The Deed of Trust
A
deed of trust is an instrument that "secure[s] the performance of an
obligation or the payment of any debt." NRS 107.020. The Nevada Supreme
Court has previously held that a deed of trust "constitutes a conveyance
of land as defined by NRS 111.010."[1] Ray
v. Hawkins, 76 Nev. 164, 166, 350 P.2d 998, 999 (1960). The statute of
frauds governs when a conveyance creates or assigns an interest in land: No
estate or interest in lands, . . . nor any trust or power over or concerning
lands, or in any manner relating thereto, shall be created, granted, assigned,
surrendered or declared . . . , unless ... by deed or conveyance, in writing,
subscribed by the party creating, granting, assigning, surrendering or
declaring the same, or by the party's lawful agent thereunto authorized in
writing. NRS 111.205(1) (emphases added). Thus, to prove that WAMU properly
assigned its interest in land via the deed of trust to Wells Fargo, Wells Fargo
needs to provide a duly signed writing from WAMU demonstrating that transfer of
interest (and each subsequent transfer). If no such assignment(s), duly
executed, is/are provided at the mediation, Wells Fargo lacks would
lack standing to pursue foreclosure proceedings against ________.
The Mortgage Note
The
proper method of transferring the right to payment under a mortgage note is
governed by Article 3 of the Uniform Commercial Code—Negotiable Instruments,
because a mortgage note is a negotiable instrument.[2]
Birkland
v. Silver State Financial Services, Inc., No. 2:10-CV-00035 KJD-LRL, 2010
U.S. Dist. LEXIS 88471, 2010 WL 3419372, at page 4 (D. Nev. Aug. 25, 2010). The
obligor on the note has the right to know the identity of the entity that is
"entitled to enforce" the mortgage note under Article 3, see NRS
104.3301, "[o]therwise, the
[homeowner] may pay funds to a stranger
to the case." In re
Veal 450 B.R. 897, 920, 921, 2011 Bankr. LEXIS 2359, 2011 WL 2304200, at
*16 (B.A.P. 9th Cir. 2011) (holding, in a bankruptcy case, that AHMSI did not
prove that it was the party entitled to enforce, and receive payments from, a
mortgage note because it "presented no evidence as to who possessed the
original Note. It also presented no evidence showing [e]ndorsement of the note
either in its favor or in favor of Wells Fargo, for whom AHMSI allegedly was
servicing the [bankrupt party's] Loan."). If the homeowner pays funds to a
"stranger to the case," then his or her obligation on the note would
not be reduced by the payments made. See id.
at 910, 2011 Bankr. LEXIS 2359, [WL] at page 7 ("if a[n obligor on a
mortgage note] makes a payment to a 'person entitled to enforce,' the
obligation is satisfied on a dollar for dollar basis, and the [obligor] never
has to pay that amount again").
Wells Fargo may argue
that, under Nevada law, possession of the original note allowed it to enforce
the note. The Nevada Supreme Court would disagree.[3] It has concluded that Article 3 clearly
requires Wells Fargo to demonstrate more
than mere possession of the original note to
be able to enforce a negotiable instrument under the facts of
this case. This of course assumes that Wells Fargo actually possesses the
original note.
Article 3 is codified in
NRS 104.3101-.3605.
Pursuant to NRS
104.3102(1), Article 3 applies to negotiable instruments. Negotiable
instruments are defined as an unconditional promise or order to pay a fixed
amount of money, with or without interest or other charges described in the
promise or order, if it:
(a)
Is payable to bearer or
to order at the time it is issued or first comes into possession of a holder;
(b) Is payable on demand or at a definite time; and
(c)
Does not state any other
undertaking or instruction by the person promising or ordering payment to do
any act in addition to the payment of money. NRS 104.3104(1). Thus, a mortgage
note is a negotiable instrument, and any negotiation of a mortgage note must be
done in accordance with Article 3
A note can be made
payable to bearer or payable to order. NRS 104.3109. If the note is payable to
bearer, that "indicates that the person in possession of the promise or
order is entitled to payment." NRS 104.3109(1)(a). However, "[a]
promise or order that is not payable to bearer is payable to order if it is
payable to the order of an identified person .... A promise or order that is
payable to order is payable to the identified person." NRS 104.3109(2).
For a note in order form
to be enforceable by a party other than to whom the note is originally payable,
the note must be either negotiated or transferred. A "'[n]egotiation' means a transfer of
possession, whether voluntary or involuntary, of an instrument by a person
other than the issuer to a person who thereby becomes its holder." NRS
104.3201(1). "[I]f an instrument is payable to an identified person,
negotiation requires transfer of possession of the instrument and its
endorsement by the holder."[4] NRS 104.3201(2) (emphasis
added). An "endorsement" is a signature that is "made on an
instrument for the purpose of negotiating the instrument." NRS
104.3204(1). Thus, if the note is payable to the order of an identifiable
party, but is then sold or otherwise assigned to a new party, it must be endorsed
by the party to whom it was originally payable for the note to be considered
properly negotiated to the new party. Once a proper negotiation occurs, the new
party, or "note holder," with possession is entitled to enforce the
note. [*1281] NRS 104.1201(2)(u)(1) ("Holder means...[t]he person in
possession of a negotiable instrument that is payable either to bearer or to an
identified person that is the person in possession.")
If a party cannot attain
"holder" status by showing a valid negotiation, the party may establish
its right to enforce the note by showing that the note has been validly
transferred. NRS 104.3203(2). The only distinction between a negotiation and a
transfer is that, in the case of a transfer, the note need not be endorsed by
the party who is relinquishing enforcement rights. Because a transferred note
is not endorsed, however, the party seeking to establish its right to enforce
the note "must account for possession of the unendorsed instrument by
proving the transaction through which the transferee acquired it." U.C.C.
§3-203 cmt. 2 (explaining the effect of §3-203(b), codified in Nevada as NRS
104.3203(2)). In other words, because the party seeking to enforce the note
cannot "prove" its right to enforce through the use of a valid
endorsement, the party must "prove" by some other means that it was
given possession of the note for the purpose of enforcing it.[5]
In
this case, the mortgage note provides: "In return for a loan that I have
received, I promise to pay U.S.
$_____ plus interest, to the order of Lender. Lender is _________(emphasis added). Because the mortgage note is payable
to the order of a specific party, ______,
to negotiate the note to a new party, in this case Wells Fargo, Wells Fargo must have possession of the note and
the note must be properly endorsed by _____________. See NRS 104.3201(2). If no
such endorsement is included in the documents produced at mediation, or if
Wells fargo fails to produce a valid assignment as proof of the
note's transfer, Wells Fargo is not entitled to enforce the note. (Mere
possession does not entitle Wells Fargo to enforce the note assuming they can
even produce the original note.) Therefore, because
the mortgage note is payable to ,
unless Wells Fargo can prove that the note was properly endorsed or validly
transferred, thereby making it the party entitled to enforce the note, it has
not demonstrated authority to mediate the note.
As
the Nevada Supreme Court has concluded in Pasillas[6],
a foreclosing party's failure to bring the required documents to the mediation
is a sanctionable offense under NRS 107.086 and the FMRs.
[1] "'Conveyance' shall be construed to embrace
every instrument in writing, except a last will and testament, whatever may be
its form, and by whatever name it may be known in law, by which any estate or
interest in lands is created, aliened, assigned or surrendered." NRS
111.010(1).
[2] Article 3 is codified in NRS 104.3101-.3605.
[3] Leyva
v. Nat'l Default Servicing Corp., 255 P.3d 1275, 1279-1281 (Nev. 2011).
[4] Under NRS 104.3301(1)(a), a person entitled to
enforce an instrument is "[t]he holder of the instrument."
[5] To "prove" a transaction under NRS
104.3203(2), a party must present evidence sufficient to establish that it is
more likely than not that the transaction took place. NRS 104.3103(1)(i)
(defining "prove"); NRS 104.1201(2)(h) (defining [**18] "burden
of establishing")
[6] In Pasillas, the Nevada Supreme Court concluded that the following
nonexhaustive list of factors would aid district courts in determining what
sanctions are appropriate: "whether the violations were intentional, the
amount of prejudice to the nonviolating party, and the violating party's
willingness to mitigate any harm by continuing meaningful negotiation."
Pasillas v. HSBC Bank USA, 127 Nev. ___,___, 255 P.3d 1281, 2011 Nev. LEXIS 39
(Adv. Op. No. 39, July 7, 2011)
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