Nattymac Capital LLC v. Rick, 25262.

• Decision Date: 23 June 2010
• Docket Number: No. 25262.,25262.
• Citation: 2010 S.D. 51,784 N.W.2d 156
• Parties: NATTYMAC CAPITAL LLC, Plaintiff and Appellant,v.Rick and Ramona PESEK, First Dakota National Bank and Getty Abstract and Title Company, Defendants and Appellees.Rick and Ramona Pesek and First Dakota National Bank, Third Party Plaintiffs and Appellees,v.Mortgage Electronic Registration Systems, Inc., Third Party Defendant and Appellee.
• Court: South Dakota Supreme Court

784 N.W.2d 156

2010 S.D. 51

NATTYMAC CAPITAL LLC, Plaintiff and Appellant,

v.Rick and Ramona PESEK, First Dakota National Bank and Getty Abstract and Title Company, Defendants and Appellees.

Rick and Ramona Pesek and First Dakota National Bank, Third Party Plaintiffs and Appellees,

v.Mortgage Electronic Registration Systems, Inc., Third Party Defendant and Appellee.

No. 25262.

Supreme Court of South Dakota.

Argued April 28, 2010.

Decided June 23, 2010.

Michael F. Tobin, Paul W. Tschetter of Boyce, Greenfield, Pashby, & Welk, LLP, Sioux Falls, South Dakota, Attorneys for plaintiff and appellant.

Sander J. Morehead, Roger W. Damgaard of Woods, Fuller, Shultz and Smith, P.C., Sioux Falls, South Dakota, Attorneys for defendants/third party plaintiffs/appellees.

ZINTER, Justice.

[¶ 1.] A purchaser of a mortgage loan brought this declaratory action to invalidate a written satisfaction of its mortgage. The originating lender, who was servicing the loan, gave the satisfaction to a title company following payoff of the loan at a closing on a subsequent mortgage loan relating to the same property. The mortgage purchaser contended the satisfaction was invalid because it was not signed by the mortgagee identified in the mortgage. The mortgage purchaser also asserted claims of negligence against the title company. The circuit court granted summary judgment against the mortgage purchaser on all claims. We affirm.

Facts and Procedural History

[¶ 2.] Because we are reviewing a summary judgment, we restate the facts in a light most favorable to the mortgage purchaser. This lawsuit arose following the sale of mortgage loans by ACT Mortgage Capital, a loan originator, to NattyMac Capital LLC, a purchaser of mortgage loans in the secondary market. Although the mortgage loans were sold to NattyMac, ACT was contractually obligated to service the loans. The Master Loan Purchase and Sale Agreement (Master Loan Agreement) between these parties provided that ACT was “an independent contractor of [NattyMac],” and ACT was required to service the loans “on behalf of” NattyMac in accordance with loan servicing procedures. Loan servicing procedures included accepting loan payments.¹

[¶ 3.] NattyMac and ACT were members of Mortgage Electronic Registration Systems, Inc. (MERS). MERS is a nation-wide clearinghouse for mortgage loans. MERS was established by the mortgage banking industry to hold, assign, and transfer interests in mortgage loans. MERS's members contract with MERS to electronically register and track servicing rights and beneficial ownership interests that are sold in secondary markets. MERS facilitates the assignment of mortgage liens by acting as a “nominee” mortgagee of record.

[¶ 4.] This dispute developed following Dwight Duimstra's purchase of a residential property in Sioux Falls.² Duimstra's purchase was financed by one of the mortgage loans that was originated by ACT and subsequently sold to NattyMac. Under an agreement among NattyMac, ACT, and MERS, MERS was the named mortgagee in the mortgage, and ACT was designated as the loan servicer in the MERS system.

[¶ 5.] Less than two months after Duimstra's purchase, Duimstra agreed to sell the property to Rick and Ramona Pesek. According to a MERS manual, the usual procedure for a mortgage payoff required the servicer of the mortgage loan to provide a payoff amount to the closing agent. The servicer would then receive the payoff and execute a lien release. The lien release was to be executed by one of MERS's certifying officers. Nelson Haws, an officer of ACT, had been appointed by MERS as a certifying officer authorized to release mortgage liens, including the Duimstra mortgage.

[¶ 6.] In preparation for the Pesek closing, Rita Barfoth of Getty Abstract and Title Company called MERS to locate the servicer of the Duimstra loan. MERS informed Barfoth that the loan servicer was ACT. Barfoth then requested ACT to provide a payoff statement, which ACT provided. During the subsequent closing of Peseks' loan, Getty sent ACT a check in the amount necessary to pay the Duimstra loan in full. ACT endorsed the check and deposited the funds in its account.

[¶ 7.] Several days later, ACT sent Getty an executed satisfaction of the Duimstra mortgage. Nelson Haws had executed the satisfaction; yet, for unexplained reasons, the satisfaction indicated that the mortgage was satisfied “on behalf of” ACT rather than MERS, the mortgagee. Further, there was no assignment of record assigning the mortgage from MERS to ACT. Nevertheless, the satisfaction was recorded in the register of deeds office.

[¶ 8.] Although the Master Loan Agreement required ACT to forward the payoff to NattyMac, ACT absconded and did not pay NattyMac.³ NattyMac subsequently filed this declaratory action against Peseks and their mortgage lender, First Dakota National Bank. NattyMac sought a declaration that the satisfaction of the Duimstra mortgage was a nullity and that NattyMac's mortgage remained valid. NattyMac also asserted two negligence claims against Getty. Peseks, First Dakota and Getty (Defendants) moved for summary judgment. ⁴ The circuit court granted the motion, concluding that notwithstanding the defect in the satisfaction, the mortgage was satisfied by the payment to ACT.

Satisfaction of the Mortgage

[¶ 9.] There is no dispute that MERS, rather than ACT, was identified as the mortgagee in the mortgage and there was no recorded assignment of the mortgage from MERS to ACT. Because the satisfaction was executed on behalf of ACT rather than on behalf of MERS (the mortgagee), NattyMac argues that the satisfaction was ineffective and the mortgage remained valid under two recording statutes. “Statutory interpretation and application are questions of law.” Aspen Storage Inc. v. Flanagan, 2005 SD 107, ¶ 5, 705 N.W.2d 863, 864. We review the circuit court's conclusions of law de novo. Id.

[¶ 10.] SDCL 44-8-14 is a typical recording statute, providing that in order to be discharged on the register of deeds records, a satisfaction must be signed by the mortgagee or its assignee of record:

A recorded mortgage may be discharged upon the records of a register of deeds by filing for record and causing to be recorded at length a certificate signed by the mortgagee or his successor in interest by succession, assignment, representation or otherwise, acknowledged, or proved and certified as prescribed by the statutes relating to recording acts, fully stating the names of the mortgagor, the mortgagee [.]

(Emphasis added.) SDCL 44-8-6 also provides that a satisfaction “must show the name ... of the mortgagee or assignee.” NattyMac argues that because the satisfaction did not identify the mortgagee and because it was not executed “on behalf of” the designated mortgagee, the mortgage has not been satisfied and remains valid.

[¶ 11.] Defendants point out that under the agreements among ACT, NattyMac, and MERS, ACT was NattyMac's servicing agent for receiving loan payments and satisfying mortgage liens. Defendants also point out that there is no dispute that ACT, in its capacity as NattyMac's servicing agent, received the full loan payoff at the closing. Defendants argue that under the circumstances, the mortgage was extinguished as a matter of law notwithstanding any defects in the satisfaction. We agree.

[¶ 12.] It is generally recognized that “a mortgage is extinguished by the payment of the debt. The mortgagee has no property in such mortgage after such payment.” Shriver v. Sims, 127 Neb. 374, 255 N.W. 60, 63 (1934). See also SDCL 44-3-8 (providing that “[w]henever any mortgage ... has been satisfied either by payment, foreclosure or other legal means, the holder of such lien shall, within thirty days of satisfaction, deliver a sworn satisfaction to the debtor”) (emphasis added).

[¶ 13.] This rule also applies when the payment is received by an entity other than the mortgagee if that entity is authorized to receive payment. The Nebraska Supreme Court explained: “When the money for the payment of a note secured by mortgage has reached the hands of an agent authorized to collect it, the debt is paid, and the mortgagor is entitled to have the mortgage given to secure the debt canceled.” Id. Furthermore, a formal recordable satisfaction is not necessary to discharge the mortgage. “The payment or satisfaction of the mortgage debt avoids the mortgage deed. The failure to enter satisfaction upon the margin of the record may subject the mortgagee to penalties, but has no effect to keep the mortgage in existence.” Id. The reasoning of the rule is that because “[the agent is] authorized to collect the debt and ... [possess] the money which he was authorized to get without any liability remaining for his principal, the mortgage ... is paid and extinguished.” Id. See also Skott v. Bank of America Illinois, 266 Ga. 532, 533, 468 S.E.2d 359, 360 (1996) (concluding that the authorized servicing agent had authority to receive payments on the loan, including the payoff check, and that any security interest in the property by virtue of an assignment was satisfied by the payment in full to the servicing agent); Rockford Life Ins. Co. v. Rios, 128 Ill.App.2d 190, 261 N.E.2d 530, 533 (1970) (noting that “[i]f payment [was] made to an authorized [servicing] agent ..., the payor is not bound to inquire into the application of such payment”).

[¶ 14.] The Wisconsin Supreme Court indicated that the “[a]uthorities are in general accord with the proposition that payment of an indebtedness on a note secured by a mortgage on real estate extinguishes the mortgage lien without satisfaction thereof of record or in writing.” Moore v. Benjamin, 228 Wis. 591, 591, 280 N.W. 340, 341 (1938). Although unpublished Klapmeier v. Peoples Nat'l Bank of Mora, 2008 WL 2967033 (Minn.Ct.App.2008), restates the Minnesota Supreme Court's similar view:

[O]nce a mortgage debt has been paid in full, and evidence thereof is surrendered to the mortgagor, the mortgage is completely

...