PHH v. Consumer Financial Protection Bureau: Opinion
10 Years: Indiana Commercial Foreclosure Law

Loan Servicers As Plaintiffs In Foreclosure Cases

Lesson.  Mortgage loan servicers can, in certain circumstances, prosecute foreclosure actions on behalf of lenders/mortgagees. 

Case cite.  Turner v. Nationstar, 45 N.E.3d 1257 (Ind. Ct. App. 2015).

Legal issue.  How can a servicer of a mortgage loan, instead of the lender itself, be the plaintiff in a foreclosure case?

Vital facts.  Nationstar sued Borrowers to foreclose a mortgage.  The parties entered into a settlement agreement that the Borrowers later breached.  Nationstar filed a motion to enforce the settlement agreement and sought to proceed with the foreclosure.  During the proceedings, facts surfaced that JPMorgan Chase Bank as Trustee for CHEC 2004-C (Chase) was the actual owner of the loan and that Chase had hired Nationstar to service the loan.  The Turner opinion is not altogether clear as to whether Nationstar or Chase actually possessed the original promissory note (endorsed in blank), other than to make an inference that, for purposes of its servicing, Nationstar probably held it.  There was proof that Nationstar’s servicing obligations obligated it to, among other things, handle foreclosure proceedings. 

Procedural history.  Borrowers filed a motion to dismiss Nationstar’s complaint because it was not prosecuted in the name of the owner of the loan (Chase).  In other words, Borrowers contended that Chase should have been the plaintiff.  The trial court denied the motion and granted foreclosure.  Borrowers appealed.

Key rules.  Indiana Trial Rule 17(A) deals with who is the “real party in interest,” and every action must be prosecuted by such party.  T.R.17(A)(1) suggests that in certain instances a party can sue for the benefit of another after “stating his relationship and the capacity in which he sues.”   

Indiana’s UCC at Ind. Code 26-1-3.1-301 outlines persons “entitled to enforce” a promissory note that include the “holder” of the note.  I.C. 26-1-1-201(2)(a) defines “holder” of a note, which can be a person in possession of the note if the note is endorsed in blank. 

Holding.  The Indiana Court of Appeals affirmed the trial court’s denial of Borrowers’ motion to dismiss and affirmed the decision to foreclose. 

Policy/rationale.  Borrowers argued that, under Rule 17(A)(1), Nationstar was required to disclose (plead) its relationship to Chase and the capacity in which it was suing.  The Court disagreed.  Although Chase owned the note, Nationstar was its holder and, by statute, had the right to enforce it.  It followed that Nationstar was a real party in interest.  Furthermore, as to the settlement agreement, the Court pointed out that, as servicer, Nationstar’s role was to negotiate such agreements and that Chase was not a necessary party to any such negotiations.  In the end, although the evidence seemed shaky as to whether Nationstar actually possessed the original promissory note, as a practical matter the Court had enough facts upon which to base its decision that Nationstar was a proper party to enforce the settlement agreement and take the matter through foreclosure. 

(The opinion did not address in any way whether Nationstar or Chase held the underlying mortgage.  In other words, Turner was silent on what assignment(s) of mortgage had been recorded.  As such, I think this case may be unique with regard to traditional standing issues given that the context was the enforcement of a settlement agreement as opposed to a straight foreclosure action.)      

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Part of my practice is to defend lenders and their servicers in contested foreclosures and consumer finance litigation.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at [email protected].  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.