James M. Perry v. Federal National Mortgage Association
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REL: 12/30/2011
Notice: This opinion is subject to formal revision before publication in the advance
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before the opinion is printed in Southern Reporter.
ALABAMA COURT OF CIVIL APPEALS
OCTOBER TERM, 2011-2012
_________________________
2100235
_________________________
James M. Perry
v.
Federal National Mortgage Association
Appeal from Shelby Circuit Court
(CV-09-900606)
PITTMAN, Judge.
James M. Perry appeals from a summary judgment in favor
of the Federal National Mortgage Association ("Fannie Mae") in
an ejectment action.
We reverse and remand.
2100235
Facts and Procedural History
Perry obtained a loan in the amount of $144,433 from
RBMG, Inc., to purchase a home.
On August 12,
2003, he
executed a promissory note in favor of RBMG and a mortgage
securing
the
note
in
favor
Inc.
of
Mortgage
("MERS"),
as
Electronic
Registrations
Systems,
nominee
for
the
lender RBMG.
The note and the mortgage were, at different
times, subsequently transferred to EverHome Mortgage Company
("EverHome").
Perry
made the payments due on the mortgage
indebtedness until November 2007, when he was injured in a
work-related accident. After the injury, Perry experienced a
reduction
in
his
income
and
began
to
have
difficulty
in
making his mortgage payments.
In support of its summary-judgment motion, Fannie Mae
submitted evidence indicating that on July 16, 2008, it had
sent a notice-of-default letter to Perry at the address listed
on the note and mortgage.
In his response in opposition to
the motion, Perry submitted an affidavit stating that he had
contacted EverHome in an effort to obtain a loan-modification
or "work-out" plan through EverHome's loss-mitigation program.
Between July 23, 2008, and August 4, 2009, EverHome and Perry
2
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were in contact concerning loss-mitigation alternatives to
foreclosure, and EverHome agreed to suspend Perry's mortgage
payments
for
three
months,
ending November 1, 2008.
beginning
August
1,
2008,
and
Perry, however, was never able to
bring his loan to a current status, and EverHome declined to
consider
any
further
loss-mitigation
measures
because
it
concluded that Perry's expenses exceeded his income.
On
July
notified
2,
Perry
2009,
via
a
an
attorney
mailed
retained
letter
that
by
EverHome
EverHome
was
accelerating the maturity date of the loan and commencing
foreclosure proceedings, with a foreclosure sale scheduled for
August 4, 2009.
The letter enclosed a copy of the foreclosure
notice to be published in the newspaper.
The notice named
EverHome as the assignee of the mortgage.
It is undisputed that on July 6, 2009, EverHome conveyed
its interest in the property to Fannie Mae by special warranty
deed; that the notices of the foreclosure sale were published
on July 8, July 15, and July 22, 2009, in the Shelby County
Reporter;
and
that
on
mortgage to EverHome.
July
15,
2009,
MERS
assigned
the
At the foreclosure sale on August 4,
2009, EverHome purchased the property for $137,896.50.
3
The
2100235
same
day,
possession
EverHome's
of
the
attorney
property.
sent
On
Perry
August
a
demand
for
21,
2009,
the
assignment of the mortgage and the special warranty deed were
both recorded in the Shelby County Probate office; the deed
was recorded two seconds after the assignment.
On August 17, 2009, Fannie Mae filed a complaint alleging
that it was the owner of the property by virtue of its special
warranty deed from EverHome and seeking to eject Perry from
the property.
Fannie Mae attached to the complaint EverHome's
foreclosure deed and its own special warranty deed.
Perry
answered and denied that Fannie Mae had the right to eject him
from the property because, he claimed, the foreclosure sale
and the foreclosure deed were void as a consequence of what,
Perry claimed, had been "defective notice and a defective
sale."
Following
judgment.
note,
the
discovery,
Fannie
Mae
moved
for
a
summary
In support of that motion, Fannie Mae submitted the
mortgage,
EverHome's
foreclosure
deed,
its
own
special warranty deed, and the affidavit of Nik Fox, custodian
of EverHome's books and records relating to Perry's loan.
Fox
stated that he had reviewed EverHome's records concerning
4
2100235
Perry's loan and that he had personal knowledge of the facts
set forth in his affidavit.
He authenticated the pertinent
documents, including the series of loss-mitigation letters
that EverHome had sent to Perry and the notice-of-acceleration
and demand-for-possession letters that attorneys for EverHome
had sent to Perry.
With respect to the promissory note that
Perry had executed in favor of RBMG on August 12, 2003, Fox
authenticated EverHome's copy of the note, which had been
stamped with the following preprinted blank indorsement:
"Pay to The Order of
____________________
Without Recourse
[illegible signature]
Senior Vice President
RBMG, Inc."
Fox averred that EverHome had "acquired its interest in the
note on or about July 2, 2007."
Perry filed a response in opposition to Fannie Mae's
summary-judgment motion, attaching, among other materials, his
own affidavit and arguing that the foreclosure sale and the
foreclosure deed were void for the following reasons:
(1)
EverHome did not have the right to exercise the power of sale
under
the
mortgage
because,
Perry
said,
it
was
not
the
assignee of the mortgage when it commenced the foreclosure
5
2100235
proceedings; (2) EverHome had failed to comply with the notice
requirements in the mortgage instrument; (3) EverHome had
failed to comply with
the
statutory notice
requirements
of
§ 35-10-13, Ala. Code 1975, because, Perry said, the first
foreclosure notice published in the newspaper on July 8, 2009,
reflected that the mortgage had been assigned to EverHome,
when, in fact, MERS did not assign the mortgage to EverHome
until July 15, 2009; (4) EverHome had failed to comply with
its loss-mitigation program; (5) the foreclosure sale was
wrongful because EverHome had breached its fiduciary duty by
intentionally
underbidding
the
value
of
the
property
and
creating a sham deficiency; and (6) Fannie Mae's summaryjudgment motion was not supported by admissible evidence under
Rule 56, Ala. R. Civ. P.
Fox's
affidavit
was
not
Specifically, Perry argued that
based
on
personal
knowledge
and
failed to state how or when EverHome had obtained an interest
in the note that Perry had executed in favor of RBMG.
Fannie Mae filed a reply to Perry's response and moved to
strike
a
portion
of
Perry's
affidavit.
The
trial
court
granted the motion to strike and entered a summary judgment in
favor
of
Fannie
Mae
on
August
6
24,
2010,
setting
out
the
2100235
reasons for its decision.
Perry filed a motion to alter,
amend, or vacate the judgment on September 22, 2010.
The
trial court denied Perry's postjudgment motion on October 29,
2010, and Perry timely appealed on December 9, 2010.
The
supreme court subsequently transferred the appeal to this
court pursuant to Ala. Code 1975, § 12-2-7(6).
Standard of Review
Appellate review of a summary judgment is de novo.
parte Ballew, 771 So. 2d 1040 (Ala. 2000).
Ex
A motion for a
summary judgment is to be granted when no genuine issue of
material fact exists and the moving party is entitled to a
judgment as a matter of law.
Rule 56(c)(3), Ala. R. Civ. P.
A party moving for a summary judgment must make a prima facie
showing "that there is no genuine issue as to any material
fact and that [it] is entitled to a judgment as a matter of
law."
Rule 56(c)(3); see Lee v. City of Gadsden, 592 So. 2d
1036, 1038 (Ala. 1992).
If the movant meets this burden, "the
burden then shifts to the nonmovant to rebut the movant's
prima facie showing by 'substantial evidence.'"
2d at 1038 (footnote omitted).
Lee, 592 So.
"[S]ubstantial evidence is
evidence of such weight and quality that fair-minded persons
7
2100235
in the exercise of impartial judgment can reasonably infer the
existence of the fact sought to be proved."
West v. Founders
Life Assurance Co. of Florida, 547 So. 2d 870, 871 (Ala.
1989); see Ala. Code 1975, § 12-21-12(d).
EverHome's Right to Exercise the Power of Sale
Perry contends that the foreclosure sale was defective
because EverHome was not the assignee of the mortgage when it
initiated the foreclosure proceedings.
A party "initiates"
foreclosure proceedings when it accelerates the maturity date
of the indebtedness and publishes notice of a foreclosure
sale.
See Sturdivant v. BAC Home Loans Servicing, LP, [Ms.
2100245, December 16, 2011] ___ So. 3d ___, ___ (Ala. Civ.
App. 2011).
On July 2, 2009, EverHome's attorney notified
Perry that EverHome was accelerating the maturity date of the
indebtedness and initiating foreclosure proceedings; on July
8, 2009, Everhome first published notice of a foreclosure sale
scheduled for August 4, 2009; on July 15, 2009, MERS assigned
the mortgage to EverHome.
In Sturdivant, supra, a majority of this court held that,
because the foreclosing entity was not the assignee of the
mortgage when the foreclosure proceedings were initiated, the
8
2100235
foreclosing
standing
entity
to
had
prosecute
no
authority
its
ejectment
to
foreclose
action.
and
no
Unlike
in
Sturdivant, the timing of the assignment of the mortgage is
not determinative in this case.
judgment
motion,
Fannie
Mae
In support of its summarysubmitted
Fox's
affidavit
testimony indicating that on July 2, 2007, two years before
EverHome initiated the foreclosure proceedings, EverHome had
acquired
the promissory note that Perry had executed to RBMG
in 2003.
The parties do not dispute the fact that the note
was a negotiable instrument, i.e., that it represented Perry's
unconditional promise to pay RBMG a fixed sum of money at a
definite time, without requiring any other undertaking by
Perry.
See Ala. Code 1975, § 7-3-104.
The parties also do
not dispute that EverHome became, at some point, a "holder" of
the note.
A holder is entitled to enforce the terms of a
negotiable
instrument.
Ala.
Code
1975,
§
7-3-301.
The
dispute concerns when EverHome became a holder of the note.
If EverHome became a holder of the note before it initiated
the foreclosure proceedings in July 2009, then EverHome was
authorized to exercise the power of sale contained in the
mortgage by virtue of § 35-10-12, Ala. Code 1975.
9
2100235
Section 35-10-12 provides, in pertinent part, that
"[w]here a power to sell lands is given in any
mortgage, the power is part of the security and may
be
executed
by
any
person,
or
the
personal
representative of any person who, by assignment or
otherwise, becomes entitled to the money thus
secured."
(Emphasis added.)
In Harton v. Little, 176 Ala. 267, 270, 57
So. 851, 851 (1911), our supreme court held that "[i]t is not
at all necessary that a mortgage deed be assigned in order to
enable the owner of the debt to foreclose under a power of
sale."
"The power of sale is a part of the security, and
may be exercised by an assignee, or any person who
is entitled to the mortgage debt. And a transfer of
the debt, by writing or by parol, is in equity an
assignment of the mortgage."
176 Ala. at 270, 57 So. at 851-52 (citations omitted).
See
also Ala. Code 1975, § 8-5-24 ("The transfer of a ... note
given for the purchase money of lands, whether the transfer be
by delivery merely or in writing, expressed to be with or
without recourse on the transferor, passes to the transferee
the
lien
of
the
vendor
of
the
lands.").
See
generally
Restatement (Third) of Property: Mortgages § 5.4(a) (1997)
(stating that "[a] transfer of an obligation secured by a
10
2100235
mortgage also transfers the mortgage unless the parties to the
transfer agree otherwise").
Fox,
the
custodian
of
EverHome's
records
relating
to
Perry's loan, identified EverHome's copy of the note, which
bore a blank indorsement by RBMG.
A blank indorsement allows
a party to transfer a note merely by possession.
Code
1975,
§
7-3-205(b)
("When
indorsed
in
See Ala.
blank,
an
instrument becomes payable to bearer and may be negotiated by
transfer of possession alone until specially indorsed."); see
also § 7-3-201(b).
Although the indorsement was undated, Fox
averred that EverHome had "acquired its interest in the note
on or about July 2, 2007."
Perry argues that Fox's statement regarding the date on
which EverHome acquired the note was inadmissible under Rule
56(e), Ala. R. Civ. P.
That rule provides, in pertinent
part:
"Supporting and opposing affidavits shall be made on
personal knowledge, shall set forth such facts as
would be admissible in evidence, and shall show
affirmatively that the affiant is competent to
testify to the matters stated therein. Sworn or
certified copies of all papers or parts thereof
referred to in an affidavit shall be attached
thereto or served therewith."
Fox's affidavit stated, in part:
11
2100235
"In my present position, I have direct access to the
books and records of [EverHome] regarding the
account which forms the basis of this action and am
a custodian of said books and records.
I have
personal knowledge of the facts set forth in this
affidavit and I have reviewed said relevant business
books and records. ... I am competent to testify to
the matters set forth in this affidavit, which are
based upon my review of said books and records and
my personal knowledge."
Perry maintains that Fox could not have had personal knowledge
of the date on which possession of the note had been delivered
to EverHome unless (a) Fox had been involved in the delivery
"transaction" or (b) Fox had reviewed a record of EverHome
documenting that "transaction."
With respect to alternative
(b) of his lack-of-personal-knowledge argument, Perry insists
that, if Fox had reviewed and relied upon a record of EverHome
documenting the "transaction" by which EverHome had acquired
the note, then that record should have been, but was not,
attached to Fox's affidavit.
Initially,
we
note
that
because
a
blank
indorsement
allows a party to transfer a note by possession alone, it is
unlikely that any formal, documentable "delivery transaction"
occurred.
EverHome may, however, have made an entry in its
files or on its books indicating that the note, a valuable
financial asset, had been received and credited to its account
12
2100235
on a certain date.
Nevertheless, aside from Fox's general
assertion that he had reviewed EverHome's books and records
and that he had personal knowledge of the contents of those
books and records, Fox did not state (and Fannie Mae did not
attach documentation to demonstrate) how Fox had gained his
knowledge
possession
of
of
the
date
the
on
note.
which
Those
EverHome
omissions
had
acquired
rendered
Fox's
affidavit testimony concerning the acquisition date of the
note inadmissible.
Servs.
Found.,
See Waites v. University of Alabama Health
638
So.
2d
838
(Ala.
1994)
(physician's
affidavit failed to comply with Rule 56(e) because medical
records, upon which physician relied for his opinion, were not
attached); Pettigrew v. LeRoy F. Harris, M.D., P.C., 631 So.
2d 839 (Ala. 1993) (same); Ex parte Head, 572 So. 2d 1276,
1281 (Ala. 1990) (affiant's statement -- that he had gained
personal knowledge of the relationship among the defendants by
reviewing probate court records -- did not comply with Rule
56(e) because no probate court records were attached to the
affidavit);
Smith
v.
Secretary
of
Veterans
Affairs,
[Ms.
2100194, June 24, 2011] ___ So. 3d ___, ___ (Ala. Civ. App.
2011) (affidavit of loan servicer's vice president, which did
13
2100235
not explain how affiant had acquired personal knowledge of
assignment of mortgage, mortgagor's default, and commencement
of foreclosure proceedings, and to which unsworn, uncertified,
or otherwise unauthenticated documents were attached, did not
comply with Rule 56(e)).
Cf. Welch v. Houston Cnty. Hosp.
Bd., 502 So. 2d 340, 344 (Ala. 1987) (physician's deposition
testimony regarding his findings, which findings were based on
physician's
review
personnel,
and
inadmissible
of
not
because
hospital
chart
on
personal
his
neither
the
and
chart
interviews
knowledge,
nor
with
were
affidavits
or
depositions of personnel who were interviewed by physician
were contained in the record).
In Johnson v. Layton, 72 So. 3d 1195 (Ala. 2011), our
supreme court held that it was not necessary that a patient's
chart be attached to a physician's affidavit that referenced
the chart because it was clear that the physician had relied
on personal knowledge gained by treating the patient, not on
the
chart,
affidavit.
in
rendering
the
opinion
he
expressed
in
his
The court distinguished Welch, Head, Pettigrew and
Waites, stating that those decisions "demonstrate that an
affiant must submit with his or her affidavit documents that
14
2100235
he or she has relied upon in rendering the opinion expressed
in the affidavit."
Fannie
Mae
72 So. 3d at 1201.
argues
that
Perry
failed
to
preserve
for
review any argument as to a defect in Fox's affidavit because
Perry did not move to strike the affidavit.
Perry
clearly
called
the
trial
court's
We disagree.
attention
to
the
inadmissibility of Fox's testimony regarding the alleged date
on which EverHome had acquired the note, and he devoted a
considerable portion of his response in opposition to Fannie
Mae's summary-judgment motion to explaining the basis for his
objection.
This court recently
stated:
"'On the question whether a trial
court should consider a defective affidavit
introduced in support of a motion for
summary judgment and not objected to by the
opposing party, we have consistently held
that a failure to object constitutes a
waiver of the right to object to the
affidavit and that in the absence of an
objection the trial court may properly
consider such an affidavit, even if an
objection alleging the particular defect
would clearly have been proper. See Lennon
v. Petersen, 624 So. 2d 171 (Ala. 1993);
Cain v. Sheraton Perimeter Park S. Hotel,
592 So. 2d 218 (Ala. 1991); Morris v.
Young, 585 So. 2d 1374 (Ala. 1991); Perry
v. Mobile County, 533 So. 2d 602 (Ala.
1988). An objection need not be made in any
particular form. See McMillian v. Wallis,
567 So. 2d 1199, 1205 (Ala. 1990) (holding
15
2100235
that a party must "call the [trial] court's
attention" to the fact that a deposition or
affidavit is inadmissible and that by
failing to do so a party waives any
objection to the court's considering the
affidavit or deposition).'
"[Ex parte Elba Gen. Hosp. & Nursing Home, Inc., 828
So.
2d
308,
312–13
(Ala.
2001)]
([e]mphasis
added[).]
"In the case now before us, although [the
ejectment defendant] did not move to strike [the]
affidavit [of the loan servicer's vice president]
and the unsworn, uncertified, and unauthenticated
documents that accompanied it, [the ejectment
defendant's] response to the summary-judgment motion
called
the
trial
court's
attention
to
the
inadmissibility of the affidavit and those documents
by objecting to them and stating the grounds of the
objection.
Therefore, we find no merit in [the
ejectment plaintiff's] argument that [the ejectment
defendant] waived his objection to the ... affidavit
and the documents that accompanied it because he
failed to move to strike them. See Ex parte Elba
Gen. Hosp. & Nursing Home, Inc."
Smith v. Secretary of Veterans Affairs, ___ So. 3d at ___.
We
conclude
that
the
date-of-acquisition-of-the-note
portion of Fox's affidavit was inadmissible.
of
the
matters
to
which
his
affidavit
Fox's
was
knowledge
addressed
was
obviously derived from his review of EverHome's records, and
he relied on those records in executing the affidavit, yet
there was no documentation attached to his affidavit that
accounted for his having gained knowledge of when EverHome
16
2100235
acquired possession of the note.
Without the objectionable
portion of Fox's affidavit testimony, Fannie Mae could not
establish either (1) that EverHome, at the time it initiated
the foreclosure proceedings, was entitled to exercise the
power
of
sale
in
the
mortgage
or
(2)
that
EverHome's
foreclosure deed was valid.
If EverHome's foreclosure deed was invalid, then Fannie
Mae's special warranty deed was also invalid.
On July 6,
2009, when EverHome conveyed the property to Fannie Mae by
special warranty deed, EverHome did not have title.
The
equitable doctrine of after-acquired title would, under other
circumstances, have operated to perfect title in EverHome when
EverHome later purchased the property at the foreclosure sale
on August 4, 2009, and title would then have passed to Fannie
Mae immediately.
See Jett v. Lawyers Title Insurance Corp.,
985 So. 2d 434 (Ala. Civ. App. 2007):
"'"In no State perhaps has the rule been more
rigidly adhered to than in this, 'that when one
sells land to which he has no right, with warranty
of title, and he afterwards acquires a good title,
it passes instantly to his vendee, and he is
estopped from denying that he had no right at the
time of the sale.'..."'"
17
2100235
985 So. 2d at 438 (quoting Turner v. Lassiter, 484 So. 2d 378,
380 (Ala. 1985), quoting in turn Doolittle v. Robertson, 109
Ala. 412, 413, 19 So. 851, 851 (1895)).
Because
Fannie
Mae
failed
to
establish
by
admissible
evidence that EverHome was the holder of the note that would
have enabled EverHome to initiate foreclosure proceedings,
which, in turn, would have enabled EverHome to receive a valid
foreclosure deed, and to transfer valid title to Fannie Mae,
Fannie Mae did not make a prima facie showing that it was
entitled to a summary judgment on its ejectment claim.
judgment
of
the
Shelby
Circuit
Court
must,
therefore,
reversed and the cause remanded for further proceedings.
REVERSED AND REMANDED.
Bryan, Thomas, and Moore, JJ., concur.
Thompson, P.J., concurs specially.
18
The
be
2100235
THOMPSON, Presiding Judge, concurring specially.
I
write
specially
to
express
my
concerns
about
the
handling of foreclosures in cases such as the one at bar.
First, however, I would like to make clear that I recognize
the difficulty in which financial institutions find themselves
in this economic climate and the strain caused by the current
volume
of
foreclosures.
Although
I
have
sympathy
for
mortgagors who often find themselves unable to meet their
financial obligations, I support the efforts of mortgagees to
recover,
mortgaged
to
the
extent
possible,
properties.
However,
their
I
investments
think
it
should
in
be
emphasized that the entities that negotiate with mortgagors or
initiate
foreclosure
proceedings
should
actually
be
the
mortgagees for the loans at issue, i.e., that the foreclosing
entities should ensure that they have an interest in the loans
at issue before representing themselves as an entity with such
an interest to mortgagors.
The records in several cases presented to this court
indicate instances in which the foreclosing entities have
proceeded
to
negotiate
with
borrowers
or
to
begin
the
foreclosure process before those entities have any interest in
19
2100235
the mortgages at issue.
On some occasions, the records before
this court have indicated that foreclosure proceedings have
been initiated after the foreclosing entity has refused a
mortgagor's requests, made under loss-mitigation procedures,
for
mortgage
assistance
and,
often,
well
before
the
foreclosing entity obtains an interest in the mortgage it is
attempting to foreclose.
(In this case, unlike in others,
there is an indication that the Federal National Mortgage
Association
had
an
foreclosure
process
interest
had
in
begun,
the
but
property
that
well
evidence
properly included in the record on appeal.)
before
was
not
My concern is
that the cases that have been before this court are not the
only instances in which such practices have been utilized.
In the vast majority of cases, the property subject to
foreclosure serves as the primary residence for the mortgagor.
The defaulting mortgagors often cannot afford an attorney and,
in fact, are often ultimately responsible for the attorney
fees of the mortgagor.
Recently, this court has held that a
party seeking foreclosure must have a valid interest in the
mortgage
indebtedness
proceedings.
before
initiating
foreclosure
See Sturdivant v. BAC Home Loans Servicing, LP,
20
2100235
[Ms. 2100245, Dec. 16, 2011]
2011).
So. 3d
(Ala. Civ. App.
I also believe that it is incumbent on the foreclosing
entity (or other potential mortgagee) to have a valid interest
in
the
mortgage
at
the
time
it
demands
payment
from
a
mortgagor or offers the mortgagor the opportunity to apply for
assistance under its loss-mitigation procedures.
An entity
that makes or purchases mortgages is the party in control of
ensuring that it has the interest in the property that it
claims.
21
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