Wells Fargo Home Mortgage, Inc. v. McCarthy, 51 UCC Rep. Serv. 2d 853 (Minn. App. 2003)

(Unpublished opinion)

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FACTS

On October 5, 1995, appellant Timothy McCarthy signed and executed a promissory note and mortgage in favor of Meridian National Bank, encumbering a parcel of real property he owns in Ramsey County (the premises). On that same day, Meridian assigned the mortgage to respondent Wells Fargo Home Mortgage, Inc. Both Meridian and Wells Fargo filed their mortgages for record with the Ramsey County Recorder on November 17, 1995. On February 5, 2001, McCarthy entered into an agreement with R & D Food Services, Inc. (R & D), purporting to give R & D a security interest in the premises. R & D subsequently filed a financing statement with the Minnesota Secretary of State. No payments were made by McCarthy on the note and mortgage after February 1, 2002.

Wells Fargo commenced a foreclosure by advertisement by filing a notice of pendency and power of attorney to foreclose mortgage with the Ramsey County Recorder on June 12, 2002. Wells Fargo attempted, but was unable, to personally serve McCarthy with the notice of mortgage foreclosure despite 'numerous attempts.' Wells Fargo also attempted to 'communicate in writing with [McCarthy] regarding the service issue and the status of the mortgage foreclosure proceeding. Said efforts were unsuccessful.' On July 18, 2002, Wells Fargo commenced this action for recovery of all sums owing under the note and mortgage, and for sale of the subject premises to pay the debt secured by the mortgage. Wells Fargo attempted to personally serve the summons and complaint on appellant, but was unsuccessful. Having failed to serve McCarthy personally, Wells Fargo proceeded to serve him by publication, pursuant to Minn. R. Civ. P. 4.04(a)(1).

McCarthy filed an answer with the court on August 23, 2002, and served Wells Fargo with that pleading on August 26, 2002. McCarthy also served interrogatories, requests for admissions, and requests for production of documents. Finally, on October 10, 2002, McCarthy served counterclaims on Wells Fargo. Wells Fargo filed a motion for summary judgment on October 17, 2002, and answers to McCarthy's counterclaims on October 24, 2002. McCarthy served Wells Fargo with motions to dismiss and strike certain affidavits on November 7, 2002. Wells Fargo served responsive memoranda on November 14, 2002. On November 18, 2002, McCarthy served Wells Fargo with his memorandum in opposition to plaintiff's motion for summary judgment, supported by his own affidavit.

On November 20, 2002, the district court heard both Wells Fargo's summary-judgment motion and McCarthy's motions to dismiss and to strike certain affidavits. Wells Fargo's motion for summary judgment was granted; McCarthy's motions to dismiss and to strike were denied.

Two weeks after the award of summary judgment to Wells Fargo, McCarthy filed a Chapter 7 bankruptcy petition; the bankruptcy court subsequently granted Wells Fargo relief from the automatic stay. This appeal followed.

DECISION

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III.

In granting Wells Fargo's motion for summary judgment, the district court rejected McCarthy's claims that genuine issues of material fact exist under the Uniform Commercial Code (U.C.C.), the Fair Debt Collection Practices Act, and two Federal Reserve publications from 1961 and 1997.

On an appeal from summary judgment, we ask two questions: (1) whether there are any genuine issues of material fact and (2) whether the lower courts erred in their application of the law.

State by Cooper v. French, 460 N.W.2d 2, 4 (Minn.1990) (citation omitted).

We conclude that summary judgment was properly awarded. Despite McCarthy's attempts to characterize this proceeding as a U.C.C.-based claim, it is a foreclosure action. In order to foreclose on a mortgage by advertisement, our statutes require that (1) a mortgage be in default; (2) no other actions are currently proceeding on the debt; and (3) the mortgage be recorded. Minn.Stat. § 580.02 (2002). Wells Fargo submitted evidence as to the amount of the debt, its terms, and the fact that it was in default. McCarthy did not produce any evidence contesting these essential facts, except to dispute that a debt was ever created based on his definition of debt. During the hearing, McCarthy's own statements established that a payment obligation did, in fact, exist:

THE COURT: Cause I want to clearly understand what you're telling me. And I want to start from a very simple premise. That is, that you acknowledged giving them or signing the note, and you acknowledged signing the mortgage; and I think when I read your papers, you acknowledged giving them the note.

MR. MCCARTHY: Yes.

THE COURT: All right. That much I . . . . I gleaned from your papers. . . . . Now what I'm trying to understand is at the end of that transaction, without arguing to me about what you think it was . . . . . Did you end up with some money?

MR. MCCARTHY: Yes.

Again, we note that material facts are not disputed in this case. McCarthy produced no evidence to contradict Wells Fargo's evidence of the fact and extent of McCarthy's indebtedness, and McCarthy's failure to pay that indebtedness.

The essence of McCarthy's argument is that R & D has the only valid security interest in the property because R & D filed a security agreement with the Secretary of State in 2002. While imaginative, this argument is defeated by the plain language of both the U.C.C. and the recording statute. In fact, McCarthy concedes in his appellate brief that a mortgage is an interest in real property.

Article nine of the U.C.C. states unequivocally that 'this article' does not apply to 'the creation or transfer of an interest in or lien on real property.' Minn.Stat. § 336.9-109(d)(11) <<UCC § 9-109>> (2002). As such, McCarthy's grant of a mortgage in favor of Meridian was a transaction wholly outside of the plain terms of article nine of the U.C.C. The comments in section 336.9-109 <<UCC § 9-109>> eliminate any uncertainty in this matter. Comment 7 states:

Example 1: O borrows $10,000 from M and secures its repayment obligation, evidenced by a promissory note, by granting to M a mortgage on O's land. This Article does not apply to the creation of the real-property mortgage. However, if M sells the promissory note to X or gives a security interest in the note to secure M's own obligation to X, this Article applies to the security interest thereby created in favor of X. The security interest in the promissory note is covered by this Article even though the note is secured by a real-property mortgage.

Minn.Stat. Ann. § 336.9-109 <<UCC § 9-109>> U.C.C. cmt. at 7 (West Supp.2002). As the comment makes clear, as between McCarthy and Meridian, article nine of the U.C.C. does not apply. Since Wells Fargo purchased the mortgage from Meridian, it steps into Meridian's place.

Minn.Stat. § 507.34 (2002) provides that the transfer of an interest in real estate must be recorded in the office of the county recorder. Here, Meridian validly recorded its interest with the Ramsey County Recorder's Office. Meridian's assignment to Wells Fargo was also properly recorded with the Ramsey County Recorder in 1995.

There are no genuine issues of material fact for determination in this case. Summary judgment was properly awarded.