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Minnesota Law Does Not Require Foreclosing Bank to Hold Note and Mortgage - Stein v. Chase Home Finance

December 9, 2011

Our Rubidoux foreclosure defense attorneys were interested to see yet another challenge to a bank's right to foreclose reach the federal appeals courts. In Stein v. Chase Home Finance, Minnesotan Kenath Stein challenged the right of Chase to foreclose, arguing that it did not have both the note and the mortgage for the home in its possession when it started the foreclosure. Stein also challenged the validity of a redemption of the home by a junior lienholder, National City Bank. After removal to federal court, the two lenders successfully moved to dismiss, finding both actions valid. Stein appealed to the Eighth U.S. Circuit Court of Appeals, but it upheld the district court.

Stein refinanced in October 2006 with a $484,000 loan from Chase, and took out a second loan from National City in January of 2007. Unfortunately, he started missing payments in March of 2008 and could never cure the default entirely. Chase notified him in September of that year that it would start foreclosure proceedings; a few weeks later, Chase Bank assigned the mortgage to its Chase Home Finance arm. Chase later sold the home to itself at the foreclosure sale, and National City exercised its right to redeem the property by buying it within six months. Stein then filed a pro se lawsuit in state court, arguing that Chase did not have the right to foreclose because it needed to possess both the note and the mortgage when initiating foreclosure. The banks removed the case to federal court, which granted summary judgment, finding Chase Bank had validly assigned its home finance arm both the note and the mortgage. Stein appealed, with an attorney.

On appeal, Stein argued that there were genuine issues of material fact as to whether it did have the note when it started the foreclosure, making summary judgment inappropriate. The Eighth Circuit disagreed. The Minnesota Supreme Court made a relevant decision with 2009's Jackson v. Mortgage Electronic Registration Systems, where it ultimately found that an assignment of a promissory note need not be recorded before a foreclosure by advertisement may take place. In its analysis, the Minnesota Supreme Court found that a party may hold the mortgage without any interest in the note; the right to foreclose lies with the legal holder of the mortgage, not a note-holder with an equitable interest. Thus, because the mortgage was assigned to Chase 11 days after the foreclosure notice, the foreclosure was valid. In any case, the Eighth noted, the assignment expressly included the note, so Stein's argument fails. It affirmed the district court.

As Placentia foreclosure defense lawyers, we would be interested to know how Stein's case may have come out if he had had an attorney. In particular, we suspect the banks moved the case to federal court because Stein was representing himself, and federal court is generally considered a more difficult forum for doing this. It may be true that Stein was mistaken about the need for both a note and a mortgage, but we also notice that the court didn't address the issue of when exactly those documents must be in the foreclosing institution's possession. Our Carson foreclosure defense attorneys have seen cases in which this mattered a great deal, because the lender made the necessary assignments to comply with state law only after the foreclosure was started. This issue is worth looking into for any homeowner who suspects the foreclosure did not respect state law.

If you're fighting to hold on to your home in the face of indifference or active wrongdoing by your lender and loan servicer, you should call Howard Law, P.C., today for a consultation. You can reach us through our website or call 1-800-872-5925.

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