Foreclosure Update: Complexity In the Event Of Multiple Loan Servicers

A recent Wisconsin appeals court case emphasizes the sum of the evidentiary issues and requirements that a lender must deal with in obtaining summary judgment in the event of a mortgage foreclosure, particularly in situations where the loan has been sold and a succession of loan servicers have handled the file. In The Bank of New York Mellon, v. Gloria J. Bronson and Scott E. Bronson, Sr., The Bank of New York Mellon, initiated a foreclosure action against the Defendants, as payments fell behind. The Circuit Court granted the Bank’s motion for a summary judgment, and dismissed two counterclaims regarding loan modifications.

Loan Modification Saga

In 2007, the Bronsons executed a note secured by a mortgage with Countrywide Home Loans Servicing L.P. Unable to stay current with their payments, in 2009 the Bronsons were offered a loan modification agreement, which they promptly signed and returned the following month. Later that year, Bank of America became the new servicer of the loan, as successors by merger. At that point, Bank of America warned the Bronsons that the loan modification agreement would not continue because of missing paperwork, and they should apply for a new modification. In 2010, the Bronsons accepted a three-month “Trial Period Plan” loan modification, offered by Bank of America. After completing the trial period, they were subsequently informed that they were not eligible for a permanent modification.

Transition Of Loan Servicing

Justification for this denial, according to Bank of America, was because they did not provide the requested documents. In 2013, the servicing of the loan was transferred from Bank of America to Green Tree Servicing LLC. Green Tree Servicing LLC would eventually merge with Ditech Financial LLC, in 2015 becoming the Bronsons’ current servicer.

Litigation Outcomes

In March 2017, the Bank filed a motion for summary judgment of foreclosure and motion to dismiss the Bronsons’ affirmative defenses and counterclaims, and prevailed in the Circuit Court.

The Bronsons appealed, arguing that (1) due to all the transfers of the loans and changes in servicers, the foreclosing bank lacked standing to foreclose, (2) the bank did not prove it possessed the original promissory note needed for foreclosure, (3) the bank did not prove its accounting of the loan amounts due, and (4) the bank acted unprofessionally and dishonestly in denying the permanent loan modification.

Appeals Court Findings

Although the Court of Appeals rejected the standing argument, the Court agreed with the Bronsons that the bank had not done enough to present a prima facie evidence that it (a) possessed the note and (b) could prove its accounting tracking methods. The affidavit presented by the foreclosing bank’s officer was unclear on possession of the note, and was inconsistent with a previous affidavit from another bank employee.

Regarding the loan amount due, an affidavit provided on behalf of the Bank by an employee of Ditech, stated the process by which the loan was serviced including the tracking and accounting programs in detail but did not indicate that the employee had any firsthand knowledge of the accounting practices of the predecessor banks and servicers. Although, the affiant had requisite personal knowledge of Ditech and its practices, personal knowledge concerning previous lenders was not possible.

Court Conclusions

The Court of Appeals also held that there was a dispute of material fact regarding Bronsons’ claim that the bank improperly denied the loan modification request, given evidence from the Bronsons that there were repeated instances of requesting and then providing missing documentation between Bank of America and the Bronsons, and several attempts by the Bronsons to facilitate the documentation needed for the loan modification. The appeals court therefore concluded that the circuit court was premature in dismissing the Bronsons’ counterclaim.

The appeals court therefore remanded the case back to the circuit court for further proceedings to resolve the unproven issues.

Recommendations And Contact

Lenders attempting to foreclose loans where the loans have been sold or changed servicers are advised to carefully review this case to ensure that they are able to clearly establish the chain of possession for the promissory note and the accounting of the loan over its lifetime. Further, lenders must ensure they are following their policies in the processing of loan modification requests, particularly where they are stepping into the shoes of a prior servicer that may have also received modification requests for the subject loan. For more information regarding this case, or to contact a Wisconsin banking attorney, please contact Attorney Andrew Bosshard at Bosshard | Parke.