Mortgage assignment held inadmissible

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For the second time this year, the Wisconsin Court of Appeals opinion has made it more difficult to foreclose on property when the holder of the mortgage is not the original lender.

On Jan. 20, the court held that a bank could not prove default based on records of nonpayment before it purchased the mortgage.

In Bank of New York v. Cano, No. 2010AP477 (unpublished), the court held that the mortgage holder could not prove default because its affidavit “does not contain any facts to show that the agent is qualified to testify that the statement generated by [the original lender] … was ‘made at or near the time by, or from information transmitted by, a person with knowledge,’ or that ‘this was done in the course of a regularly conducted activity.’”

As a result, the court held that the statements documenting the default were hearsay and did not fit into the exception for business records under sec. 908.03(6).

Now, on Mar. 10, in an opinion not recommended for publication, the court went further, holding that the assignment of the mortgage itself is inadmissible, without first-hand evidence of how the assignment was made.

In 2006, Citizens Bank secured a mortgage on property in Lac du Flambeau owned by Marcella Kolodziej. When Kolodziej died, her estate stopped making payments on the mortgage. PHH Mortgage Corp., which had bought the mortgage from Citizens, initiated foreclosure.

On motion for summary judgment, to prove it was the holder of the mortgage, PHH submitted an affidavit from a vice-president that it owned the mortgage and the loan was in default.

PHH also submitted an affidavit from its record custodian that the mortgage had been assigned to it.

The circuit court granted summary judgment in favor of PPH, but the Court of Appeals reversed, in an opinion by Judge Margaret Vergeront.

PHH argued that the only documents necessary for a plaintiff to establish a prima facie case that it holds the mortgage are the mortgage, the assignment of the mortgage to it, and the promissory note.

But the court disagreed.

PHH contended that the assignment of the mortgage was admissible evidence either as a record of regularly conducted activity under sec. 909.02(12), or as a record of a land conveyance under sec. 889.17.

Section 909.02(12) provides that a record of regularly conducted activity is self-authenticating if the custodian certifies, “[t]hat the record was made at or near the time of the occurrence of the matters set forth by, or from information transmitted by, a person with knowledge.”

But the court held this rule did not apply, citing Palisades Collection LLC v. Kalal, 2010 WI App 38, 324 Wis.2d 180, 781 N.W.2d 503. The facts in Palisades were substantially similar to those in Bank of New York v. Cano, except that Cano involved credit card debt that had been assigned, rather than a mortgage.

Absent first-hand knowledge how the assignment was made, the court concluded, “The fact that [the affiant] is the custodian of the mortgage assignment and that the assignment is part of PHH’s regular business is insufficient to authenticate the assignment under sec. 909.02(12).”

The court also held that the records were not admissible under sec. 889.17, which provides that, “[e]very instrument entitled by law to be recorded or filed in the office of a register of deeds, and the record thereof and a certified copy of any such record … is admissible in evidence without further proof thereof.”

The copies submitted by PHH were not certified, so the court held they were not admissible absent further proof of their authenticity.

On remand, however, it will be easier for PHH to cure the problem, when the issue is the validity of the assignment, rather than default prior to the purchase the loan.

G. Michael Halfenger of Foley & Lardner, who represented PHH on appeal only, said in an interview, “As I read the court’s decision, plaintiffs only need to file a certified copy of the assignment.”

Note: The opinion in Bank of New York v. Cano is an unpublished per curiam opinion and thus, cannot be cited, even for persuasive authority, although it indicates how the District IV Court of Appeals regards the issue. The opinion in PHH Mortgage Corp. v. Kolodziej is not recommended for publication, but is authored, and thus, can be cited for persuasive authority, even if it is not ultimately published.

What the Court Held

Case: PHH Mortgage Corp. v. Kolodziej, No. 2010AP60

Issue: When an assignee of a mortgage forecloses on the property, is the assignment sufficient to prove ownership of the mortgage.

Holding: No. An assignment is not a record of regularly conducted activity.

Attorneys: For Plaintiff: G. Michael Halfenger, Erik G. Weidig, Brian M. Quirk, Milwaukee; For Defendants: Steven C. Garbowicz, Eagle River; Shawn M. Govern, Kevin C. Scott, Brookfield

David Ziemer can be reached at [email protected].