee can not be a holder as defined by the statute.

¶22 The real issue is not whether or not one is a holder but whether or not one is entitled to enforce the note. As mentioned, a person/entity can be entitled to enforce the note without any indorsements. There is, however, a higher standard to meet to establish you are entitled to enforce the note if all you possess is the note without any indorsement.

¶23 Attached to Appellee’s petition to foreclose was an Assignment of Real Estate Mortgage. This assignment is dated October 21, 2008, wherein, MERS, as nominee for Encore, purports to assign the subject mortgage to Appellee. This document also reflects, MERS assigned the mortgage “together with the note, debts and claims thereby secured” covering the subject property. Therefore, it appears MERS attempted to transfer both the mortgage and note to Appellee by this document.

¶24 MERS is not mentioned in the note but only in the mortgage. The status given MERS in the mortgage is mortgagee and further states “MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns.” Encore is named as the Lender in the mortgage. Neither Oklahoma law nor the mortgage documents define the term “nominee.” In the absence of a contractual definition, the parties leave the definition to judicial interpretation. Black’s Law Dictionary (9th ed. 2009)defines a nominee as ” [a] person designated to act in place of another usu[ally] in a very limited way.” “This definition suggests that a nominee possesses few or no legally enforceable rights beyond those of a principal whom the nominee serves.” Landmark Nat. Bank v. Kesler, 289 Kan. 528, 216 P.3d 158, 166 (2009). By definition, a “nominee” is substantially the same as the definition of an “agent.”22 The legal status of a nominee/agent, then, depends on the context of the relationship of the nominee/agent to its principal. In the present case, that relationship appears to only be related to the mortgage and not the note. There is nothing in the record to demonstrate MERS had any authority to assign the note to Appellee although, arguably, it had authority to assign the mortgage. Assignment of the mortgage, however, does not assign the note. As previously stated, in Oklahoma, ownership of the note is controlling, and assignment of the note carries with it assignment of the mortgage – not the other way around. Gill v. First Nat. Bank & Trust Co. of Oklahoma City, 1945 OK 181159 P.2d 717, 719. “. . . [M]ortgage securing the payment of a negotiable note is merely an incident and accessory to the note, and partakes of its negotiability, and the endorsement and delivery of the note carries with it the mortgage without any formal assignment thereof.”Prudential Ins. Co. of America v. Ward, 1929 OK 71, ¶ 19, 274 P. 648, 650.

¶25 Therefore, if Appellee is trying to establish it is a person entitled to enforce the note by virtue of being a nonholder in possession who has the rights of a holder, the assignment of the mortgage is not supportive. A person trying to establish it is a nonholder in possession who has the rights of a holder must bear the burden of establishing its status as a nonholder in possession with the rights of a holder. Appellee must establish delivery of the note as well as the purpose of that delivery. Without anything in the record establishing Appellee is a person entitled to enforce the note, either as a holder or nonholder in possession who has the rights of a holder, there is nothing to establish Appellee’s standing in this case.

¶26 Appellee must also demonstrate it became a “person entitled to enforce” prior to the filing of the foreclosure proceeding. We find there is no evidence in the record establishing Appellee had standing to commence this foreclosure action. The trial court’s granting of a default judgment in favor of Appellee could not have been rationally based upon the evidence or Oklahoma law. Therefore, we find that the trial court abused its discretion when granting the default judgment. Because this issue is dispositive, we will not address the remaining issues on appeal. The order denying Appellant’s petition and motion to vacate should be reversed and remanded back for further proceedings to determine whether Appellee is a person entitled to enforce the note consistent with this opinion.”

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