RECEIVED

STATE OF WISCONSIN 11-08-2010 COURT OF APPEALS CLERK OF COURT OF APPEALS DISTRICT IV

OF WISCONSIN

APPEAL NO. 2010AP001909 Aurora Loan Services, LLC, Plaintiff Respondent, V. David J. Carlsen and Nancy L. Carlsen, Defendants Appellants.

BRIEF AND APPENDIX OF PLAINTIFF- RESPONDENT ON APPEAL FROM THE CIRCUIT COURT OF ROCK COUNTY CASE NUMBER 2008-CV-002441 THE HONORABLE JAMES E. WELKER, PRESIDING

Attorneys for Plaintiff-Respondent Aurora Loan Services, LLC Christopher C. Drout State Bar No. 1049882 Gray & Associates, LLP 16345 West Glendale Drive New Berlin, WI 53151 Phone: (414) 224-8404 Fax: (414) 224-1279

TABLE OF CONTENTS TABLE OF AUTHORITIES STATEMENT OF ISSUES STATEMENT ON ORAL ARGUMENT AND PUBLICATION STATEMENT OF THE CASE STATEMENT OF FACTS ARGUMENT I. STANDARD OF REVIEW 3 ii 1 1

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II. THE TRIAL COURT DID NOT ERR IN APPLYING ITS DISCRETIONARY DECISION TO DETERMINE THAT AURORA WAS ENTITLED TO ENFORCEMENT OF THE NOTE III. AURORA IS ENTITLED TO ENFORCEMENT OF THE NOTE A. UCC; Wis. Stats. 401.101, et. seq. B. The Equitable Assignment Doctrine CONCLUSION CERTIFICATION APPENDIX

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TABLE OF AUTHORITIES Carpenter v. Longan, 83 U.S. 271 (U.S. 1873) Cf. Doyon & Rayne Lumber Co. v. Nichols, 196 Wis. 387, 220 N.W. 181 Croft v. Bunster, 9 Wis. 503 (Wis. 1859) Loy v. Bunderson, 107 Wis. 2d 400, 320 N.W. 2d 175 (Wis. 1982). Mitchell Bank v. Schanke, 268 Wis. 2d 571, 676 N.W.2d 849, 858 (Wis. 2004) Noll v. Dimicelis, Inc., 115 Wis. 2d 641, 340 N.W.2d 575 (Ct. App. 1983) Tideoute Sav. Bank v. Libbey, 101 Wis. 193, 77 N.W. 182 (Wis. 1898) Virkshus v. Virkshus, 250 Wis. 90, 26 N.W.2d 156 (Wis. 1947) WISCONSIN STATUTES Wis. Stat. 401.201 Wis. Stat. 403.203 Wis. Stat. 403.204 Wis. Stat. 403.205 Wis. Stat. 403.301 Wis. Stat. 403.309 Wis. Stat. 403.418 Wis. Stat. 805.17 7, 11 7 7 7, 8 7 7 7 3 9-11 9

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STATEMENT OF ISSUES Did the trier-of-fact appropriately determine that plaintiff-respondent, Aurora Loan Services, LLC (hereinafter, Aurora) was a proper party and entitled to enforcement of the note and mortgage? STATEMENT ON ORAL ARGUMENT AND PUBLICATION Aurora believes that oral argument and publication are not warranted in this matter because the briefs adequately present the issues and the case involves the application of well-settled law to the facts. STATEMENT OF THE CASE Pursuant to a default in payments, Aurora commenced a foreclosure action against the defendants-appellants, David J. Carlsen and Nancy L. Carlsen (hereinafter, the Carlsens) by filing a Summons and Complaint on December 11, 2008. (R. 1, Complaint, R. App. 101). A court trial was held on June 9, 2010 in Rock County Circuit Court, the Honorable James E. Welker presiding. (R. 28, P. 1-53, Transcript of June 9, 2010 Court Trial). Upon hearing testimony presented by an employee of Aurora regarding the note, mortgage,

assignment of mortgages, payment history and default in payments, the trial court in this matter found that Aurora was the holder and owner of the note and mortgage and was entitled to enforcement of the note and mortgage. (R. 24, P. 1-5, R. App. 155; R. 28, P. 49-52, R. App. 164). As such, the trial court appropriately entered a judgment of foreclosure in favor of Aurora. Id. STATEMENT OF FACTS This is an action for the foreclosure of a first mortgage on property owned by the Carlsens. Aurora commenced this foreclosure action with the filing of a Summons and Complaint on December 11, 2008, alleging to be owed $159,300.74 under the Note and Mortgage together with interest and other costs from April 1, 2008 to present. (R. 1, P. 1-21, R. App. 103). Aurora sought foreclosure pursuant to Wis. Stat. Sec. 846.101, which provides for a six-month redemption period where the property is owner occupied and where Aurora has specifically waived its right to seek a deficiency judgment. (R. 1, P. 1-21, R. App. 104). The Summons and Complaint were served upon the Carlsens on January 11, 2009. (R. 3, P. 1; R. 4, P. 1). The Carlsens did file a responsive pleading received by the Court on
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February 5, 2010. (R. 5, P. 1-2).

Aurora filed a motion for

summary judgment dated March 26, 2009. (R. 9, P. 1-31, R. App. 124). The Carlsens did file an affidavit in opposition in which their response brief was based on the assertion that Aurora lacked the requisite standing to sue and was not the real party in interest. (R. 10, P. 1-9). A hearing on the motion for summary judgment was held May 5, 2009 in which the circuit court denied Auroras motion for summary judgment. (R. 12, P. 1). A court trial was held June 9, 2010 in Rock County Circuit Court. (R. 16, P. 1; R. 28, P. 1-53). Aurora presented evidence of its business records through the testimony of its employee, Kelli Conner. (R. 28, P. 1-29). The trial court

appropriately entered a judgment of foreclosure in favor of Aurora. (R. 24, P. 1-5, R. App. 155; R. 28, P. 49-52, R. App. 164). ARGUMENT I. STANDARD OF REVIEW On review of a factual determination made by a trial court without a jury, an appellate court will not reverse unless the finding is clearly erroneous. See 805.17(2) Wis. Stats. Noll v. Dimicelis, Inc., 115 Wis. 2d 641, 644, 340
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N.W.2d 575 (Ct. App. 1983).

The trial court properly

considered the record as a whole and the testimony of Auroras witness at trial in reaching its decision. In addition, when applying the proper standard of law, the court must consider the Uniform Commercial Code (UCC) and Wis. Stats, 401.101, et. seq. in determining who is entitled to enforcement of the note. The evidence presented to the trial court and Auroras claim of entitlement to the foreclosure action is consistent with Wisconsin law. The Court of Appeals, after applying that same methodology, should affirm the decision of the trial court. The decision of the trial court must be affirmed. II. THE TRIAL COURT DID NOT ERR IN APPLYING ITS DISCRETIONARY DECISION TO DETERMINE THAT AURORA WAS ENTITLED TO ENFORCEMENT OF THE NOTE It is well established that a discretionary decision will not be disturbed if a circuit court has examined the relevant facts, applied a proper standard of law, and, using a demonstrated rational process, reached a conclusion that a reasonable judge could reach. Loy v. Bunderson, 107 Wis. 2d 400, 414-415, 320 N.W. 2d 175 (Wis. 1982).

In this case, the trial court did not err in applying its discretionary decision in reaching its conclusion. The trial court concluded that pursuant to the testimony presented by Auroras witness, that the Carlsens executed the mortgage in question and that the testimony established that Auroras business records show a chain of record that Aurora is the holder of the note and owner of the mortgage. (R. 28, P. 4952, R. App. 164). The trial court was presented testimony from Kelli Conner, an employee of Aurora. (R. 28, P. 1-29). Ms. Conner established a foundation by testifying about her employment with Aurora, her familiarity with Auroras business filings, storage systems and records prepared in the ordinary course of business. (R. 28, P. 11, Ln. 24 to P. 12, Ln.4.). She further testified that she attends trials,

bankruptcy trials, trials as in this matter, also eviction trials for the company. (R. 28, P.4, Ln. 21-23). Lastly, Ms.

Conner testified that she had reviewed the full loan document of this file. (R. 28, P.5, Ln. 9). The testimony of Ms. Conner provided that Exhibit A and Exhibit B were a Balloon Note and Mortgage purportedly to be signed by the defendants, David J. Carlsen and Nancy L. Carlsen. (R. 28, P.5, Ln. 22; R. 28, P.21, Ln. 19, R. App.
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162 and R. 28 P. 22, Ln. 2, R. App. 163). Furthermore, Ms. Conner testified that the signatures were not photocopies. (R. 28, P. 7, Ln. 15, R. App. 160). Additionally, Ms. Conner testified that Exhibit C and Exhibit D were assignment of mortgages in possession of Aurora. (R. 28, P. 15, Ln. 8-19, R. App. 161). The Carlsens did not appear, call a witness, provide testimony or present any evidence for the court to determine. (R. 28, P. 1-53). The Carlsens do not allege that they have not signed the note and mortgage which was attached to the Summons and Complaint. Furthermore, the Carlsens failed to affirmatively allege payments, nor did the Carlsens allege having made payments to another entity. Virkshus v.

Virkshus, 250 Wis. 90, 26 N.W.2d 156 (Wis. 1947). As a result, it is reasonable for the trial court to conclude that, based upon the record as a whole and the testimony of Ms. Conner, Aurora established a chain of custody through its business records that would enable the trier-of-fact to determine Aurora is the proper party in this case and the Carlsens were in default on the subject note. (R. 28, P. 49 Ln. 19 through P. 50, Ln. 4, R. App. 164-165).

Pursuant to the review of the entire record of this case, the trial court properly exercised its discretion and its decision should not be upset.

III.

AURORA IS ENTITLED TO ENFORCEMENT OF THE NOTE

A. UCC; Wis. Stats. 401.101, et. seq. A promissory note is a negotiable instrument. The UCC addresses issues pertaining to the transfer of and the right to the enforcement of negotiable instruments,

specifically: "Person entitled to enforce" an instrument means the holder of the instrument, a nonholder in possession of the instrument who has the rights of a holder, or a person not in possession of the instrument who is entitled to enforce the instrument under s. 403.309 or 403.418 (4). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. Wis. Stat. 403.301 (2007). What it means to be a holder of a negotiable instrument is defined: "Holder", with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession.

Wis. Stat. 401.201(20) (2007). A party in possession of such an instrument has the right to its unqualified endorsement, and may specially endorse the instrument. Wis. Stats. 403.203; 403.204; 403.205. A special

endorsement is defined as follows: If an endorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the endorsement identifies a person to whom it makes the instrument payable, it is a special endorsement. If specially endorsed, an instrument becomes payable to the identified person and may be negotiated only by the endorsement of that person. The principles stated in s. 403.110 apply to special endorsements. Wis. Stats. 403.205(1) (2007). Attached to the Complaint filed on December 11, 2008 as Exhibit A and Exhibit B were the Promissory Note and Mortgage (R.1, P. 1-22, R. App. 106-123). Furthermore,

pursuant to Auroras motion for summary judgment, an affidavit from Yvonne Stich, Senior Vice President of Aurora Loan Servicing, LLC indicated that Aurora is the holder of the original note, endorsed in blank from USA Funding Corp, dated June 4, 2003. (R. 9, P. 1-31, R. App. 125).

Additionally, the affidavit indicates that the original mortgage was assigned from USA Funding Corp to Mortgage
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Electronic Registration Systems, Inc. (MERS) which was recorded with the Rock County Register of Deeds on August 8, 2003. (R. 9, P. 1-31, R. App. 126). Lastly, the affidavit indicates an assignment of mortgage to Aurora was recorded with the Rock County Register of Deeds on December 11, 2008. Id. At trial, Ms. Conner testified that the Balloon Note marked as Exhibit A was not a photocopy. (R. 28, P. 7, Ln. 15, R. App. 160). A reasonable judge would infer through the record as a whole and the testimony of Ms. Conner that Aurora is holding the original note. By definition under the UCC and Wisconsin law, Aurora, as the holder, is entitled to the enforcement of the subject note. B. The Equitable Assignment Doctrine

The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity. Carpenter v. Longan, 83 U.S. 271, 276277 (U.S. 1873). The debt (note) is the principal thing, to which the security instrument (mortgage) is an incident thereof. Cf. Doyon & Rayne Lumber Co. v. Nichols, 196 Wis. 387, 390, 220 N.W. 181 (1928); Mitchell Bank v.
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Schanke, 268 Wis. 2d 571, 597, 676 N.W.2d 849, 858 (Wis. 2004). Under this view, long established in Wisconsin law, the Mortgage is equitably assigned when the Note is endorsed and negotiated to its current holder. The principle of equitable assignment was set out by our Supreme Court as far back as 1859, and has been described as follows: The transfer of these notes to the plaintiffs carried with it, by operation of law, all securities for their payment. The debt is the principal thing, and the securities are only an incident. The transfer of the former, therefore, carries with it the right to the securities, and amounts to an equitable assignment of them. No matter what the form of the security is, whether a real-estate or chattel mortgage, or a pledge of collateral notes, bonds, or other personal property, the purchaser of the principal takes with it the right to resort to these securities; and this is so, although the assignment or transfer does not mention them. The reason of this rule, within all the authorities, seems to be that when the mortgagee transfers the debt, without assigning the mortgage or other security, he becomes a trustee, and holds the security for the benefit of the owner of the note, and the latter may enforce the trust. The debtor is in no wise injured by such rule. He has agreed that the security shall stand for the payment of the debt, and it is of no consequence to him to whom it is paid. He has to pay it but once. Tideoute Sav. Bank v. Libbey, 101 Wis. 193, 197, 77 N.W. 182, 183 (Wis. 1898). The rule is that the transfer of a note

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carries with it all security without any formal assignment or delivery, or even mention of the latter. Id. citing Carpenter v. Longan, 83 U.S. 271, 276- 277 (U.S. 1873); Croft v. Bunster, 9 Wis. 503 (Wis. 1859). The transfer of the Note carried the Mortgage with it. In this regard, the recordable Assignment of the Mortgage is a nullity. Carpenter v. Longan, 83 U.S. 271, 276-277 (U.S. 1873). The Note evidences the debt to which the Mortgage is an accessory and incident to the debt which it secures. Ms. Conner testified in this case that Aurora acquired the note on July 23, 2003. (R. 28, P. 21, Ln. 6-7, R. App. 162). The substantive right to this action belonged to none other than the entity entitled to enforce the Note, i.e. Aurora. Wis. Stat. 401.201(20) (2007). The Carlsens fail to provide any

statutory authority requiring that an assignment of mortgage must be executed and recorded prior to the foreclosure action, let alone at all. CONCLUSION The trial court properly reviewed the record, examined the relevant facts, applied the proper standard of law and reached a conclusion that any reasonable judge would reach.
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The circuit court properly considered the record as a whole, the testimony of Ms. Conner that established a chain of custody pursuant to Auroras business records and acquisition of the note on or about July 23, 2003. Furthermore, when

applying the proper standard of law, Aurora is the proper party pursuant to the UCC and Wis. Stats, 401.101, et. seq. The decision of the trial court should be affirmed.

Dated this _5th___ day of November, 2010.

Gray & Associates, LLP Attorneys for Plaintiff-Respondent Aurora Loan Services, LLC

By: /s/ Christopher C. Drout Christopher C. Drout State Bar No. 1049882

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CERTIFICATION I hereby certify that this brief conforms to the rules contained in 809.19(8)(b) and (c), Wis. Stats., for a brief produced using proportional serif, 13-point font; doublespaced; maximum of 60 characters per line. The length of this brief is 2,840 words, including this certification page. Dated this __5th___ day of November, 2010.

Gray & Associates, LLP Attorneys for Plaintiff-Respondent Aurora Loan Services, LLC

By: /s/ Christopher C. Drout Christopher C. Drout State Bar No. 1049882

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CERTIFICATION I hereby certify that this brief conforms to the rules contained in 809.19(12)(f), Wis. Stat., in that the text contained in the electronic copy of this brief is identical to the text contained in the paper copy of this brief filed with this Court on this day. Dated this __5th___ day of November, 2010.

Gray & Associates, LLP Attorneys for Plaintiff-Respondent Aurora Loan Services, LLC

By: /s/ Christopher C. Drout Christopher C. Drout State Bar No. 1049882

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