Silvernagel v. US Bank Nat'l Ass'n

• Decision Date: 21 October 2021
• Docket Number: Court of Appeals No. 20CA1035
• Citation: 503 P.3d 165,2021 COA 128
• Parties: Jerome D. SILVERNAGEL and Dan Wu, Plaintiffs-Appellants, v. US BANK NATIONAL ASSOCIATION, Defendant-Appellee.
• Court: Colorado Court of Appeals

503 P.3d 165

2021 COA 128

Jerome D. SILVERNAGEL and Dan Wu, Plaintiffs-Appellants,

v.US BANK NATIONAL ASSOCIATION, Defendant-Appellee.

Court of Appeals No. 20CA1035

Colorado Court of Appeals, Division I.

Announced October 21, 2021

Staggs Morris, P.C., William A. Morris, Denver, Colorado, for Plaintiffs-Appellants

Ballard Spahr LLP, Matthew A. Morr, Chad Jimenez, Denver, Colorado, for Defendant-Appellee

Opinion by JUDGE DAILEY

¶ 1 In this action for declaratory relief, plaintiffs, Jerome D. Silvernagel and Dan Wu, appeal the district court's judgment dismissing their case against defendant, US Bank National Association (US Bank).

¶ 2 The district court concluded that Silvernagel's discharge of a debt in bankruptcy had no effect on the time within which a bank had to foreclose the deed of trust given as security for that debt. Because we disagree, we reverse and remand with directions.

I. Background

¶ 3 Silvernagel and Wu are married. In 2004, they bought a house in Highlands Ranch. In 2006, they took out a second mortgage on the house for $62,400 with lender New Century Mortgage Corporation. Silvernagel alone signed the promissory note, agreeing to repay the underlying loan in monthly installments until October 1, 2036; both he and Wu, however, signed the deed of trust securing payment of the note.

¶ 4 In 2012, a bankruptcy court discharged Silvernagel's personal liability on the note and nothing in the record suggests that he made any payments thereafter on the note.

¶ 5 On June 28, 2019, Silvernagel and Wu (hereinafter collectively, Silvernagel) filed the present action for declaratory relief against US Bank, asserting that (1) earlier that year, US Bank "began demanding payment" on the underlying debt and "threatening [Silvernagel] with foreclosure";¹ (2) US Bank, however, lacked standing to foreclose on the property because it could not prove that it was the owner or holder of the deed of trust; and (3) US Bank was, in any event, barred from initiating foreclosure on the property by either the applicable statute of limitations or the doctrine of laches. Consequently, Silvernagel requested a judgment declaring that they own the property in fee simple unencumbered by the deed of trust and US Bank has "no further rights to the property."

¶ 6 Pursuant to C.R.C.P. 12(b)(5), US Bank filed a motion to dismiss Silvernagel's complaint, asserting that (1) it had standing, via a series of assignments of "the loan," as evidenced by a "MERS milestone report";² (2) the applicable statute of limitations could not have expired because the cause of action on parts of the underlying debt had not accrued yet; and (3) because Wu had signed the deed of trust, US Bank was also entitled to foreclose on Wu's interest in the property.

¶ 7 The district court granted US Bank's motion, concluding, as relevant here, (1) US Bank "provided a copy of the MERS milestone report showing that [US Bank] is the current trustee, thus [it] has standing to enforce" the promissory note and the deed [of trust]"; (2) because "the Deed of Trust provides for payment as to [a] 2036 maturity date," a final limitations period had not yet commenced; and (3) "[a]lthough Wu may not be personally liable on the Note or under the Deed of Trust, [US Bank] may enforce the Deed of Trust against Wu who signed to grant ... an enforceable interest in the Property to the Trustee [US Bank] under the terms of the Deed of Trust."³

¶ 8 Silvernagel now appeals.

II. Standard of Review

¶ 9 The district court purported to dismiss Silvernagel's complaint pursuant to C.R.C.P. 12(b)(5). But in resolving a Rule 12(b)(5) motion to dismiss, a court may consider only the facts alleged in the complaint, documents attached as exhibits to or referenced in the complaint, and matters of which the court may take judicial notice, such as public records. Walker v. Van Laningham , 148 P.3d 391, 397 (Colo. App. 2006) (discussing judicial notice); Yadon v. Lowry , 126 P.3d 332, 336 (Colo. App. 2005) (discussing documents attached or referenced in the complaint).

¶ 10 Here, the district court considered a "matter" — the "MERS milestone report" — that could not be considered in resolving a motion to dismiss.⁴ The effect of the court's consideration of the MERS report was to convert US Bank's motion to dismiss into a motion for summary judgment. C.R.C.P. 12(b) ; see Yadon , 126 P.3d at 335-36. Therefore we review the court's ruling applying summary judgment principles. Cf. Grandote Golf & Country Club, LLC v. Town of La Veta , 252 P.3d 1196, 1199 (Colo. App. 2011) (applying summary judgment principles where both parties assumed the court considered matters beyond those that could be considered in conjunction with a C.R.C.P. 12(b)(5) motion).

¶ 11 Summary judgment is appropriate if the pleadings and supporting documentation demonstrate that no genuine issue of material fact exists and that the moving party is entitled to summary judgment as a matter of law. Id. Like a dismissal under C.R.C.P. 12(b)(5), we review a district court's summary judgment ruling de novo. Brodeur v. Am. Home Assurance Co. , 169 P.3d 139, 146 (Colo. 2007) (summary judgment); see Tomar Dev., Inc. v. Friend , 2015 COA 73, ¶ 12, 410 P.3d 578 ( C.R.C.P. 12(b)(5) dismissal).

¶ 12 Here, the parties dispute whether US Bank holds the promissory note and deed of trust. But there are no disputed issues of material fact that are necessary for us to resolve this appeal. At issue are the legal conclusions drawn from the facts that were undisputed in the record.

III. US Bank's Standing

¶ 13 Silvernagel contends that the district court erred when it concluded that US Bank has standing to enforce the note and deed of trust. We disagree.

¶ 14 "[E]nforcement of a promissory note and foreclosure of a deed of trust securing that note are separate remedies of a creditor in the event of a borrower's default. The inability to pursue one remedy does not bar the other. ... [N]othing under either federal or state law supports the conclusion that the discharge of personal liability on the note also discharges the lien of the deed of trust securing the note." Edmundson v. Bank of Am. , 194 Wash.App. 920, 378 P.3d 272, 276 (2016) (citations omitted); accord Smith v. Certified Realty Corp. , 41 Colo. App. 170, 172, 585 P.2d 293, 294 (1978) ("The holder of a note secured by a deed of trust has a choice of independent remedies."), aff'd , 198 Colo. 222, 597 P.2d 1043 (1979).

¶ 15 Consequently, a creditor's right to foreclose on a deed of trust survives a discharge of the underlying debt in bankruptcy. See Johnson v. Home State Bank , 501 U.S. 78, 82-83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (discussing actions to enforce mortgages).

¶ 16 "Colorado foreclosure law allows a holder of an evidence of debt to foreclose upon breach of the terms of the deed of trust." Edwards v. Bank of Am., N.A. , 2016 COA 121, ¶ 15, 382 P.3d 1272 ; see § 38-38-101, C.R.S. 2020. A "holder of an evidence of debt" is defined as "the person in actual possession of or person entitled to enforce an evidence of debt." Edwards , ¶ 15 (quoting § 38-38-101.3(10), C.R.S. 2015).

Under sections 38-38-101(1)(b)(II) and (1)(c)(I), the holder of an evidence of debt may initiate foreclosure proceedings with a copy of the evidence of debt and deed of trust, rather than the original documents.

To foreclose in this manner, the holder of an evidence of debt must file "a statement signed by the attorney for such holder , citing the paragraph of section 38-38-100.3(20)[, C.R.S. 2020,] under which the holder claims to be a qualified holder and certifying or stating that the copy of the evidence of debt is true and correct." § 38-38-101(1)(b)(II) (emphasis added).

Id. at ¶¶ 16-17.

¶ 17 The record contains a copy of the promissory note and the deed of trust. But it does not contain a statement, signed by an attorney, certifying that US Bank is the holder of the evidence of debt. Instead, it contains, as an exhibit to US Bank's C.R.C.P. 12(b)(5) motion to dismiss, a one-page copy of a MERS milestone report. That report purports to reflect that, through a series of transfers, US Bank became the trustee of "Batch Number 4541072," originating from New Century Mortgage Corporation, the original lender, passing through Credit Suisse Securities (USA), and finally ending with US Bank. Though the batch of transfers are numbered, nowhere on this document is there any indication that the promissory note, the deed of trust, or the property are included in any, much less all, of those batches of transfers. Nonetheless, the district court concluded that US Bank "[was] the current trustee, thus [it] has standing to enforce" the promissory note and the deed of trust.

¶ 18 On appeal, Silvernagel asserts that the MERS milestone report is insufficient to establish US Bank's standing to foreclose on the property. We need not, however, resolve that issue because US Bank is not the plaintiff in this proceeding, and "traditional standing principles do not apply to defendants." Mortg. Invs. Corp. v. Battle Mountain Corp. , 70 P.3d 1176, 1182 (Colo. 2003).

¶ 19 As the supreme court explained in People ex rel. Simpson v. Highland Irrigation Co. , 893 P.2d 122, 127 (Colo. 1995), the standing

requirement limits plaintiffs from asserting claims in which they have no stake, and ensures that the jurisdiction of the courts is exercised only when an actual case or controversy exists. Colo. Gen. Assembly v. Lamm , 700 P.2d 508, 515-16 (Colo. 1985). Those same concerns are not implicated with respect to the defendants, because once the plaintiff has established standing and the defendants have been haled into court by the plaintiff, the only role for the defendants is to defend against the suit.

¶ 20 Because US Bank is the defendant in this declaratory judgment action, it did not need to establish standing. See Sandstrom v. Solen , 2016 COA 29, ¶ 19, 370 P.3d 669 (citing Simpson , 893 P.2d at 127 ); see also Johnson v. Nelson , 290 Neb. 703, 861...