Wells Fargo Bank Minnesota as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certifications, Series 2011 CRF2 v. Rouleau
Docket: 2011-078
Court: Supreme Court of Vermont; March 23, 2012; Vermont; State Supreme Court
Randy J. Rouleau appeals a ruling from the Washington Civil Division, which determined that Wells Fargo Bank Minnesota, N.A., as trustee for Credit Suisse First Boston Mortgage Securities Corp., has the right to enforce Rouleau's personal guaranty of a promissory note secured by mortgages on five mobile home parks. The court found that Wells Fargo qualifies as the holder of the note under 9A V.S.A. 3-301(i), which outlines who can enforce a negotiable instrument.
Rouleau contends that the court erred by concluding that Wells Fargo has the standing to enforce the guaranty, claiming that Wells Fargo failed to demonstrate a clear chain of assignments from the original lender, Column Financial, Inc., to itself. He further argues that the assignment of the note does not suffice to prove the assignment of the separate guaranty contract, which must be expressly assigned. Rouleau asserts that without standing, the court lacked jurisdiction over the enforcement action.
The Civil Division's findings indicate that in November 2000, R&G Properties, Inc. borrowed $2.15 million from Column, with Rouleau, as R&G’s president, signing a promissory note secured by mortgages on the mobile home parks. An allonge attached to the note assigned it to Wells Fargo, and a separate document assigned the related mortgages. Rouleau also signed a guaranty agreeing to be personally liable for the secured indebtedness in the event of bankruptcy.
The loan was intended for securitization, involving the pooling of similar loans into a trust for investors, necessitating the assignment of the loans to a trustee. Column had prepared a General Assignment stating that it had not previously assigned the note, mortgage, or other security documents and retained the right to make such assignments in the future. The appellate court affirmed the lower court's decision.
In April 2001, Wells Fargo, Credit Suisse First Boston, and GMAC Commercial Mortgage Corporation executed a Pooling and Servicing Agreement, forming a Real Estate Mortgage Investment Conduit (REMIC) that included R&G’s loan among approximately 200 others. Wells Fargo acted as the trustee, managing the promissory notes, mortgages, and related security documents. Although the exact date of R&G’s promissory note assignment to Wells Fargo is unclear, by June 2002, the securitization process was mostly complete, with the final mortgage assignment recorded by October 2003.
In September 2008, R&G declared bankruptcy, leading to liability under a guaranty. On February 13, 2009, Capmark Finance, acting as the special servicer for Wells Fargo, initiated legal action to enforce the guaranty in Washington Superior Court. Following Capmark’s bankruptcy and subsequent sale to Berkadia, the court allowed Capmark to substitute Wells Fargo as the plaintiff, asserting Wells Fargo’s status as the real party in interest.
During a bench trial focused on Wells Fargo's standing to enforce the guaranty, the court found that Wells Fargo produced necessary documentation, including the original note and mortgage assignments, establishing its status as the holder of the note under relevant law. The defendant challenged the court's conclusion, arguing that assignment of the guaranty required separate proof of its assignment, as guaranties are independent contracts. However, the court held that the assignment of the promissory note and mortgage inherently included the assignment of the personal guaranty, even without explicit assignment documentation.
Personal guaranties are governed by general contract law principles, which require clear intent for assignment in an assignment agreement. An assignment must reflect the obligee's intention to transfer rights, as established in Desrochers v. Desrochers and the Restatement (Second) of Contracts. Personal guaranties are secondary obligations linked to a principal obligation; thus, a guarantor's duty arises from the principal obligor's failure to fulfill their obligation under a promissory note, per Vt. Dev. Credit Corp. v. Kitchel. The assignment of the principal obligation inherently includes the assignment of the guaranty unless otherwise agreed or prohibited. The court correctly concluded that Wells Fargo's assignment of the guaranty depended on its assignment of the underlying note and mortgage.
The defendant argues that Wells Fargo lacks standing to enforce the guaranty due to alleged inability to prove that the loan documents were deposited into the REMIC, implying Vermont law necessitates proof of chain of title. However, it is determined that a plaintiff does not need to prove chain of title to enforce a personal guaranty if they possess the original note and mortgage when filing the complaint, and these instruments are payable to them. According to the applicable statute, a person is entitled to enforce an 'instrument' if they are the holder, defined as someone in possession of a negotiable instrument payable to bearer or to an identified person.
To enforce a promissory note or mortgage under 9A V.S.A. 3-301(i), a party must possess the instrument at the time of filing the enforcement action, and the instrument must be payable to that party or their order. This requirement applies equally when the original endorsement is blank. Vermont Rule of Civil Procedure 80.1(b)(1) mandates that plaintiffs attach copies of the original note, mortgage deed, and proof of ownership, including all endorsements and assignments, to the complaint. It also allows plaintiffs to assert possession or entitlement to enforce under the Uniform Commercial Code without needing to prove a chain of title for standing, despite the defendant's contrary claims.
Wells Fargo and the defendant reference cases that are not applicable to Vermont law. Wells Fargo cites Livonia Property Holdings, which supports that a chain of title is unnecessary under Michigan law but does not apply to Vermont’s 9A V.S.A. 3-301(i). The defendant cites U.S. Bank National Ass’n v. Ibanez, which requires the foreclosing party to identify itself as the holder of the mortgage but does not establish a chain of title requirement under Vermont law.
The determination of Wells Fargo's standing hinges on whether it is the holder of the note and mortgage, which the civil division found, allowing enforcement of the guaranty. This factual finding must be proven by a preponderance of the evidence. The appellate court will uphold the civil division's findings unless they are clearly erroneous, confirming that Wells Fargo is indeed the holder of the note and mortgage, thus allowing it to enforce the guaranty.
Wells Fargo established itself as the holder of the note and mortgage by demonstrating possession of the original instruments and proof of assignment before the enforcement action was filed on February 13, 2009. The court found, based on testimony from Tommy Floyd of Berkadia, that the note and mortgage were assigned to Wells Fargo prior to this date. Floyd explained the securitization process, indicating that the loan was initially assigned in blank and later specifically assigned to Wells Fargo as trustee upon completion of the securitization in October 2003. His testimony was corroborated by original loan documents produced at trial, which explicitly named Wells Fargo as the assignee. There was no evidence presented to contradict Floyd's account or to support any assignment to a third party. Consequently, the court's finding that Wells Fargo was assigned the note and mortgage was upheld, confirming its standing to enforce the guaranty and rejecting the defendant’s argument regarding jurisdiction. The ruling was affirmed.
The allonge used for transferring the note was signed and witnessed but lacked a date. In prior litigation, R&G Props. Inc. v. Column Fin. Inc., the defendant and Column presented arguments regarding the sale of a mortgaged mobile home park, sharing some factual background but differing in legal issues. The defendant asserts that Column transferred the original loan documents to Bank One Mortgage Warehouse on November 13, 2000, based on a custodial agreement allowing Bank One to hold the documents. However, the civil division deemed this information irrelevant to the question of which entity had physical possession of the documents at the loan's inception. It is acknowledged that Wells Fargo possessed the original loan documents during the trial, and the involvement of Bank One Mortgage Warehouse in the early securitization process does not affect Wells Fargo's right to enforce the guaranty, nor does it suggest any unknown third party has substantive rights to the note and mortgage.
