Case Study 3 – Standing
21st Mortgage Corporation v. Linda C. Nicholls; Duncan K. Robertson, et al.
21st Mortgage Corporation (“21st Mortgage”) filed a judicial foreclosure action against Linda C. Nicholls and Duncan K. Robertson on July 24, 2014, in the Superior Court of the State of Washington for King County, Case No. 14-2-20431-1 SEA.
As background, Linda Nicholls inherited a house in southwest Seattle (“Property”). In 1999, she borrowed $100,000 from Old Kent Mortgage Company and executed a promissory note (“Note”) secured by a deed of trust (“1st Deed of Trust”) that encumbered the Property.
In 2006, Ms. Nicholls obtained a private mortgage loan in the amount of $82,000 from Mr. Robertson which was also memorialized by a promissory note and secured by a deed of trust (“2nd Deed of Trust”). About two years later, Ms. Nicholls defaulted on the 2nd Deed of Trust whereupon Mr. Robertson instituted a nonjudicial foreclosure action. The sale took place on September 26, 2008, at which time, Mr. Robertson purchased the Property subject to the 1st Deed of Trust.
Following the trustee’s sale, Mr. Robertson attempted to locate the owner of the 1st Deed of Trust to request a payoff quote. A title search in the King County Recorder’s Office revealed that the 1st Deed of Trust had been assigned several times making it uncertain who the current owner of the debt was.
Rather than cooperate with Robertson, the trustee of the 1st Deed of Trust repeatedly filed notices of trustee’s sale to foreclose upon the Property, which Mr. Robertson blocked.
Frustrated by the situation, Mr. Robertson filed a Complaint in the Superior Court of the State of Washington for King County, Case No. 12-2-19854-3 SEA on June 6, 2012, to quiet title and to assert other claims such as for wrongful foreclosure, fraud and deception, violation of the implied covenant of good faith and fair dealing, etc. (“Robertson’s Action”).
Robertson’s Action was stayed because several of the named defendants in his lawsuit, including Residential Funding Company (“RFC”), filed for bankruptcy on May 14, 2012.
During the pendency of the RFC bankruptcy, Berkshire Hathaway purchased a portfolio of non-performing mortgage loans from the RFC debtors, which allegedly included the Nicholls loan. At Berkshire Hathaway’s direction, the RFC debtors conveyed the mortgage loans to the Knoxville 2012 Trust (“Trust”). In February 2014, 21st Mortgage began servicing the mortgage loans on behalf of the Trust.
Five months later, on July 24, 2014, 21st Mortgage filed a judicial foreclosure action against Linda C. Nicholls and Duncan K. Robertson in the Superior Court of the State of Washington for King County, Case No. 14-2-20431-1 SEA. Ms. Nicholls did not respond to the foreclosure complaint and defaulted. The case against Mr. Robertson proceeded and on December 8, 2015, Mr. Robertson engaged McDonnell Property Analytics (“MPA”) to investigate the following:
- Trace the ownership history of the Nicholls Note and Deed of Trust to the extent possible using all available resources.
- Determine what interest in the Nicholls Mortgage Loan GMAC Mortgage LLC, Residential Funding Company, LLC, or other ResCap companies might have had held on May 14, 2012, when Residential Capital, LLC and 50 of its affiliates filed for bankruptcy.
Marie McDonnell produced a Preliminary Research Memorandum on March 3, 2016, that was submitted to the Court in support of Mr. Robertson’s opposition to 21st Mortgage’s Motion for Summary Judgment. Ms. McDonnell concluded:
- The Nicholls Mortgage Loan was allegedly securitized on March 30, 2000, into the Residential Asset Securities Corporation, Series 2000-KS2, a New York common law trust over which Bank One, National Association served as Trustee, and Residential Funding Corporation was appointed Master Servicer.
- The Residential Asset Securities Corporation, Series 2000-KS2 trust was paid off and dissolved during the month of October 2006. At that time, the outstanding principal balance on Nicholls’ Mortgage Loan was $93,518.08. The Servicer as of October 2006 was reported to be GMAC RFC.
- No available evidence exists as to who may have acquired the assets of the Residential Asset Securities Corporation, Series 2000-KS2 Trust once it had been paid off and dissolved.
- After a concerted attempt to learn more about the circumstances of the dissolution of the Residential Asset Securities Corporation, Series 2000-KS2 in October of 2006; and finding no trace of the Nicholls Mortgage Loan in another securitization, I concluded that discovery is necessary to unearth the truth about what became of the Nicholls Mortgage Loan thereafter.
- When the Note Endorsements, Note Allonges, Assignments of Deed of Trust, my Preliminary Research Memorandum, and my Chain of Title Tracking Tool are read together, it becomes obvious that there remain genuine issues of material fact that preclude Summary Judgment in favor of Plaintiff 21st Mortgage at this juncture.
- In fact, the paper trail reveals there has been a concerted attempt along the way to suppress the identity of the Note Owner.
- In my expert opinion, all that Residential Funding Company, LLC held as of May 14, 2012, when the ResCap entities filed for bankruptcy was the right to service the Nicholls Mortgage Loan.
Robertson also engaged a Forensic Document Examiner who submitted an expert affidavit detailing the reasons why he concluded the Note and Allonges proffered by 21st Mortgage were fabricated “copies” and not originals.
On April 28, 2016, the Trial Court entered an order of final judgment in favor of 21st Mortgage that disregarded Ms. McDonnell’s chain of title analysis and ignored the Forensic Document Examiner’s findings.
Mr. Robertson successfully appealed that order and on October 30, 2017, the Court of Appeals for the State of Washington, Division 1, remanded the case for trial to determine if the Note and Allonges were original, and whether the Allonges were permanently affixed to the Note on the date 21st Mortgage filed its Complaint.
A week before trial, the Judge hearing the matter disqualified the Forensic Document Examiner which severely hampered Mr. Robertson’s defense.
21st Mortgage’s attorney filed five (5) motions to exclude Ms. McDonnell’s testimony as “irrelevant” which the Judge denied.
Ms. McDonnell testified on behalf of Mr. Robertson on September 30th and was cross-examined by 21st Mortgage’s attorney on October 4, 2021. When asked a speculative question about whether 21st Mortgage might have been in possession of the Allonges but forgot to attach them to the Complaint, Ms. McDonnell replied:
Well, we can fantasize all day about the possibilities, but the evidence is clear and convincing: the Allonges were not affixed to the Note on July 24, 2014, the date the Complaint was filed. In fact, they were non-existent until Mr. Robertson’s attorney asked about them in June 2015.
On October 5, 2021, after deliberating for approximately two hours, the jury returned a verdict in favor of Mr. Robertson finding that the three (3) Allonges were not affixed to the Note on July 24, 2014, when 21st Mortgage filed its Complaint.
Under Washington law, 21st Mortgage Corporation did not have standing to foreclose upon the 1st Deed of Trust because the Note was not specifically indorsed to it or indorsed in “blank” so that the person holding the Note could enforce it.