Bulletin: OK2012001

Dear Associates:

The Oklahoma Supreme Court has recently issued several opinions:

Deutsche Bank National Trust v. Brumbaugh, 2012 OK 3 {Approved for Publication}
Deutsche Bank National Trust v. Byrams, 2012 OK 4
HSBC Bank USA v. Lyon, 2012 OK 10
Deutsche Bank National Trust Company v. Matthews, 2012 OK 14
Deutsche Bank National Trust Company v. Richardson, 2012 OK 15
CPT Asset Backed Certificates; Series 2004-EC1 v. Kham, 2012 OK 22
Bank of America, N.A. v. Kabba, 2012 OK 23
JPMorgan Chase Bank, N.A. v. Eldridge, 2012 OK 24

(It is important to note that only one of the opinions, Deutsche Bank National Trust v. Brumbaugh, 2012 OK 3, has been approved for publication so far.)

These opinions hold that to commence a foreclosure action, the plaintiff must show that it has the right to enforce the promissory note, and in the absence of such showing, the plaintiff lacks standing to bring the lawsuit.  The fact patterns in each of the cases vary slightly (seven are based on appeals from orders granting summary judgment entered by the trial court, and one is based upon a default judgment), but the basic fact pattern is as follows:  Plaintiff files a foreclosure action either without attaching a copy of the promissory note or attaching the note without proper indorsement(s) by the original lender.  Defendant raises the issue that Plaintiff does not have standing to sue, either in response to a Motion for Summary Judgment or by pleadings filed after the Journal Entry of Judgment.  Motions are denied after Plaintiff provides documentation showing indorsement or allonge.  Defendant appeals.

In each of these cases, the majority opinion proclaims that the issue of standing may be raised at "any level of the judicial process" either by a party or by the court on its own motion.  In making its determinations regarding standing, the court disregards any evidentiary value provided by a recorded Assignment of Mortgage, instead choosing to focus on the promissory note.  In the Byrams opinion, the Court states in dicta that "under Oklahoma law, proof of ownership of the note carried with it ownership of the mortgage security", that the mortgage follows the note, and therefore, an assignment of the mortgage " is of no consequence."

The opinions provide that because a promissory note is a negotiable instrument, it is subject to the requirements of the Uniform Commercial Code.  Under the Oklahoma version of the UCC, in order for a person to prove that he is entitled to enforce a negotiable instrument, he must show that he is (1) the holder of the instrument; (2) a nonholder in possession of the instrument who has the rights of a holder; or (3) one not in possession of the instrument but who is entitled to enforce the instrument based upon other sections of the UCC.  These cases all focus on what must be shown by a person/entity to prove that he/it is the holder of the instrument.  The Court states in each case that the plaintiff must show possession of the original note and that the note is either "payable to bearer" (blank indorsement), to an identified person that is the person in possession (special indorsement), or have an allonge attached to the note in order to prove that he/it is the holder of the note, with the resulting rights of enforcement.  This proof must be given at the time of the filing of the Petition, not in a later filed pleading.  If the plaintiff fails to make the proper showing that he/it is the party entitled to enforce the note, then the case will be dismissed without prejudice as to re-filing either in the name of the proper party or when the documentation proving ownership (indorsement or allonge) is attached to the petition.

Underwriting Guidelines for Insuring Oklahoma Foreclosures:

1. Foreclosure Case in Progress:

When the title examiner encounters a foreclosure case that is in progress and the Plaintiff has failed to demonstrate, at the time of filing of the Petition, that it is the proper party in interest, that it has possession of the promissory note either by being a holder or a nonholder in possession who has the rights of a holder, and that it has the right to enforce the promissory note, the examiner should make a requirement that the current foreclosure case be dismissed without prejudice to refilling; that a new Petition be filed in the name of the proper party in interest, with a copy of the note attached thereto along with proper supporting documentation showing the history of the note, and that an Assignment of Mortgage be recorded from the original lender to the foreclosing lender prior to the filing of the Petition.

2. Completed Foreclosure:

When the title examiner encounters a foreclosure case that has been completed, the examiner should not make a requirement to demonstrate that the Plaintiff is the proper party in interest, provided the proceedings in the foreclosure case are proper, the Order Confirming Sale has been filed in the case, the Sheriff’s Deed has been recorded and the time for filing an appeal of the order confirming sale has elapsed (see 12 O.S. §990A & 12 O.S. §696.2), such that the Defendant may no longer raise the issue of "proper party in interest" or "standing".

If you encounter a situation other than described above, contact underwriting personnel for written approval before issuance of a commitment or a policy.

NOTE: These guidelines do not apply to Non-Judicial Foreclosures, unless the borrower elects judicial foreclosure and opts out of the power-of-sale foreclosure pursuant to 46 O.S. §43 A.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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