In this week's ALWU, we bring you a case from the Alabama Court of Civil Appeals considering issues arising out of a bank's efforts to judicially foreclose a residential mortgage.
Charissa A. Smalls v. Wells Fargo Bank, N.A., [Ms. 2130665, May 1, 2015] — So. 3d. — (Ala. 2015) (Issue of material fact exists based on lack of evidence of complete note endorsement chain).
Earlier this month, the Alabama Court of Civil Appeals reaffirmed that an assignee of a mortgage may only exercise a power of sale in a mortgage if the assignee is entitled to receive the money secured by the mortgage. Factually, the case involved Charissa A. Smalls, a mortgage debtor, and Wells Fargo Bank, N.A., the servicer of Smalls' mortgage loan. In August, 2009, Smalls defaulted under the terms of the mortgage loan. Based on the default, Wells Fargo, acting pursuant to an assignment of the mortgage from Mortgage Electronic Registration Systems, Inc., took actions to nonjudicially foreclose the mortgage loan, including setting the property subject to the mortgage for sale on November 23, 2009. For reasons unknown, the sale did not go forward. However, on November 30, 2009 Smalls sued Wells Fargo in the Circuit Court of Madison County alleging, among other things, that Wells Fargo did not have a legal interest in the promissory note and mortgage sufficient to foreclose. In response, Wells Fargo asserted a counterclaim which included a count to judicially foreclose the mortgage. Wells Fargo subsequently moved for summary judgment as to its judicial foreclosure count, and the trial court granted the motion and entered an order authorizing Wells Fargo to proceed with the foreclosure sale. The court's order was entered over Smalls continued objection to Wells Fargo's right to foreclose. On September 5, 2013, Smalls' property was sold via a foreclosure sale and a foreclosure deed was issued.
After the trial court confirmed the judicial foreclosure sale, Smalls filed an appeal challenging the validity of the sale, the associated foreclosure deed, and the trial court's order confirming the sale. The primary issue before the appellate court was “whether Wells Fargo established that it had been assigned the right to the payment under the note.” Wells Fargo's right to payment under the note is significant under Alabama law because an assignee's right to utilize the power of sale is contingent on the assignee being “entitled to receive the money secured by the mortgage.” To determine if Wells Fargo fit that description, the court looked to whether the note, as a negotiable instrument, was properly transferred to Wells Fargo. The note contained two endorsements; however, neither endorsement acted to transfer the rights under the note to Wells Fargo. Based on that, the appellate court concluded that the trial court incorrectly determined that an issue of fact did not exist as to Well Fargo's right to foreclosure the mortgage. In accordance, the trial court's confirmation of the foreclosure sale was reversed and the case was remanded to the trial court to further explore Wells Fargo's rights under the note.