Source: https://www.scribd.com/doc/47056911/MillsV-FirstHorizonSupremeCourtBriefAsFiledWithAppendix
Timestamp: 2016-02-13 18:07:45
Document Index: 258012177

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FIRST HORIZON HOME LOAN CORPORATION D/B/A FIRST TENNESSEE HOME LOANS & MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. Defendants / Appellees ______________________________________________________________________________
APPELLANTS’ APPLICATION FOR PERMISSION TO APPEAL WITH BRIEF
Respectfully submitted, Mills & Associates
By: ______________________________ David G. Mills, Tennessee BPR #17640 Pro Se and Attorney for Appellant Julia Mills 1403 Cedar Run Cordova, Tennessee 38016 (901) 818-1999 telephone (901) 624-0684 facsimile
TABLE OF CONTENTS ...............................................................Error! Bookmark not defined. TABLE OF AUTHORITIES..........................................................Error! Bookmark not defined. TRAP 11 APPLICATION FOR PERMISSION TO APPEAL ....................................................... 1 CERTIFICATE OF SERVICE .................................................................................................... 5 BRIEF ............................................................................................................................................. 6 STATEMENT OF JURISDICTION ........................................................................................... 6 STATEMENT OF THE ISSUE PRESENTED FOR REVIEW.................................................. 6 STATEMENT OF THE CASE.................................................................................................... 6 Timeliness of Appeal: ............................................................................................................. 7 STATEMENT OF FACTS .......................................................................................................... 8 STANDARD OF REVIEW ...................................................................................................... 11 ARGUMENT............................................................................................................................ 12 A. Appellants’ Allegations in Their Suit to Remove the Clouds On Their Title. .............. 12 1. 2. B. C. Appellants’ three assertions regarding the cloud created by their first mortgage Deed of Trust. ....................................................................................... 12 Appellants’ assertion regarding the cloud created by the second mortgage Deed of Trust......................................................................................................... 13
Authority Regarding Elements of a Suit to Remove a Cloud on Title Does Not Include the Doctrine of Ripeness ................................................................................. 14 Facts and Authority for the Proposition That the Encumbrance Created By the First Mortgage Deed of Trust, In Using a Strawman Beneficiary and Lienholder, Violates Trust Law Identity Requirements, Severely Impairs the Public Recordation Process, and Should Be Void As Against Public Policy. .............. 18 1. 2. 3. 4. A financial interest in the underlying obligation is required to assert rights under the Deed of Trust......................................................................................... 18 The underlying obligation a Deed of Trust secures must be enforceable. ............ 30 Securitization of mortgage notes means that identification of the actual note holders may be impossible............................................................................ 34 Most Importantly, the Usage of a Strawman Lienholder Transforms a Public Transparent and Open Recordation System into a Private and Secretive One And Should Be Void As Against Public Policy.............................. 35
Authority for the Proposition That An Encumbrance Is Created By the Second Mortgage Release of Lien Which Is Void or Voidable. ................................................ 36 Appellants’ Allegations Regarding Their First and Second Mortgage Notes............... 37
1. 2. F. 1. 2. 3. 4.
First Note Claims .................................................................................................. 37 Second Note Claims.............................................................................................. 39 Equitable authority incident to the actions to remove cloud................................. 39 Statutory authority under Tennessee’s version of the Uniform Commercial Code. ..................................................................................................................... 40 Common law authority.......................................................................................... 42 Appellants Clearly Have Stated A Cause of Action On Their Promissory Notes. .................................................................................................................... 42
Authority Regarding Stating a Cause of Action on the Mortgage Notes...................... 39
CONCLUSION AND PRAYER............................................................................................... 42 CERTIFICATE OF SERVICE .................................................................................................. 43
CASES Abni Joint Venture v. Kinnaird No. 86-292-II (Tenn. Ct. App. March 19, 1987) (perm. App. Denied June 8, 1987) ……………………………………………………... 33 Almony v. Hicks 40 Tenn. (3 Head) 39 1859 WL 3391 ………………………………………………….. 16 Bell ex rel. Snyder v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A 986 S.W.2d 550 (Tenn. 1999) ………………………………………………………….. 11 Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W. 3d 619 (Mo. App. 2009) ……………………………………………………… 27 Carpenter v. Longan 16 Wall. 271, 83 U.S. 271, 275, 21 L. Ed. 313 (1872) ………………………………… 27 Colonial Pipeline Company v. Morgan 263 S.W.3d 827 (Tenn. 2008) ………………………………………………………………….. 42 Conlee Engine Rebuilders, Inc. v. City of Memphis No. 2004 WL 2609202 (Tenn. Civ. App.-Jackson, November17, 2004) ……………… 11 Doe v. Sundquist 2 S.W.3d 919 (Tenn. 1999) …………………………………………………………….. 11
Dunegan v. Griffith 253 S.W.3d 164 (Tenn. Ct. App. 2007) …………………………………………….. 16, 17 Ezell v. Graves 807 S.W.2d 700, (Tenn. Cit App. 1990) ……………………………………………….. 17 First Tennessee Production Credit Association v. Davis 748 S.W. 83 (Tenn. 1988) ……………………………………………………………… 42 Fuerst v. Methodist Hosp. S. 566 S.W.2d 847 (Tenn. 1978) ………………………………………………………….. 11 Hawley v. Mauldin 2009 WL 2922792 (Tenn. Ct. App. – Jackson, September 10, 2009) ….……… 15, 16, 40 Hot Stuff, Inc. v. Kinko’s Graphic Corp. 50 Ark. App. 56, 901 S.W. 2d 854, 856 (1995) ………………………………………... 24 In re Joshua & Stephanie Mitchell, Debtors No. 2009 WL 1044368 (Bankr. D. Nev. Mar. 31, 2009) ………………………. 20, 26, 27 In re Sheridan 2009 WL 631355 (Bankr. D. Idaho 2009)……………………………..……………….. 27 In re Vargas 396 B.R. 511 (Bankr. C.D. Cal 2008) ……………………………………………… 26, 27 In Re Wilhelm 407 B.R. 392 (Bankr. D. Idaho 2009) ……………………………………………… 22, 23 Khalil v. CarCar Development, Inc. WL 4530829 (Tenn. Ct. App. December 21, 2007) ………………………………….… 33 Landmark National Bank v. Kesler, et al. 216 P.3d 158 (Kan. 2009) ……………………………………………………… 25, 26, 27 McReynolds v. Am. Progressive Corp. No. 01-A-019008CH00300, 1991 WL 24891 (Tenn. Ct. App. March 1, 1991) ………………………………………………………………………… 33 Mortgage Elec. Reg. Sys., Inc. v. Nebraska Department of Banking 270 Neb. 529, 704 N.W. 2d 784 (2005) …………………………………………….….. 25 Mortgage Electronic Registration System, Inc. v. Southwest Homes of Arkansas 301 S.W. 3rd 1 (Ark 2009) …………………………………….………………………... 23 Mortgage Electronic Registration Systems v. Saunders, et al,
2010 ME 79 (Maine 2010) …………………………………………………………….. 28 Pursell v. First Am. Nat’l Bank 937 S.W.2d 838 (Tenn. 1996) ………………………………………………………….. 11 Stearns Coal & Lumber Co. 184 S.W. 855 (Tenn. 1916) …………………………………………………………….. 16 Trau-Med of Am., Inc. v. Allstate Ins. Co. 71 S.W.3d 691 (Tenn. 2002) …………………………………………………………… 11 White v. Revco Disc. Drugs Ctrs., Inc. 33 S.W.3d 713 (Tenn. 2000) …………………………………………………………… 11
T.C.A. § 47-3 ………………………………………………………………………….……….. 32 T.C.A. § 47-3-204 ……………………………………………… …………………………….. 33 T.C.A. § 47-3-308 ……………………………………………………………………………… 32 T.C.A. § 47-3-309 ………………………………………………… 31, 32, 33, 37, 38, 39, 40, 42 T.C.A. § 47-3-501 ………………………………………………………… 14, 36, 37, 38, 39, 40 T.C.A. § 47-3-501(b)(2) ……………………………………………………………………….. 41 T.C.A. § 47-3-604 ………………………………………………………………………… 32, 33 RULES
FED. R. CIV. P. 17 ……………………………………………………………………………… 21 Tenn. R. App. P. 11 ………………………………………………………………………… 6, 8
Tenn. R. App. P. 21 …………………………………………………………………………….. 8 Tenn. R. Civ. P. 59 ……………………………………………………………………………… 7 Tenn. R. Civ. P. 8.01 …………………………………………………………………………… 11 Tenn. R. Civ. P. 12.02(6) ………………………………………………………………………. 11
OTHER BLACK’S LAW DICTIONARY 165 (8TH ed. 2004) ……………………………….…………. 21 BLACK’S LAW DICTIONARY 1076 (8th ed. 2004) …………………………………….…… 26 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1553 (2D ED. 1990) ……………………………………………………….… 21 4 RICHARD R. POWELL, POWELL ON REAL PROPERTY, § 37.27 [2] (2000) ………….. 22 RESTATEMENT (THIRD) OF PROPERTY 9 MORTGAGES) § 5.4 cmt. a. (1997) ……….…22 RESTATEMENT (SECOND) OF AGENCY § 33 (1958) …………………………………..… 24 Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, Professor Christopher L. Petersen, Real Property Trust and Estate LawJournal, publication pending, (appended to Brief as Exhibit B.) ………………….….
TRAP 11 APPLICATION FOR PERMISSION TO APPEAL
Applicants and Appellants, David G. Mills and Julia Mills (Mills), file this, their Application for Permission to Appeal the Judgment of the Court of Appeals in this matter, and would respectfully show this Court the following: 1. The Court of Appeals entered its Judgment affirming the trial court’s dismissal of
Appellants’ petition in this cause on November 16, 2010. Appellants did not file a petition for rehearing in the Court of Appeals, and Appellants have filed this application within the sixty days of the Court of Appeals’ Judgment, as required by TRAP 11. 2. The Court of Appeals’ holding that the case was not ripe for adjudication raises
three questions, which are presented in this appeal. First, did Mills have the right to challenge the validity of the first mortgage Deed of Trust Lien without resorting to default on the first mortgage Note1, where the Note and Deed of Trust Lien had been separated? Since Mills have not defaulted on their first mortgage Note, and expressly stated that they do not intend to do so, the Court of Appeals held that their claim challenging the validity of the first mortgage Deed of Trust Lien was not a real “case in controversy”. This decision is contrary to existing law, which has never required that the rights of the parties in one written instrument be coupled to the rights of the same parties in another separate written instrument, even when the instruments apply to related matters.
A copy of the first mortgage note, simply entitled “NOTE”, does not have any language related to the creation of liens. Said copy is a part of the record to be found in Appellees’ motion to dismiss.
Second, was Mills’ claim for return of all funds paid on their second mortgage
Note ripe for adjudication, when, after full payment of the second mortgage Note, Defendant (Appellee First Horizon (First Horizon) herein) failed and/or refused to surrender the second mortgage Note? Since First Horizon had given them a release for the second mortgage Deed of Trust Lien, the Court of Appeals held this claim was also not ripe for adjudication. This decision is not only contrary to existing law [which has held that a person who pays off his/her note is entitled to sue to either get his/her note back or his/her money back (if the note cannot be proven to have been in existence and/or enforceable when paid off)] but misdirected, since the issue of who has the right to execute a release the Deed of Trust Lien is founded upon the identity of the entity who actually holds the note! Further, in the explanations of their holdings, both the Court of Appeals and the trial court completely ignored Mills’ statutory claim for the damages sought under TCA § 47-3-309. 4. Third, a question of immense public interest and import arises, with regard to the
mortgage crisis that exists today both in Tennessee and throughout the United States, as to whether Mills, or anyone so situated, can challenge the validity of a first mortgage Deed of Trust Lien, when not in default of the mortgage Note. The Court of Appeals has held that they cannot. 5. In the hearings before the Court of Appeals, the evidence showed that Mills owes
a debt under their first mortgage Note, but do not owe that debt to Appellees. In fact, because of Appellees’ disregard for public filing Mills are not certain whom they owe, but it is clear from the evidence presented in the trial court that they do not owe the Appellees. Yet, it is the Appellees who claim to hold the mortgage Deed of Trust Lien rights of Mills first mortgage even though Appellees don’t hold the mortgage Note. As a result the Mills’ first mortgage Deed of Trust Lien has now become a typical lien created pursuant a financing process called
“securitization,” and the lien itself can only be described as a radical departure from mortgage liens of the past. 6. Until securitization, noteholders held the lien rights. This is not the case with
“securitized” financing. A securitized lien does not create lien rights in any entity that holds the note; instead, the lien creates lien rights in a “strawman”, usually the Appellant Morgtage Electronic Recording Systems, Inc. (MERS). These “securitized” liens have become
commonplace, and are the source of the aforementioned mortgage crisis that exists today. The use of a strawman as lienholder in these “securitized” mortgages threatens to transform a public, transparent and open deed recording system into a private and secret recording system that only certain people in the mortgage lending industry can access. All property owners of this state who have similar liens to the Mills’ will ultimately discover that no property owner, no title company, no prospective purchaser will be able to determine from the deed records of this state, who the entity is who must be paid to get a valid release of these liens. A strawman as lienholder, impairs any person’s ability to determine who the entity is that must be paid to secure a valid release of the lien. The purpose of a public deed recording system, which is to make determination of property ownership clear and simple, is totally frustrated. 7. While some states have held that a deed of trust lien and a note can be separated
and the lien still be valid after separation, these states have held that such is the case only where the separation was unintentional, inadvertent, due to negligence, or some other situation where equity would require the lien be held valid. But these “securitized” liens are vastly different. The separation of note and lien are intentional and deliberate in “securitization;” the separation is not due to inadvertence, negligence or some other situation less than intentional or deliberate conduct. Furthermore, the separation occurs ab initio as the lien rights are given to a strawman
in the original document. “Securitized” liens make separation of the note and lien the norm, rather than a rare event. The result is that the public recording system is no longer capable of functioning as a notice to all of who must be paid to get a valid release of lien. 8. The Supreme Courts of three other jurisdictions have already held these
“securitized” liens invalid. So have numerous bankruptcy courts. Because these liens have been held invalid on numerous occasions in other jurisdictions, Mills seek to challenge the validity of their first mortgage Deed of Trust Lien, and have sought to do so, without running the risk that a default on the first mortgage Note would pose to them. 9. The question of the validity of these ‘securitized” liens and the harm they cause to
the public recording system, is not only one of great importance to the citizens of Tennessee, but also one of first impression in Tennessee. 10. Since the Shelby County Chancery Court dismissed Mills’ case pursuant to a
Motion to Dismiss, no factual record exists, other than facts educed in transcripts of the hearing on the Motion to Dismiss and the hearing on the Motion to Set Aside the Judgment, which are part of the Appellate Court’s file. 11. As permitted by TRAP 11(b), along with the filing of this application, the
Applicant is filing his brief, and in it are contained the reasons and authorities supporting review by this Court. 12. A copy of the Court of Appeals’ Opinion and Judgment is appended to this Brief
as Exhibit A. A copy of the legal article written by Professor Christopher L. Petersen, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, Real Property Trust and Estate Law Journal, publication pending, is appended to the this Brief as Exhibit B.
____________________________________ David G. Mills (17640) Mills & Associates BPR # 17640 Pro Se and Attorney for Appellant Julia Mills, 1403 Cedar Run Drive Cordova, TN. 38016 (901) 818-1999 (901) 624-0684 fax
CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of this document has been hand delivered, or mailed regular mail to Kristine L. Roberts and Robert F. Tom, at their offices on 165 Madison Avenue, Suite 2000, Memphis, TN, 38103 on this 14th day of January 2011.
____________________________________ David G. Mills
BRIEF STATEMENT OF JURISDICTION
This court has jurisdiction pursuant to Tenn. R. App. P. 11.
The single issue presented to this court is whether the Court of Appeals erred in dismissing Appellants case for lack of justiciability on the basis of ripeness.
In this case, Appellants appeal the Court of Appeals' Judgment dismissing Appellants case for lack of justiciability on the basis of ripeness. Appellants’ suit is an action to quiet the title on their homestead, coupled to actions on the Notes that financed the purchase of their homestead. Appellants assert that Appellees’ liens on their homestead are not valid and are subject to removal through court action. Appellants further assert that the Notes are unenforceable, and that their enforceability is subject to determination through court action. Appellants finally assert that the unenforceability of the Notes form the basis of a claim for the return of all monies paid on the Notes. Appellants further seek a declaration whether Appellee First Horizon Home Loans Corporation (FHHLC) has the right, under the documents forming the basis of this suit, to force Appellants, under threat of foreclosure, to make payments to FHHLC, even though FHHLC admits to having sold the first mortgage Note, and even thought FHHLC refuses to show authority from the present noteholder to demand payment on the noteholder’s behalf. Should FHHLC be unable to prove it has the authority to demand payment, Appellants ask for a cease and desist order against FHHLC from sending demand payments. 6
Timeliness of Appeal: Appellants filed their Original Complaint to Quiet Title on March 26, 2009 and filed an unopposed First Amended Complaint to Quiet Title on September 8, 2009. Appellees filed a Motion to Dismiss Appellants’ Original Complaint (which was never heard) and a subsequent Motion to Dismiss Appellants’ First Amended Complaint to Quiet Title. On October 28, 2009, the Chancery Court heard Appellees’ Motion to Dismiss Appellants’ First Amended Complaint to Quiet Title. The Chancery Court granted Appellees’ Motion to Dismiss Appellants’ First Amended Complaint to Quiet Title, and issued a Judgment, date stamped November 06, 2009, on the grounds set forth in an Exhibit “A” attached to the Judgment. Exhibit “A” of the Judgment consisted of pages 42 to 45 of the transcript from the October 28, 2009 hearing. A copy of such Judgment with its Exhibit “A” is located in Appellant’s Court of Appeals’ Brief as Appendix 1. Pursuant to Tenn. R. Civ. P. 59, Appellants had a right to file a motion to alter or amend judgment within 30 days of the entry of said judgment, said due date being December 6, 2009. Appellants timely filed their Motion To Alter Or Amend (Set Aside) Judgment on November 23, 2009, within the 30-day time period allowed under Tenn. R. Civ. P. 59. The Court heard Appellants’ Motion to Alter or Amend (Set Aside) Judgment on December 4, 2009, and subsequently, by order date stamped January 5, 2010, denied Appellants’ Motion to Alter or Amend Judgment. The Order denying the motion set forth the grounds in Exhibit “A” attached to the Order, which exhibit contained the entire transcript from the December 4, 2009 hearing. A copy of such Order with Exhibit “A” is located in Appellants’ Court of Appeals Brief as Appendix 2.
Appellants timely filed their notice of appeal to the Court of Appeals on February1, 2010, within thirty days of the January 5, 2010 order, as required by Tenn. R. App. P. 4. The Court of Appeals rendered its decision affirming the trial court on November 16, 2009. A copy of that decision with holding affirming the trial court is Appended to this Brief as Exhibit “A.” Appellants timely filed their Application for Permission to Appeal to the Supreme Court pursuant to Tenn. R. App. P. 11 and 21.
The following statement of facts is a rendition of the facts stated in paragraphs 5- 24 of Appellants’ First Amended Complaint to Quiet Title, the operative pleading in effect when the suit was dismissed. In January 2008, Appellant David Mills obtained payoff information on the Appellants’ second mortgage Note from Appellee (FHHLC), and paid that account in full before the first part early February of 2008. FHHLC’s representative stated that four to six weeks after full payment, Appellants would receive documentation showing the second mortgage loan having been paid off and the second mortgage lien having been released. Based upon FHHLC’s statement and other factors, Appellant David Mills expected to receive the original of the filed Release of Deed of Trust for the second mortgage and the return of the original Note for the second mortgage, marked “paid,” or “paid in full,” or other words to that effect. On June 30, 2008, a reasonable time period having elapsed, Mills called FHHLC to check on the status of the documentation he expected to receive. In that June 30, 2008 conversation, FHHLC’s representative stated that FHHLC had received the payoff on Plaintiff’s second mortgage Note and that FHHLC had released the Deed 8
of Trust Lien on the second mortgage in February of 2008. But when Mills requested that FHHLC send him the original of the second mortgage Note, FHHLC’s representative emphatically refused that request. In response, Mills stated Appellants were entitled to have the original returned and repeated the request. FHHLC’s representative again emphatically refused that request. FHHLC's refusal to return the second mortgage note indicated that FHHLC did not having possession thereof. That being the case, FHHLC lacked the right to execute a release of the second mortgage deed of trust. Thus, the release of the second mortgage deed of trust is invalid, and the second mortgage deed of trust still acts as a cloud on Appellants’ title. FHHLC refused to provide information on the current holder and owner of the second mortgage Note, and to provide evidence that the owner thereof had actually been paid. Therefore, in late July 2008, Mills demanded in writing that FHHLC send him the original second mortgage Note, of which Appellants had fully paid, and the original release of the second mortgage deed of trust. FHHLC failed to even respond to Mills demand. Appellants’ only recourse, then, was to seek judicial relief to compel FHHLC to reveal such information, and to seek relief with regard to Applicants’ first mortgage documents, as indicated below. Subsequent to the filing of Appellants’ Original Complaint, counsel for FHHLC contacted Mills and asserted that the second mortgage Note was probably destroyed and unavailable to be returned to the Appellants. However, said counsel did not demonstrate any evidence for such assertion, nor indicate whom the owner and holder of the Note was that destroyed it. Therefore, the validity of the release is still in question.
Prior to initiation of this suit, and based upon the foregoing facts, Mills concluded he would also not receive the original Note for the first mortgage or the original release of the first mortgage deed of trust, when the obligations of those instruments were satisfied. Therefore, in the same letter of July 2008, Mills further demanded therein that FHHLC show him proof that FHHLC also held the Note on Appellants’ first mortgage. As indicated above, FHHLC failed to respond to Mills’ demand. Mills was finally able to get in touch with FHHLC’s home office representative who knew about his demand letter. This particular representative acknowledged receipt of the
demand letter and told Mills that Appellants would not be getting the original note that had been paid off, nor would Appellants be allowed to see the first mortgage note they were still paying on. Based upon this representative’s statements and FHHLC’s failure to respond to Mills’ demands with respect to the second mortgage instruments, Mills deemed a suit was necessary, and filed their Original Complaint. Subsequent to the filing of Appellants’ Original Complaint, the same counsel for FHHLC told Mills, that Appellants’ first mortgage Note had been sold, and that FHHLC was only servicing the note - but that she believed the note was still in FHHLC’s possession. Said counsel gave no justification for her belief, rendering the remark as useless for Appellants’ purposes. Appellants’ first mortgage deed of trust, which was attached as Exhibit “D” to the First Amended Complaint, states that FHHLC is the lender but that Mortgage Electronic Recording System, Inc. (MERS) is “a separate corporation that is acting solely as nominee for Lender and Lender’s successor and assigns.” (our italics) It further states that, “MERS is the beneficiary under this security instrument.” Despite the language in the Deed of Trust, naming MERS as both the beneficiary and as the nominee for the beneficiary, MERS cannot be both beneficiary
and nominee for the beneficiary since one cannot be a nominee for one’s self. Moreover, a search of the Shelby county deed records indicates that there was never a recordation of an assignment of the first mortgage Deed of Trust. Appellants continue to make payments on their first mortgage Note and have every intention to do so during the pendency of this litigation, have done so, and are not in default.
The Tennessee Supreme Court has stated, in Trau-Med of Am., Inc. v. Allstate Ins. Co., 71
S.W. 3d 691, 696-97 (Tenn. 2002), and this court has acknowledged, in Conlee Engine Rebuilders,
Inc. v. City of Memphis, No. 2004 WL 2609202 at *2 (Tenn. Civ. App.-Jackson, November17, 2004) the following standard of review: A Rule 12.02(6) motion to dismiss only seeks to determine whether the pleadings state a claim upon which relief can be granted. Such a motion challenges the legal sufficiency of the complaint, not the strength of the plaintiff’s proof, and, therefore, matters outside the pleadings should not be considered in deciding whether to grant the motion. See Bell ex rel. Snyder v. Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A., 986 S.W. 2d 550, 554 (Tenn. 1999). In reviewing a motion to dismiss, the appellate court must construe the complaint liberally, presuming all factual allegations to be true and giving the plaintiff the benefit of all reasonable inferences. See Pursell v. First Am. Nat’l Bank, 937 S.W. 2d 838, 840 (Tenn. 1996). It is well-settled that a complaint should not be dismissed for failure to state a claim unless it appears that the plaintiff can prove no set of facts in support of his or her claim that would warrant relief. See Doe v. Sundquist, 2 S.W. 3d 919, 922 (Tenn. 1999); Fuerst v. Methodist Hosp. S., 566 S.W. 2d 847, 848 (Tenn. 1978). Great specificity in the pleadings is ordinarily not required to survive a motion to dismiss; it is enough that the complaint set forth “a short and plain statement of the claim showing that the pleader is entitled to relief.” White v. Revco Disc. Drugs Ctrs., Inc., 33 S.W. 3d 713, 718 (Tenn. 2000) (citing Tenn. R. Civ. P. 8.01). We review the trial court’s legal conclusions de novo without giving any presumption of correctness to those conclusions. Id.
A. Appellants’ Allegations in Their Suit to Remove the Clouds On Their Title. Appellants alleged that they are the owners of the property in question, 1403 Cedar Run Drive, Cordova, TN, which is their homestead. They claimed that there are two clouds on their title and prayed for their removal. 1. Appellants’ three assertions regarding the cloud created by their first mortgage Deed of Trust. The most important cloud is the Deed of Trust for their first mortgage. In paragraphs 5157 of Appellants First Amended Complaint, Appellants pointed out with particularity why the Deed of Trust is void and of no force and effect, and in paragraph 58 they asked for a judgment setting aside the First Mortgage Deed of Trust and removing any cloud on Appellants’ property due to the first mortgage Deed of Trust. Appellants’ first assertion is that Appellants’ suit to remove the cloud on their first mortgage meets all of the elements of a suit to remove a cloud under the Tennessee common law: (1) they alleged the are the owners of the property, (2) they alleged that Appellees FHHLC and MERS have an encumbrance on it, (3) they alleged the encumbrance to be void or voidable and (4) they asked for removal of the cloud created by the void encumbrance. Appellees do not contest elements 1, 2, and 4. Only the third element of this assertion is at issue as to whether Appellants have pled an action for which relief could be granted. Appellants assert that they have pled at least three ways in which they can show that the first mortgage Deed of Trust creates an encumbrance that is void or voidable. As there have been no recorded assignments of that first mortgage Deed of Trust, FHHLC and MERS are, therefore, the only entities affecting Appellants’ chain of title under that instrument. Appellants do not owe either Appellee a debt secured by that instrument (FHHLC 12
having admitted to selling the note evidencing the debt and MERS not being the owner and holder thereof). Thus, neither Appellee can legitimately assert a lien, and the Deed of Trust, is void or at least voidable. Therefore, Appellants have pled a cause of action for which relief can be granted. Second, Appellants assert that, just as FHHLC was unable to produce or surrender the second mortgage Note when Appellants paid it off - thereby showing that note to be incapable of being proven enforceable - the same inability to produce the note has occurred with Mills’ first mortgage Note. Thus, it, too, is not capable of being proven enforceable. This would also make the Deed of Trust void and be sufficient to state a cause of action for which relief can be granted. Third, Appellants assert that, if Mills’ first mortgage Note does exist, (FHHLC claims to have sold it to Fannie Mae) it has been, in all probability, “securitized,” meaning that the entities which have an interest in Mills’ first mortgage Note are so unascertainable as to make the holder or holders of said Note unidentifiable. The holders of the note being unidentifiable, the parties who would have Deed of Trust rights are also unidentifiable making Mills’ first mortgage Deed of Trust unenforceable. 2. Appellants’ assertion regarding the cloud created by the second mortgage Deed of Trust. The other cloud is a Release of Lien of Mills’ second mortgage Deed of Trust, which Appellants assert to be defective, leaving a lien on their property. In paragraphs 37-41 of Appellants’ First Amended Complaint Appellants pointed out with particularity why the defective release creates a cloud that still exists, and in paragraph 42, they asked the court for an Amended Release of Lien to remove the cloud created by the defective Release of Lien. Appellants’ suit meets all of the Tennessee common law elements of a suit to remove a cloud on their second mortgage: (1) they alleged they own the property, (2) they alleged that Defendant
(Appellee) First Horizon’s defective release creates an encumbrance on it, (3) they alleged the encumbrance to be void or voidable, and (4) they asked for removal of the cloud created by the void encumbrance. Again, for the reasons stated above, Appellees only question the third element of the suit to remove the cloud. The Appellants allege that the release of said lien by FHHLC is presumed to be defective, because FHHLC failed to surrender the second mortgage Note upon full payment by the Appellants. Appellants allege that since the note was not surrendered as required by T.C.A. § 47-3-501, a presumption arises that FHHLC was not the holder of this second mortgage Note as FHHLC claimed in said release. Had FHHLC surrendered the second mortgage note to Appellants, as required by T.C.A. § 47-3-501, FHHLC would have given Appellants adequate assurance that the recitation in the release that FHHLC was the holder of the note was, in fact, true. But since FHHLC did not surrender the second mortgage Note, the recitation of FHHLC’s holder status in the release cannot be presumed to be true, and, therefore, a cloud exists on Appellants’ title as to the second Deed of Trust Lien until such time as this recitation is actually proven to be true. Consequently, the Appellants seek a declaratory judgment regarding whether FHHLC had the right to make the claim it was the holder of Appellants’ second Note when FHHLC made the statement in the Appellants’ release of the second mortgage Deed of Trust. If FHHLC is unable to supply the proof the law requires, Appellants have requested a clearing of the cloud that this defective release creates on their title. B. Authority Regarding Elements of a Suit to Remove a Cloud on Title Does Not Include the Doctrine of Ripeness Appellants’ actions on both of their mortgages are suits to quiet title, specifically suits to remove clouds on their title. Suits to remove clouds on title are primarily in the nature of a
declaratory action to determine the rights of the parties with respect to the instruments involved. Such suits may be either suits in equity just to determine the rights of the parties with respect to the documents involved; or, if after the Court determines an encumbrance is unlawful and Appellants are also damaged by clouds on their title, the suit may include an action at law as well. A suit to remove a cloud on title is first and foremost an action to determine the rights of the parties to the instruments that make up the disputed encumbrance. There are several Tennessee cases which hold that the elements of a suit to remove a cloud on title are: (1) that the plaintiff claims to have a legal interest in or legal title to the property in question, (2) that the defendant also claims to have a legal interest in or legal title to the property, (3) that the plaintiff claims the defendant’s title or interest is void or voidable or of no valid interest, and (4) that the plaintiff asks for removal of the cloud caused by the void or voidable interest. In the very recent case of Hawley v. Mauldin, 2009 WL 2922792 (Tenn. Ct. App. – Jackson, September 10, 2009), the plaintiff filed a suit to remove a cloud on his title in the Chancery Court of Henry County. Hawley’s allegations and prayers for relief were very similar to the Appellants’ allegations and prayers for relief in the case before this Court. Hawley alleged (1) that he owned the subject property, (2) that Mauldin had filed a security instrument placing a lien on Hawley’s property, (3) that the debt, which the lien purportedly secured, was unenforceable, and (4) Hawley prayed for removal of the cloud. The chancellor granted
summary judgment for Hawley, voided the documents filed by Mauldin, removed the cloud on Hawley’s property, enjoined Mauldin from filing similar claims against Hawley without first pursuing acceptable legal procedures, and awarded attorneys’ fees against Mauldin. The Court of Appeals affirmed the chancellor’s decision holding that:
“Plaintiff asked the trial court to remove a cloud on his title to his property and to enjoin Appellees from making similar claims in the future. These remedies are inherently equitable… The judgment is therefore valid, final and binding.” (Id. at 2 ). Hawley was not required to prove that his case was ripe or that he had suffered any actual damages. All Hawley had to allege was: (1) that he owned the property, (2) Mauldin had an encumbrance on it, (3) the encumbrance was illegal and of no force and effect, and (4) pray for the encumbrance’s removal. Hawley had not been sued on the debt nor had Maudlin attempted to foreclose on the lien. Still, Hawley had a valid cause of action for removal of his cloud. In Dunegan v. Griffith, 253 S.W. 3d 164 (Tenn. Ct. App. 2007), the plaintiff also sued to remove a cloud on her title. The chancellor dismissed her suit because he concluded the suit to be one of ejectment and not a suit for a cloud on her title. The Appellate Court, in remanding the case, noted: “There have been numerous opinions, however, where the issue presented was one of disputed title to real property where the lawsuit was described as one to quiet or remove cloud from title.” (Id. at 167 ). Thus, it is clear that courts are not concerned about what the suit is named and they will look at the suit’s substance not its form. The Dunegan Court also addressed the nature and elements of a suit to remove a cloud on title: “[I]t is settled in this state that equity has the power to cancel a void instrument whether its character as such appears from the face of the instrument or otherwise. Judge Wright in Almony v. Hicks says: ‘A bill to remove a cloud is a head of equity by itself. It will lie although the Appellees are in possession, and complainants have the legal title, and might sue at law for the recovery of the property, that not being esteemed adequate relief. *** A simple statement that the instrument is void, or voidable, with the proper prayer is sufficient.’ Stearns Coal & Lumber Co., 184 S.W. 855, 857 (Tenn. 1916) (citing Almony v. Hicks, 40 Tenn. (3 Head) 39 1859 WL 3391 (internal citations omitted).” (Id. at 167).
Dunegan makes clear that an instrument, which is alleged to be a cloud on a title, can be declared to be void or voidable based upon the document itself or based upon other matters. Dunegan also makes it clear, based on two earlier Supreme Court decisions, that all the owner of property needs to allege to state a cause of action for suit to remove cloud is a “simple statement that the offending instrument is void or voidable” (or words to that effect) and a prayer for removal of the cloud. In the case at bar, the Appellants have clearly met each and every element for a suit to remove cloud on both of their mortgages. They allege they own the property, they allege the Defendants (Appellees) have an encumbrance on it, they allege the encumbrance is void, and ask for removal of the cloud caused by the unlawful encumbrance. In another noteworthy cloud-on-title case, Ezell v. Graves, 807 S.W. 2d 700, (Tenn. Cit App. 1990), the appellants sued for libel of title after they had successfully brought an action to remove a cloud on their title. Clearly the Ezell’s successful action to remove a cloud on their title amounted to nothing more than a declaration from the court that the offending instrument was void. In the subsequent suit for libel of title, appellants sued for the special damages of their litigation costs and attorneys’ fees in their suit to remove the cloud. The trial court concluded that the appellants’ litigation costs and attorneys’ fees were not recoverable as special damages. In reversing and remanding the case, the Appellate Court held that the appellants could recover litigation costs and attorneys’ fees as special damages. The court specifically held, “[Appellants] should not be forced to sell property which they desire to retain in order to be made whole again by the defendant’s injurious conduct.” (Id. at 702). Thus, it is clear that the elements of a suit to remove a cloud on title are simple: (1) the plaintiff has to allege the plaintiff owns the property, (2) the defendant has placed an
encumbrance on it, (3) the encumbrance is void or voidable, and (4) the plaintiff must pray for relief. None of these cases have a requirement that there be some kind of additional harm necessary to have a justiciable controversy. In fact, the Court of Appeals’ holding in the case at bar is contrary to all of the aforementioned cases, which clearly indicate that no additional harm is required. The Court of Appeals has essentially held that the Appellants must be in default before a justiciable controversy exists. In essence the Court of Appeals held that the Appellants must harm the Appellee FHHLC (by defaulting) and then be harmed in return by said Appellee (by foreclosure) before a case is justiciable. None of the foregoing cases remotely suggest such a thing. C. Facts and Authority for the Proposition That the Encumbrance Created By the First Mortgage Deed of Trust, In Using a Strawman Beneficiary and Lienholder, Violates Trust Law Identity Requirements, Severely Impairs the Public Recordation Process, and Should Be Void As Against Public Policy. In the instant case, there can be no argument that Appellants’ First Amended Complaint met elements (1), (2) and (4). The only possible ground for dismissal of Appellants’ claim to remove cloud is whether Appellants’ First Amended Complaint failed to meet the requirement of element (3); i.e. whether Appellants made sufficient allegations to allege the encumbrances were void or voidable, and whether sufficient legal authority exists to support such allegations. 1. A financial interest in the underlying obligation is required to assert rights under the Deed of Trust. As previously mentioned, Appellants claim, and Appellees admit, that Appellants do not owe the Appellees any money. Appellants claim that Appellees must have a financial interest in the Mills’ first mortgage Note before Appellees may assert rights under the Deed of Trust. Otherwise, Appellees’ encumbrance is void. The authoritative cases hold that a financial interest
in the underlying obligation is required before a party, or its surrogate, can assert rights under a deed of trust. In Appellants’ first mortgage Deed of Trust, FHHLC is identified solely as Lender. As indicated above, MERS is identified first as “a separate corporation that is acting solely as nominee for Lender and Lender’s successors and assigns” (our italics) and also identified as the sole beneficiary of the Mills’ Deed of Trust on page 2 of said Deed of Trust and as nominee (our italics) for the beneficiary on page 3. Importantly, FHHLC was not named the beneficiary of the Deed of Trust even though FHHLC purportedly lent Appellants the purchase money. Consequently, an assignment of the Mills’ Deed of Trust by FHHLC would not change beneficiaries because FHHLC had no rights as a beneficiary to assign. (Said Deed of Trust, is a part of the record in case, which instrument may be found as part of Appellees’ motion to dismiss.) FHHLC no longer possesses any rights as Lender, because after initially lending the purchase money to the Appellants, it has admitted selling the first mortgage note to Fannie Mae. Despite the language in the Deed of Trust, naming MERS as both the beneficiary and as the nominee for the beneficiary, MERS, as stated above, cannot be both beneficiary and nominee for the beneficiary since one cannot be a nominee for one’s self. Thus, the only beneficiary of the Deed of Trust is MERS. MERS never lent Appellants any money and Appellants have never owed MERS. Therefore, the pivotal question raised by the Deed of Trust is whether MERS can be a beneficiary when it has never had any financial interest in the mortgage. In the last three years, at least five landmark cases in five different jurisdictions (two federal, three state) of the United States have rendered decisions concluding that MERS possesses no rights or interest in deeds of trust where the language in those deeds of trust contain
language that is verbatim to the language contained in the Appellants’ First Mortgage Deed of Trust. In all five cases, the courts have held that MERS has no standing to enforce any provisions of the respective deeds of trust because MERS never acquired any legal (financial) interest in such deed of trust. importance concerning MERS. Likewise, these cases would also indirectly indicate that FHHLC, who no longer has any legal (financial) interest in Appellants’ first mortgage Note, also would appear to have lost any security interest it might have had in Appellants’ property once it sold Appellants’ note to Fannie Mae. [Case 1] In the first such case, In re Joshua & Stephanie Mitchell, Debtors, No. 2009 WL These cases also rely upon numerous other decisions of lesser
1044368 (Bankr. D. Nev. Mar. 31, 2009), the bankruptcy judge was faced with a question of whether to lift stay of foreclosure proceedings against the Debtors of numerous bankruptcy filings. MERS had brought actions to lift the stays of these debtors. The bankruptcy court concluded that MERS was not entitled to lift stay of foreclosure proceedings because it was not a beneficiary under the Deed of Trust despite MERS’ claims to be such and despite language in the Deed of Trust that stated it was (language identical to that in the instant case). The Bankruptcy judge noted that William Hultman, Secretary of MERS, claimed in his testimony that “once MERS becomes the beneficiary of record as nominee, it remains the beneficiary when the beneficial ownership interests in the promissory note or servicing rights are transferred by one MERS member to another.” (Id. at 2). The Bankruptcy judge dismissed that argument on several grounds. Initially, the Bankruptcy judge noted that MERS must have constitutional and prudential standing and be the real party in interest in order to be entitled to lift-stay relief. (Id at 2). It
noted that, under Article III of the United States Constitution, in order to have constitutional standing MERS must meet the requirements of injury in fact, causation and redressability. (Id at 2). It noted that to have prudential standing MERS must assert “[its] own legal interests as the real party in interest. (Id. at 2). The court also noted: “As a general rule, a person who is an attorney-in-fact or an agent solely for the purpose of bringing suit is viewed as a nominal rather than a real party in interest and will be required to litigate in the name of his principal rather than his own name.” 6A CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1553 (2D ED. 1990). (Id. at 6). The Bankruptcy court then addressed the question of whether MERS had standing either as a beneficiary or as the nominee of the beneficiary or its assignee and immediately concluded that MERS was not a true beneficiary and did not have standing on its own as a beneficiary: MERS does not have standing merely because it is the alleged beneficiary under the deed of trust. It is not a beneficiary and, in any event, the mere fact that an entity is named beneficiary of a deed of trust is insufficient…. (Id. at 3). A “beneficiary” is defined as “one designated to benefit from an appointment, disposition, or assignment…or to receive something as a result of a legal arrangement or instrument.” BLACK’S LAW DICTIONARY 165 (8TH ed. 2004). But it is obvious from the MERS’ “Terms and Conditions” that MERS is not a beneficiary as it has no rights whatsoever to any payments, to any servicing rights, or to any of the properties secured by the loans.” (Id. at 3). The bankruptcy judge then opined, “More importantly, even if MERS is the nominee for the beneficiary, or the motion was brought by the beneficiary, that mere allegation is not enough to confer standing.” (Id. at 3). The court concluded, “MERS [as nominee] might be the real party in interest under FED. R. CIV. P. 17, if MERS is the actual nominee of the present [MERS] member who is entitled to enforce the note.” (Id. at 4). But it concluded that since its members had sold the notes in question, MERS was not entitled to be their nominee and thus could not acquire standing to bring suit.
As an additional matter, the Bankruptcy judge addressed the question of whether separation of the note and the Deed of Trust causes an unsecured note: When the note is split from the deed of trust, “the note becomes, as a practical matter, unsecured.” RESTATEMENT (THIRD) OF PROPERTY 9 MORTGAGES) § 5.4 cmt. a. (1997). A person holding only a note lacks the power to foreclose because it lacks the security, and a person holding only a deed of trust suffers no default because only the holder of the note is entitled to payment on it. See RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) § 5.4 cmt. e. (1997). “Where the mortgagee has ‘transferred’ only the mortgage, the transaction is a nullity and his ‘assignee’ having received no interest in the underlying debt or obligation, has a worthless piece of paper.” 4 RICHARD R. POWELL, POWELL ON REAL PROPERTY, § 37.27 [2] (2000). (Id. at 4). In light of the evidence, the Bankruptcy judge concluded that MERS had no standing to lift stay, or to litigate, because it could not find that MERS had any identifiable legal interest in the debtors’ mortgages and because the Deed of Trust had been transferred to a party (MERS) different from the holder of the note. If MERS has no standing to bring an action of foreclosure because it has no rights under the deed of trust, it also means that MERS cannot successfully defend an action to remove cloud for the very same reason. [Case 2] In the second such case, In Re Wilhelm, 407 B.R. 392 (Bankr. D. Idaho 2009), the
bankruptcy judge combined the motions to lift stay in five different cases because of factual issues that were common to all cases. Each deed of trust named MERS as “beneficiary” under the deed of trust and each deed of trust stated that MERS is acting “solely as nominee for Lender and Lender’s successors and assigns.” (Id. at 397). The Wilhelm court held that none of the movants could prove it was a holder of the notes and that none was a non-holder in possession of the notes entitled to enforce the notes under Idaho’s version of the Uniform Commercial Code (which appears to be identical to Tennessee’s version) (Id. at 403).
The Wilhelm court initially noted that none of the movants had possession of the notes and that alone was sufficient to deny any relief from stay. But the court also held that even if the movants could have established possession, in order to have the rights of a non-holder, the nonholder had to establish the transaction by which it had acquired possession of the notes, and none could do so. (Id. at 404). All of the movants relied upon transactions with MERS who had purportedly executed assignments on behalf of the original lender and that lender’s successors and assigns. (Id. at 404). The Wilhelm court noted that the deed of trust language did not permit MERS to assign notes, therefore it was impossible for the movants to establish a transaction by which they had acquired the notes. (Id. at 404). The Wilhelm court denied all motions to lift stay since the movants had failed to show they had an interest in the notes. In the instant case, neither Appellee demonstrated they had possession of the Mills’ first mortgage Note and neither proved they were a non-holder in possession of the Note, much less prove up a transaction acquiring it. Without such proof, they do not have standing to enforce the Note or any of the provisions of the Deed of Trust. Again, if MERS doesn’t have standing to bring a foreclosure action against the Appellants, it doesn’t have the basis to defend an action to remove a cloud on title. [Case 3] The third recent significant case concerning MERS’ right to assert lien rights, and
the first state supreme court to address the issue is Mortgage Electronic Registration System, Inc. v. Southwest Homes of Arkansas, 301 S.W. 3rd (Ark 2009). That case was decided about a week before Appellants filed their Original Complaint, and a copy of the judgment was attached as an exhibit to Appellants’ First Amended Complaint. In Southwest, Southwest Homes held a second mortgage deed of trust on the subject property and Pulaski Mortgage held a first mortgage deed of trust. When the homeowners, the Lindseys, failed to make payment on the second mortgage
note, Southwest Homes brought a foreclosure action against them, Pulaski Mortgage and the first mortgage trustee. MERS, who was designated as beneficiary under the first mortgage Deed of Trust, and who held legal title under the first mortgage Deed of Trust, was not sued by Southwest. Pulaski failed to answer. The trial court entered a decree of foreclosure and an order approving and confirming a commissioner’s sale. MERS learned of the foreclosure and sued for relief arguing that it was a necessary party. The Supreme Court of Arkansas held that it was not, holding that at most it was a mere agent of Pulaski, who, as its principal, had been sued. (Id. at 2,3). Notably, the Southwest court held that MERS was not a beneficiary under the deed of trust despite being designated as such under the deed of trust. (Id. at 4). MERS also argued that it could “act to preserve the rights of the lender regardless of who the lender may be under the MERS electronic registration” and the court rejected this argument holding: We specifically reject the notion that MERS may act on its own, independent of the direction of the specific lender who holds the repayment interest in the security instrument at the time MERS purports to act. “[A]n agent is authorized to do, and to do only, what is reasonable for him to infer that the principal desires him to do in light of the principal’s manifestation and the facts as he knows or should know them at the time he acts.” Hot Stuff, Inc. v. Kinko’s Graphic Corp., 50 Ark. App. 56, 59, 901 S.W. 2d 854, 856 (1995) citing Restatement (Second) of Agency § 33 (1958). (Id. at 3,4). The Court went on to note: In the present case, MERS was at best the agent of the lender. The only recorded document provides notice that Pulaski Mortgage is the lender and therefore MERS’ principal. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS purports to be to step in and act without a recorded lender directing its action would wreak havoc on notice in this state. (Id. at 4). So according to the Southwest court, MERS is not a beneficiary just because a deed of trust says it is, and this opinion is in agreement with the analysis and opinion of the Mitchell bankruptcy judge. According to the Southwest court, MERS may not act as nominee without
authority from its principal, and to do that, MERS must at least know who its principal is. Furthermore, the Southwest court makes it clear that before MERS should be able to act on behalf of a principal, the identity of that principal ought to be discoverable from the deed records so that adequate notice can be provided to any party with an interest in the property. [Case 4] In the fourth case, and the second state supreme court case addressing MERS lien
rights, was decided in August of 2009. In Landmark National Bank v. Kesler, et al, No. 216 P. 3d 158 (Kan. 2009), MERS was again omitted as a party to a foreclosure action and filed a motion to intervene claiming MERS was a contingently necessary party. The Landmark court held once again that MERS was not entitled to intervene in a foreclosure action because it was not a real party in interest. The Landmark court reviewed numerous cases from around the country concerning MERS’ right to litigate cases involving deeds of trust. The Landmark court began by noting the Nebraska Supreme Court case of Mortgage Elec. Reg. Sys. Inc., v. Nebraska Department of Banking, 270 Neb. 529, 704 N.W. 2d 784 (2005) wherein MERS was sued by the Nebraska Banking Commission for the purpose of regulating MERS as a lender and where MERS argued successfully that it was not a lender: “MERS is a private corporation that administers the MERS system, a national electronic registry that tracks the transfer of ownership interests and servicing rights in support of mortgage loan citing Mortgage Elec. Reg. Sys., Inc. v. Nebraska Department of Banking, 270 Neb. 529, 704 N.W. 2d 784 (2005). (Id. at 164). MERS argued in another forum that it is not authorized to engage in the practices that would make it a party to either the enforcement of mortgages or the transfer of mortgages. In Mortgage Elec. Reg. Sys., Inc. v. Nebraska Department of Banking, 270 Neb. 529, 704 N.W. 2d 784 (2005). MERS challenged an administrative finding that it was a mortgage banker subject to license and registration requirements. The Nebraska Supreme Court found in favor of MERS, noting, “MERS has no independent right to collect on any debt because MERS
itself has not extended any credit, and none of the mortgage debtors owe MERS any money.” 270 Neb. at 535, 704 N. W. 2d 784 (Id. at 168). Thus, it is clear that when a state administrative agency sought to regulate MERS as a lender, MERS took the position that it does not lend money nor does it engage in the enforcement of mortgages. Of course, in the instant case, MERS is taking the exact opposite position with respect to mortgage enforcement as it has done in a number of forums, including both the Mitchell and Landmark cases addressed supra, and took an opposite position in the Landmark case as well. Significantly, when an agency attempted to regulate MERS, MERS’ perfidious position was that it does not enforce mortgages, but when a buyer defaults on a mortgage, MERS apparently has had no moral, ethical, or legal problem with attempting to enforce one. Solely on the basis of a prior legal position against interest, courts should hold that MERS has no right to enforce mortgages. No doubt the Landmark court was influenced by MERS’ legal flip-flopping. The Landmark court then moved on to a discussion about the rights of MERS as a “nominee” and noted first that a nominee is an agent. The court cited Black’s Law dictionary as defining a nominee as “[a] person designated to act in place of another, u[sually] in a very limited way”. Black’s Law Dictionary 1076 (8th ed. 2004). (Id. at 166). The Landmark court noted that depending upon the circumstances, other cases defining the rights held by a nominee range from that of a strawman, to that of a buyer, but concluded that in this context MERS relationship to the lender was more akin to that of a strawman than that of a buyer. (Id. at 166). The Landmark court also cited as authority, In re Vargas, 396 B.R. 511, 517 (Bankr. C.D. Cal 2008) where the bankruptcy judge stated that: “[I]f FHM [the lender] had transferred the note, MERS is no longer an authorized agent of the holder unless it has a separate agency contract with the new undisclosed principal.” (Id. at 167). It is expressly clear, then, that MERS, as a
strawman agent, with its limited rights, cannot act without the express approval of its present principal. The Landmark court then wrestled with the problem of the deed of trust being separated from the note for lack of proper assignment. It noted, just as did the Mitchell Bankruptcy judge, that “The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of a the holder of the note.” (Id. at 167). It cited another case involving MERS, Bellistri v. Ocwen Loan Servicing, LLC, 284 S.W. 3d 619, 624 (Mo. App. 2009) which held that “MERS never held the promissory note, thus its assignment of the deed of trust to Ocwen, separate from the note had no force.” Therefore, in the instant case, should MERS ever find the holder of Appellants’ first mortgage note, an assignment to such holder by MERS of Mills’ Deed of Trust would be ineffectual. The Landmark court also briefly addressed MERS’ status as named beneficiary of the Deed of Trust. It noted that MERS had no financial interest because: “Neither Kesler [the real estate purchaser] nor anyone else involved in the case “was required by statute or by contract to pay MERS on the mortgage. See In re Sheridan 2009 WL 631355 at *4 [sic] (“MERS is not an economic ‘beneficiary’ under the Deed of Trust. It is owed and will collect no money from Debtors under the Note, nor will it realize the value of the Property through the foreclosure of the Deed of Trust in the event the Note is not paid.”) If MERS is only the mortgagee, without ownership of the mortgage instrument, it does not have an enforceable right. See Vargas, 396 B.R. 17 [sic] (‘[w]hile the note is ‘essential,’ the mortgage is only ‘an incident’ to the note [quoting Carpenter v. Longan 16 Wall. 271, 83 U.S. 271, 275, 21 L. Ed. 313 (1872)]).” (Id. at 167). Once again, and in conformity with the other decisions noted above, the Landmark court seized on the fact that MERS actually has no financial interest in a mortgage and thus really has no standing by itself to litigate an action. And again, if MERS has no standing to litigate, or to
offensively assert a claim, due to the fact that MERS has no real interest in a Deed of Trust, MERS also has no basis to assert defensive matters in a suit to remove cloud. [Case 5] The fifth case, which is the most recent state supreme court decision concerning
MERS, was decided in August of 2010, Slip. Op. Mortgage Electronic Registration Systems v. Saunders, et al, 2010 ME 79 (Maine 2010). The Supreme Court of Maine also held that the MERS lien was unenforceable and relied upon the Uniform Commercial Code to do so: MERS does not qualify under any subsection of section 3-1301, because on this record there is no evidence that it held the note, was in possession of the note, was purporting to enforce a lost, destroyed, or stolen instrument pursuant to 11 M.R.S. § 3-1309 (2009), or was purporting to enforce a dishonored instrument pursuant to 11 M.R.S. § 3-1418(4) (2009). Id. at 10. The Supreme Court of Maine went on to note: Nothing in the trial court record demonstrates that MERS suffered any injury when the Saunderes failed to make payments on their mortgage. When questioned directly at oral argument about what injury MERS had suffered, the Bank responded that MERS did not need to prove injury to foreclose, only that it was a “mortgagee.” As we have already explained, MERS is not a mortgagee pursuant to 14 M.R.S. § 6321 because it has no enforceable right in the debt obligation securing the mortgage. In reality, the Bank was unable to suggest an injury MERS suffered because MERS did not suffer any injury when the Saunders failed to make payments on their mortgage.” Id. at 12. This latest Supreme Court decision is just one more example of a case where MERS has been unable to show that it nothing more than a strawman with no actual lien rights of its own. A summary of the main points of the MERS cases is in order. The initial point is that MERS has, in one forum at least, in order to avoid banking regulation, taken the position that it does not ever hold notes, or have any financial interest in the mortgages it records, nor does MERS attempt to enforce mortgages. However, it has clearly attempted to do the opposite in other forums, as it has in this case.
The second point is that the courts have very narrowly construed the powers of MERS as “nominee” as that of a very limited agent, even that of a strawman, and that as such, MERS is required to have the present holder of the note, as its principal, authorize whatever action it takes. Courts have shown no willingness to allow MERS to act on its own or claim it can act for unknown or future assignees of the original lender. The third point is that a strawman, as perpetual purported lienholder, means that deeds of trust are no longer assigned when a note is sold. This creates both recordation and notice problems, which threaten the very existence of the public recordation systems. Parties who have interests in the transaction have no public means of knowing the identity of the entity who actually has the right to enforce the deed of trust lien; thus, there is no public means of identifying the entity who must be paid to secure a valid release of lien. The fourth point is that MERS is not a beneficiary of a deed of trust, despite language in that deed of trust to the contrary, and that such deeds of trust have no beneficiary at all. Since MERS never holds a financial interest in the mortgage, it can’t be a beneficiary of the mortgage; and since no other beneficiary is named and another cannot be appointed, the trust fails for lack of a beneficiary. The fifth point is that these courts also hold that without an assignment of the deed of trust when the note is sold, the note and deed of trust become physically separated because the deed of trust recites that MERS holds the deed of trust for future successors and assigns of the lender. The Courts hold that as a practical matter separation of the note and lien nullifies the lien, making the note unsecured. Naming MERS as the holder of the deed of trust also means that an assignment of the deed of trust cannot pass to the holder of the note by operation of law.
Appellants have appended to this brief, as Exhibit B, a comprehensive law article about MERS, written by Christopher L Peterson, Associate Dean and Professor of Law at the University of Utah, which is entitled Two Faces: Demystifying The Mortgage Electronic Registration System’s Land Title Theory. The article explains in detail how MERS came into existence, reviews all of the important decisions concerning MERS and identifies the legal problems created by MERS liens. It explains why the usage of MERS, as a strawman lienholder, threatens the public recordation systems, both legally and financially, and calls for a rebuilding of a trustworthy recordation system. The article strongly supports Appellants’ position that MERS liens are unenforceable. Thus, there is clearly both a factual basis and ample legal authority to support Appellants’ claims that the Mills’ first mortgage Deed of Trust constitutes a void encumbrance on the Appellants’ property because the lienholder is not entitled to any proceeds of sale since it is not owed any money. A genuine case in controversy clearly exists when Appellants claim, with justification, that the lien is invalid on the grounds that the lienholder is not owed any money, and the Appellees maintain the lien’s validity. 2. The underlying obligation a Deed of Trust secures must be enforceable. Appellants also claim that their underlying Note that the Deed of Trust secures, must be enforceable for the Deed of Trust to be a valid encumbrance and that in the instant case there is both a clear factual and legal basis for the claim that the underlying first mortgage Note is not enforceable. Originally Appellants had made a demand to FHHLC that it surrender the original second mortgage Note Appellants had paid off, and FHHLC refused to surrender the paid off note. Due to FHHLC’s refusal to surrender, Appellants had good cause to claim that their original second mortgage Note had been lost, stolen, destroyed, or become otherwise nonsurrenderable, and, thereby, rendered unenforceable.
Since FHHLC has apparently lost, destroyed, had the Mills’ second mortgage Note stolen, or become otherwise non-surrenderable, it was reasonable for Plaintiffs (Appellants) to believe the same was true with respect to their first mortgage Note as well, and, accordingly, Appellants made a demand to FHHLC to be shown proof of the Mills’ first mortgage Notes’ existence prior to filing suit. Despite demand to see the existence of said first mortgage Note prior to suit, FHHLC refused to show the Appellants that the original of said first mortgage Note existed. Coupled with the refusal to surrender the original paid off Mills’ second mortgage Note, FHHLC’s refusal to show Appellants, prior to suit, that the Mills’ original first mortgage Note existed, clearly justified making an allegation that said first mortgage Note also did not exist and was not enforceable. Moreover, throughout this litigation, Appellees have produced copies of said first mortgage Note and have relied upon the copies, but have never showed the Chancery Court the original or produced it. To the contrary, Appellees asked, and got the Chancery Court to block, production of said original first mortgage Note. If proven not to exist, the first mortgage note may well be unenforceable based upon the following authorities. A copy of a note is not a substitute for an original note and a copy of a lost, destroyed or stolen note is only enforceable if it is proven to be enforceable under T.C.A. § 47-3-309, which states: T.C.A. § 47-3-309. Enforcement of lost, destroyed or stolen instrument – (a) A person not in possession of an instrument is entitled to enforce the instrument if: (1) The person seeking to enforce the instrument: (A)Was entitled to enforce the instrument when loss of possession occurred; or
(B)Has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; (2)The loss of possession was not the result of a transfer by he person or a lawful seizure; and (3)The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person that cannot be found or is not amenable to service of process. (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, § 47-3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means. Two other provisions of T.C.A. § 47-3 make it clear why a lost, destroyed or stolen note must be proven to be enforceable under T.C.A. § 47-3-309. One provision of T.C.A. § 47-3 makes it clear why a missing note must be proven to be enforceable because certain writing on the note can cancel or discharge the note and so can destruction or mutilation of the note itself: 47-3-604. Discharge by cancellation or renunciation. —(a) A person entitled to enforce an instrument, with or without consideration, may discharge the obligation of a party to pay the instrument (i) by an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation, or cancellation of the instrument, cancellation or striking out of the party’s signature, or the addition of words to the instrument indicating discharge, or (ii) by agreeing not to sue or otherwise renouncing rights against the party by a signed writing. Another T.C.A. § 47-3 provision makes it clear that an endorsement can also change or modify a note: 47-3-204. Endorsement. — (a) “Endorsement” means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring endorser’s liability on the instrument, but regardless of the intent of the signer, a signature and its
accompanying words is an endorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than endorsement. T.C.A. § 47-3-204 and 604 clearly demonstrate the necessity for the requirement that a note, which is lost, destroyed or stolen, must be proven to be enforceable under T.C.A. § 47-3309. T.C.A. § 47-3-604 makes it clear that a destroyed or mutilated note is presumed to be a cancelled one. A written cancellation on an original would negate any of the provisions
contained therein. Secondly, these two statutes make it clear that any writing on the original can cancel it or modify it. It is clear that a copy of a note may not contain subsequent endorsements or subsequent written cancellations or show mutilations or show intentional destruction consistent with cancellation. A specific endorsement could also negate a provision as well. Because these statutes make it clear that a lost or missing note creates a presumption that the note has been cancelled, they clearly indicate why a copy of the original is not an adequate substitute for an original note. They also help explain why T.C.A. § 47-3-309 requires very technical proof. Moreover, it is incumbent on the party seeking to enforce the note, to prove its enforceability. This is consistent with the general law in Tennessee that states that the party seeking to enforce a document has the burden of proving its enforceability. See Khalil v. CarCar Development, Inc., WL 4530829 at *4 (Tenn. Ct. App. December 21, 2007), citing McReynolds v. Am. Progressive Corp., No. 01-A-019008CH00300, 1991 WL 24891 (Tenn. Ct. App. March 1, 1991) and Abni Joint Venture v. Kinnaird, No. 86-292-II (Tenn. Ct. App. March 19, 1987) (perm. App. Denied June 8, 1987). Given the facts of the case, there is good reason to believe that the Mills’ first mortgage Note is not enforceable if it does not exist, especially if there is inadequate proof regarding how
it went missing. Proof is even more problematic if the first mortgage note was securitized (as the facts suggest and will be discussed infra) and the holder of the note, at the time of the note went missing, becomes very difficult, if not impossible, to identify. Thus, there is a second factual basis, upon which a genuine controversy exists with respect to the Mills’ first mortgage Deed of Trust, with ample legal authority to support it, that on the grounds that the underlying note is unenforceable and where the Appellants contend otherwise. 3. Securitization of mortgage notes means that identification of the actual note holders may be impossible. Appellants have also alleged that Appellants’ first mortgage Note has been securitized and, as the basis of this claim, Appellants allege several facts. First, the Deed of Trust names MERS as beneficiary as has previously been mentioned. The MERS system is specifically designed to enable its members to securitize mortgage notes. The second noteworthy fact is that FHHLC claims the Appellants’ Note was sold to Fannie Mae who is highly involved in the securitization of mortgages and is well known for bundling notes and selling them in tranches. (Tranches are several related securities offered at the same time with different characteristics such as maturity dates, risk ratings, etc.). Third, Appellants have alleged that these securitized notes are often sold in bits and pieces to numerous investors with many investors having partial interests in a single note. If Appellants’ Note has become part of a security, which seems likely, this would certainly create a situation where the multiple holders of interests in the Mills’ Note and the holder of the Mills’ Deed of Trust have been separated from each other to such an extent that said Deed of Trust has become “a worthless piece of paper.”
Thus, there is a third factual basis, with ample legal authority to support it, that a genuine controversy exists due to the genuine possibility that no identifiable noteholder may ever materialize, rendering the Mills’ Deed of Trust unenforceable, a claim the Appellants also dispute. 4. Most Importantly, the Usage of a Strawman Lienholder Transforms a Public Transparent and Open Recordation System into a Private and Secretive One And Should Be Void As Against Public Policy. As noted above, numerous courts have held that MERS, as a nominee, is essentially a strawman, or very limited agent who, by MERS own admission, is to hold a place in the chain of title for a unidentifiable remote entity who may try to assert lienholder status. What this does in effect, however, is to keep the identity of such entity secret and unavailable to anyone who asks. When the purported deed of trust lienholder is a strawman, no person can determine from the deed records the lawful owner and holder of the note purportedly secured by that deed of trust lien. The identity of the noteholder is no longer in the chain of title, breaking that chain, and preventing identification of who must be paid to get a valid release. The purpose of recordation is frustrated by a strawman lienholder. It is one thing for a court to use equity to recombine a separated note and deed of trust when the separation is caused by mistake, inadvertence, or negligence. But in the instant case, and in the cases similar MERS’ liens, the lien is intentionally and deliberately separated ab initio from the note. The result is that the strawman lienholder radically changes the recordation process. Additionally, a true beneficiary should also be an identifiable person or entity. By using a strawman as the beneficiary, the true identity of the beneficiary also remains unknown, and again, no one can be certain that the true beneficiary gets the proceeds of any sale of the
property, because the beneficiary’s identity remains secret. This also affects the recordation process and frustrates its purpose. If the Mills’ first mortgage Deed of Trust Lien is unenforceable due to public policy issues raised by the lack of the identity of the true beneficiary and lienholder, this also creates a genuine justiciable controversy. D. Authority for the Proposition That An Encumbrance Is Created By the Second Mortgage Release of Lien Which Is Void or Voidable.
Regarding the Mills’ second mortgage Deed of Trust that FHHLC has released, Appellants claim that since FHHLC never surrendered the original of the Mills’ second mortgage Note that Appellants paid in full, the recitation in the release that FHHLC was the holder of said Note is presumably false, making the release void, or voidable, and leaving a cloud on Appellants’ title, by leaving the second mortgage Deed of Trust in place. It is clear that FHHLC was required to surrender the second mortgage Note after Appellants paid it in full. T.C.A § 47-3-501. Presentment --, states in pertinent part: (2) Upon demand of the person to whom presentment is made, the person making presentment must … surrender the instrument if full payment is made. FHHLC made presentment to Appellants every month by presenting to them a written demand for payment. FHHLC has insisted that despite the clear language of T.C.A § 47-3-501, FHHLC was not required to surrender Appellants’ original second mortgage Note and that a copy of said note should suffice as proof that FHHLC was the holder of said Note when FHHLC gave Appellants a release of said Deed of Trust. Appellants contend the Mills’ second mortgage Note is missing, and that because it is missing, only the proof required by T.C.A § 47-3-309 will suffice to prove said Note to be
enforceable and FHHLC to be the holder in fact as recited in the release of the Deed of Trust. Without this proof, FHHLC cannot legitimately claim to be the holder of said Note and cannot make a valid release of it or of the Deed of Trust securing it. In the event FHHLC cannot prove that the said Note was enforceable and cannot prove it was the holder of such Note, Appellants have asked the court to enter whatever order the court deems necessary under the circumstances to remove the cloud created by the second mortgage Deed of Trust which has not been adequately released. Clearly these alleged facts and the legal authority in support of them also meet the third element of a suit to remove a cloud on title. E. 1. Appellants’ Allegations Regarding Their First and Second Mortgage Notes. First Note Claims With regard to the Appellants’ first mortgage Note, the Appellants alleged several things. First Appellants requested that, because FHHLC is still making demands on Appellants for payments monthly and because FHHLC has refused to show Appellants that the first mortgage Note still exists, the court require that FHHLC show Appellants that the original first mortgage Note still exists, as required by T.C.A. §47-3-501. Or, if the first mortgage Note has been lost or destroyed, require FHHLC to prove it is still enforceable under T.C.A. §47-3-309. If FHHLC can’t prove that the first mortgage Note exists or is enforceable if lost or destroyed, Appellants request, after an accounting, to have the court order FHHLC to return their payments on the first mortgage Note. If FHHLC cannot show that the Mills’ first mortgage Note exists, but can show that it is enforceable under T.C.A. §47-3-309, Appellants ask for adequate protection under T.C.A. §47-3309 against any party who may seek to enforce the first mortgage note against the Appellants.
If FHHLC can show that the Mills’ first mortgage Note exists, or if lost is enforceable under T.C.A. §47-3-309, then Appellants also request that FHHLC show it has the authority to demand that Appellants continue to pay this note as required by T.C.A. §47-3-501. FHHLC has admitted in a letter subsequent to the filing of this suit that it sold this first mortgage Note to Fannie Mae. The sale of the Note raises the questions of who owns the Note now, and whether FHHLC has been given authority, by the present owner, to demand payment of Appellants. FHHLC continues to make the claim that it is the servicer of Mills’ Note. Mills does not deny that FHHLC sends payment demands, that Mills pay the payment demands in order to avoid the risk of foreclosure. What they do dispute is whether FHHLC is truly the servicer of the Note, in that neither the Note nor the Deed of Trust named FHHLC named as servicer of Mills Note. Mills are unaware of any rights given to FHHLC, as servicer, under any other document. FHHLC’s rights as servicer, must be those of an agent of its principal, the noteholder. But without ever having identified the principal, or providing proof of such agency, or other authority the principal has given FHHLC, FHHLC cannot unilaterally force Mills to accept that FHHLC has an agency relationship (servicer) with an undisclosed principal. Appellants maintain that FHHLC has not shown that it has any rights to enforce collection of Note payments under threat of foreclosure, and consequently, a valid controversy exists as to these rights. Should FHHLC be unable to prove to the court who presently owns the Mills’ first mortgage Note or that it has the authority from the present owner to demand payment on such first mortgage Note, the Appellants requested the court to order FHHLC to either: cease and desist from making any further demands on the Appellants for payment; or to allow Appellants to cease making payments, without dishonor, as permitted by T.C.A. §47-3-501, until such time as
FHHLC proves the enforceability of said Note and proves that it has the authority to make demands for payment on the present owner’s behalf. 2. Second Note Claims. With respect to Appellants’ second mortgage Note, Appellants alleged in their First Amended Complaint, that FHHLC’s failed to surrender such second mortgage Note when Appellants paid in full as required by T.C.A. § 47-3-501. Appellants allege that FHHLC’s failure to surrender the second mortgage Note upon payment in full creates a presumption that the second mortgage Note was unenforceable. Appellants further allege that the burden is on FHHLC to overcome this presumption and to prove the enforceability of such Note under T.C.A. §47-3-309. Appellants request that FHHLC be required to return their payments in the event that FHHLC cannot prove such Note was enforceable under T.C.A. §47-3-309. Should FHHLC be able to prove the second mortgage Note was enforceable under T.C.A. §47-3-309, Appellants ask for adequate protection under T.C.A. §47-3-309, against any party who may have acquired the note and who may seek to enforce the note against the Appellants. F. 1. Authority Regarding Stating a Cause of Action on the Mortgage Notes. Equitable authority incident to the actions to remove cloud. Appellants’ suits on the underlying promissory notes are integral to the Appellants’ suits to remove clouds on their title. In order to declare rights under the Deeds of Trust, the
underlying promissory notes also require a declaration of the parties’ rights with respect to them. Since both Appellees have admitted that the Appellants have no obligation to the Appellees under these notes, at a minimum, Appellants are entitled to a judgment declaring that Appellants owe these Appellees nothing on these two promissory notes, similar to the chancellor’s judgment in Hawley. So clearly, Appellants have made specific requests of the court to determine their rights under these notes as part of their equitable claim to remove a cloud on their title.
Statutory authority under Tennessee’s version of the Uniform Commercial Code. T.C.A. § 47-3-309. Enforcement of lost, destroyed or stolen instrument, cited and
discussed in detail supra, clearly gives the Appellants a cause of action for a missing document, and provides for the remedy of adequate protection. It also clearly requires that the burden of proof of enforcement be upon the Appellees. T.C.A § 47-3-501. Presentment --, states in pertinent part: (a) “Presentment” means a demand by or on behalf of a person entitled to enforce an instrument (1) to pay the instrument made to … a party obligated to pay the instrument…. (b)(2) Upon demand of the person to whom presentment is made, the person making presentment must (i) exhibit the instrument, (ii) give reasonable identification and if presentment is made on behalf of another person, reasonable evidence of authority to do so, and (iii) sign a receipt on the instrument for any payment made or surrender the instrument if full payment is made. (b)(3) Without dishonoring the instrument, the party to whom presentment is made may (i) return the instrument for lack of a necessary endorsement, or (ii) refuse payment or acceptance for failure of the presentment to comply with the terms of the instrument, an agreement of the parties, or other applicable law or rule. FHHLC has, in fact, made voluntarily presentment upon Appellants on both Notes and continues to do so monthly on the first mortgage Note that Appellants have not yet paid in full. However, once presentment is made, even if the maker of the note had waived presentment, the person to whom presentment is made is given certain rights under Tenn. Code Ann. § 47-3501(b)(2). Once FHHLC makes demand for payment, Appellants have the right to demand that FHHLC exhibit the Note and Appellants also have the right to insist that FHHLC show it has the authority to demand payment under T.C.A. § 47-3-501. The clear intent of T.C.A. § 47-3-501(b)(2) is to permit the borrower to assure himself or herself that when he or she is paying on a note, that he or she is paying (1), on a note that
actually still exists, (2), is paying the right party, (3), that he or she will be given proper credit for his or her payments, and (4), that he or she will be assured that the note will be surrendered to him or her upon payment in full. It also seems to imply that the borrower can demand that the lender exhibit the note if the borrower wishes to pay on a day when payment is not due and that the borrower has a right to be shown that he is paying the proper party anytime he wishes to pay. Moreover, it seems to imply that if a borrower wishes to pay in full before payment is due, this section would allow him to see the note before he pays in full, and allow him to ensure himself that he is paying the right party. Nothing in this section suggests that if the borrower waives presentment, the borrower waives the right to ever see his/her note again. The Court of Appeals’ holding with respect to presentment, is faulty. To begin with, the court assumes that the provision is enforceable. They make this erroneous assumption by stating that this is a provision of the “mortgage.” It is actually a provision of the Note itself, the validity and enforceability of which, is challenged. But more importantly, taken to its logical conclusion, the Court of Appeals has held that Mills never have the right to see their Note again when they ask to see it. The Court of Appeals has essentially held that Mills don’t have the right to see their Note while they are paying on it, don’t have a right to see it after they have paid for it and don’t even have the right to sue to see it. This is certainly not the intent of the statute on presentment and ignores the clear language of the statute. Moreover, In Colonial Pipeline Company v. Morgan, 263 S.W.3d 827 (Tenn. 2008), [a case cited by the Court of Appeals for the proposition that even though no showing of harm is required in an action for declaratory judgment, the case still must be justiciable], this Court also held that a statute which confers remedies should not be disregarded. T.C.A. § 47-3-309 clearly
requires proof of the enforceability of the note, and in the event of such proof, provides for the remedy of adequate protection. Mills question whether the note is enforceable, and in the event FHHLC cannot prove its enforceability, Mills demand the return of monies paid. In the event FHHLC can prove its enforceability Mills still seek the remedy of adequate protection. FHHLC denies it owes either remedy to Mills, and consequently, a genuine controversy exists. 3. Common law authority. Additionally Appellants have also clearly stated a common law claim in law (as opposed to equity) for return of funds paid pursuant to the Notes. All that is required for such a cause of action for return of funds erroneously paid on a note, is proof (1) that Appellants’ payments were paid on a note, (2) an allegation that payments were erroneously paid and (3) a request for the return of payments made. First Tennessee Production Credit Association v. Davis, 748 S.W. 83 (Tenn. 1988). 4. Appellants Clearly Have Stated A Cause of Action On Their Promissory Notes. Appellants have shown that they have an equitable cause of action to declare their rights under the promissory Notes in question, they have a statutory cause of action under two different sections of Tennessee’s version of the Uniform Commercial Code and they have a common law action in law (as opposed to equity) to seek return of the moneys they paid on these notes. These are all legitimate controversies because in every instance the Appellees deny these claims.
This Court should overturn the decision of the Court of Appeals, as it is clear that Appellants have stated claims for relief and have a legitimate case and controversy. Thus, this Court should remand the case to the Chancery Court with instructions to permit this case to go forward in a manner consistent with this Court’s decision.
By: ______________________________ David G. Mills, Tennessee BPR #17640 Pro Se and Attorney for Plaintiff Julia Mills 1403 Cedar Run Cordova, Tennessee 38016 (901) 818-1999 telephone (901) 624-0684 facsimile
I hereby certify that a true and correct copy of this document has been hand delivered, or mailed regular mail to Kristine L. Roberts and Robert F. Tom, at their offices on 165 Madison Avenue, Suite 2000, Memphis, TN, 38103 on this 14th day of January, 2011.
__________________________________ David G. Mills
Exhibit “A’ http://www.tsc.state.tn.us/OPINIONS/TCA/PDF/104/David%20G%20Mills%20v% 20First%20Horizons%20Home%20Loan%20Corp%20opn.pdf Exhibit “B” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1684729