Wednesday, November 02, 2016

No Staples, No Summary Judgment: Failure To Firmly Affix Allonges To Mortgage Notes Trips Up Lenders Seeking Foreclosure In Two Connecticut Lower Court Cases

From a recent post from the law firm Shipman & Goodman LLP:
  • In attempting to fend off lenders’ mortgage foreclosure actions, borrowers will often assert defenses challenging the lenders’ right to foreclose.

    Two recent Connecticut Superior Court decisions provide cautionary tales on the basic tasks that must be performed when loans are assigned to ensure that the assignee will be able to foreclose. In these cases, the foreclosing plaintiffs were tripped up by something as simple as a staple attaching the allonge to the underlying note.
    In two recent decisions, the Connecticut Superior Court held that the lender failed to show that it was the holder of the underlying mortgage note because the allonges by which the note was allegedly ultimately endorsed to the plaintiff was not attached to the note.

    In LB-RPR REO Holdings, LLC v. Nimage Enterprises, LLC, No. CV116003546S, 2015 WL 5975594 (Conn. Super. Ct. Sept. 14, 2015) (“REO Holdings”), the plaintiff alleged that it was the ultimate assignee of a $1.7 million mortgage note under which the defendant borrower was in default. The plaintiff moved for summary judgment to foreclose the mortgage; that is, that there were no factual issues in dispute and the law requires that judgment enter allowing plaintiff to foreclose the mortgage.

    The borrower opposed summary judgment, arguing that the allonges were not attached to the note, and, therefore, the plaintiff was not the holder of the note since the note had not been properly endorsed to it. In response, the plaintiff argued that it is not necessary for the allonges to be attached to the note for it to be a holder.

    The Court denied plaintiff’s motion for summary judgment.
    Because § 3- 204(a) [of the Uniform Commercial Code] provides that the signature negotiating the note be made on the note itself or on “a paper to be affixed to the” note, the Court held that the allonges needed to be attached to the note for it to have been negotiated.

    Although the Court acknowledged no appellate authority on this issue in Connecticut, it observed that Connecticut appellate courts have defined “allonge” as “[a] piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof.”(1)

    The Court also distinguished Kohler v. United States Bank National Ass'n, No. 11–C–0893, 2013 U.S. Dist. LEXIS 87565 (E.D.Wis. June 21, 2013), which was relied on by the plaintiff, wherein the evidence showed that (i) the allonge was at some point affixed to the note because staple holes were apparent in both the note and the allonge, making it more likely that the note and allonge were once stapled together; and (ii) stickers bearing the loan number on each allonge matched loan number on the note evidencing that the allonges were intended to be affixed. By contrast, in the REO Holdings case, the only identifying information on the allonges was the parties’ names and the date the note was issued. There were no staple holes indicating that the allonges had ever been attached to the note and the allonges bore no stickers or identification numbers to evince an intent to affix the allonge to the note. Because there was an issue of material fact as to whether the allonges were “attached” to the note, the Court denied the plaintiff’s motion for summary judgment.[3]

    A few months later in RBS Citizens, N.A. v. Sabatelli, No. CV14-6016519S, 2016 WL 1099090 (Conn. Super. Ct. Feb. 19, 2016), the Superior Court similarly denied a lender’s summary judgment motion in a foreclosure action for a number of reasons, including that there was no evidence that the allonge endorsing the note to the plaintiff had ever been attached to the underlying note.

    The holdings in REO Holdings and RBS Citizens are examples of how the failure to properly document the assignment of a mortgage loan may make it more difficult, or possibly even imperil, the assignee’s ability to foreclose the mortgage securing the loan. To avoid such pitfalls, parties being assigned a note using an allonge should immediately attach the allonge to the note with a staple and include identifying information on the allonge, such as the loan number.
For more, see Attachment Issues: Staple the Allonge to the Note or Else!
(1) See SKW Real Estate Ltd. Partnership v. Gallicchio, 49 Conn. App. 563 (Conn. App. 1998)

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