Foreclosing Plaintiff Had Standing

A foreclosing plaintiff had standing to foreclose because it was the holder of the note and defendant failed to rebut the resulting presumption of ownership. Also, defendant failed to preserve an appellate challenge to the existence of an agency relationship between the loan servicer and plaintiff because defendant didn’t object or otherwise raise the issue during the servicer’s testimony.

The Connecticut Appellate Court made these determinations in AS Peleus, LLC v. Success, Inc., which will be officially released on February 2, 2016.

Standing is one of my pet issues. What the court didn’t say about standing in this case is more interesting to me than what it did say. I will explain that in the “Impact” section. For now, I note that plaintiff apparently plead that it was the owner and holder of the note. Defendant left plaintiff to its burden of proof on that allegation. At trial, plaintiff introduced the original note which “contained” six allonges ending with a special endorsement to plaintiff. Plaintiff also introduced testimony from a representative of plaintiff’s loan servicer.

Defendant did not offer any evidence at the trial. Nor did defendant object to the competence of the servicer representative to testify about the existence of an agency relationship between itself as agent and plaintiff as principal. Defendant instead made a tactical decision to raise that issue in its post-trial brief.

The trial court found that plaintiff was the owner and holder of the note and had established the other elements of its foreclosure claim.

The Appellate Court affirmed.

Arguments on Appeal

Defendant argued that the trial court erred in determining that plaintiff was the owner and holder of the note. I can’t give you any specifics of why defendant thought the trial court erred in this regard because the Appellate Court didn’t give any specifics in the opinion. If I had to guess, I would say it had something to do with the allonges because the Appellate Court said the note “contained” the allonges, rather than the allonges were attached to the note. It also dropped a footnote defining “allonge” and explaining that an allonge is considered part of the note. Without digressing too much, an allonge isn’t an allonge unless it’s physically attached to the note, which means that an allonge isn’t part of the note unless it’s attached to the note. In short, I don’t think the court used “containing” accidentally.

Defendant also argued that the trial court erred in accepting the servicer representative’s testimony absent proof that he was plaintiff’s agent.

Appellate Court’s Conclusions

The court concluded that the note and allonges established plaintiff’s holder status, which gave rise to the rebuttable presumption of ownership. Defendant, who didn’t offer any evidence at trial, failed to rebut the presumption. Thus, the trial court properly determined that the foreclosing plaintiff had standing as the owner and holder of the note.

As to defendant’s agency argument, the court concluded that defendant had not preserved it for appeal because defendant did not object to any of the servicer representative’s testimony, including his testimony that he was authorized to speak for plaintiff. Defendant’s decision to raise the issue for the first time in its post-trial brief was inconsistent with the preservation requirement. It also effectively ambushed plaintiff, who was deprived of the opportunity to supply curative evidence.

Impact

Defendant left plaintiff to its proof on the owner and holder issue. “Leaving plaintiff to its proof” of an allegation is like a denial, with one big difference: Defendant does not get to controvert the allegation as it would with an outright denial. So, all plaintiff has to do is offer some evidence to support the allegation, which establishes it as fact, prima facie. Since defendant can’t controvert it, the weakness of plaintiff’s evidence is irrelevant. That would make you think that a defendant who leaves a plaintiff to its proof of the owner/holder allegation forgoes the right to rebut the presumption. The court didn’t say that defendant lost the right to rebut the presumption. It said that plaintiff didn’t attempt to rebut the presumption.

On the other hand, standing is an aspect of subject matter jurisdiction, which can’t be created by waiver or consent. This might mean that borrower can’t lose the right to attempt to rebut the presumption.

The case leaves these issues open. I think the better course of action for a borrower is to deny the owner/holder allegation. That way, there can be no question of forfeiting the right to attempt to rebut the ownership presumption.

About the Photo

I used this picture in my first post, which was about another foreclosure case. It might become my go to pic for this category of cases.