April 17, 2018 – The Wisconsin Supreme Court has ruled (5-2) that an attorney’s presentment of an original note secured by a mortgage in court was enough to establish that the bank was entitled to judgment of foreclosure based on “possession” of the note.

That is, in Deutsche Bank National Trust Co. v. Wuensch, 2018 WI 35 (April 17, 2018), the majority ruled that “presentment of a party’s attorney of an original, wet-ink note endorsed in blank is admissible evidence and enforceable against the borrower without further proof that the holder had possession at the time the foreclosure action was filed.”

The majority’s decision reversed the appeals court, which had ruled that an attorney’s “possession” of a purported original note, endorsed in blank, was not sufficient to prove the attorney’s client “possessed” the note for purposes of a foreclosure action.

How it Got There

In 2006, Thomas Wuensch signed an adjustable rate note for about $300,000. HLB Mortgage issued the note, which was secured by a mortgage. Subsequently, the note was transferred to different lenders, and the note was endorsed in blank.

In August 2007, the Town of Onalaska issued a notice of outstanding unpaid property taxes to Wuensch. At the time, American Home Mortgage Servicing Inc. (AHM) held the note and was supposed to pay property taxes directly from escrow.

Wuensch later learned that AHM had filed for bankruptcy that month. Several months later, in February 2008, Wuensch said he tried to submit a mortgage payment. AHM said it never received a payment, but in any event, Wuensch stopped paying after that.

Wuensch said he stopped making mortgage payments after an AHM employee recommended that he stop making payments, which is what happened in Nationstar Mortgage LLC v. Stafsholt (the supreme court ruled 6-0 for the borrower in that case).

In March 2008, AHM sent Wuensch a notice of default and acceleration. Deutsche Bank filed a foreclosure action in August 2009. The bank attached the note to the complaint and waived any deficiency judgment against Wuensch.

In foreclosure proceedings, Deutsche Bank’s attorney presented the purported original note and moved to admit a copy into evidence. The judge inspected the note and ruled, despite objections for Wuensch’s counsel, that the note was admissible in evidence.

The judge said the document looked like it had the original ink on signatures and appeared to be the same as the copy marked as an exhibit offered into evidence.

Wuensch’s counsel unsuccessfully objected on hearsay grounds that Deutsche Bank’s attorney lacked personal knowledge about the note and could not act as a witness.

But the circuit court ruled that since Deutsche Bank “possessed” the original note, Deutsche Bank was the “holder” and could enforce it because it was endorsed in blank.

The circuit court recognized that the “unregulated transferring of mortgages during the housing bubble and crash contributed to Wuensch finding himself in this position.”

Thus, the judge gave Wuensch an opportunity to cure the default by paying $350,000, which was the sum of unpaid principal and expenses Deutsch Bank had paid, such as property taxes. Otherwise, the court indicted it would enter a foreclosure judgment.

Wuensch Wins, then Loses

Wuensch appealed the circuit court’s decision and the appeals court reversed, concluding that possession of the original note was a disputed fact and the bank was required to present testimony from a witness who could verify the bank’s possession.

Possession by the bank’s attorney in court, the appeals court ruled, was not sufficient to prove the bank was the holder of the note and entitled to file a foreclosure action.

But the supreme court majority reversed the appeals court, concluding that Wisconsin’s Uniform Commercial Code applied to determine the note was payable to Deutsche Bank because the note was endorsed in blank and the bank possessed the note.

“[P]hysical possession of the original Note, endorsed in blank, by Deutsche Bank’s attorney at trial was sufficient evidence to support the circuit court’s conclusion that Deutsche Bank was the holder of the Note, enabling the Bank to enforce it.”

The majority also ruled that Deutsche Bank’s trial counsel could possess the note without impairing the bank’s status as a “bearer” entitled to payment.

“An attorney presenting self-authenticating evidence to the trier of fact on behalf of his client is not acting in the same capacity as a witness delivering testimonial evidence,” Justice R. Bradley wrote.

“Thus, the court of appeals’ holding that ‘[t]he plaintiff was obligated to prove, under the rules of evidence, that the document in the plaintiff’s counsel’s hands in fact came from his client and not some other person or entity’ is patently wrong.”

Dissent

Justice Anne Walsh Bradley wrote a dissenting opinion, joined by Justice Shirley Abrahamson, concluding that the note was subject to the rules of evidence.

“Disregarding the evidentiary rules, the majority allows an attorney to introduce dispositive facts through unsworn statements and without calling a witness,” wrote Justice A.W. Bradley, noting “possession of the Note is not entitled to judicial notice.”

“Possession, like any other evidentiary fact, is typically presented through the sworn testimony of a witness with knowledge of such possession,” A.W. Bradley noted.

The dissent said the bank’s attorney could not establish the bank’s possession of the note by simply presenting a purported original in court, without a witness.

Justice A.W. Bradley concluded the circuit court committed a clear error in ruling that Deutsche Bank “possessed” the note, based on the actual evidence presented.