STATE OF WISCONSIN COURT OF APPEALS DISTRICT IV

RECEIVED
11-23-2010
CLERK OF COURT OF APPEALS OF WISCONSIN

Appeal No. 2010AP001909

Aurora Loan Services, LLC, Plaintiff-Respondent, vs. David J. Carlsen and Nancy L Carlsen, Defendants-Appellants.

APPEAL FROM THE DECISION OF THE CIRCUIT COURT OF ROCK COUNTY, JUDGE JAMES E. WELKER PRESIDING

APPELLANTS REPLY BRIEF

Reed J. Peterson Reed Peterson & Associates 7818 Big Sky Drive, Ste. 214 Madison, WI 53719 (608) 212-2322 State Bar No. 1022323 Attorney for Defendants-Appellants

TABLE OF CONTENTS TABLE OF AUTHORITIES ARGUMENT I. II. STANDARD OF REVIEW THE TRIAL COURT ERRED BECAUSE WRITTEN INSTRUMENTS RELIED UPON BY THE TRIAL COURT WERE NOT ADMITTED INTO EVIDENCE TO SUBSTANTIATE AURORAS CLAIM. 1 1 ii

III. THE EVIDENCE DOES NOT SHOW THAT AURORA IS THE HOLDER OF A NOTE.
IV. AURORAS

EQUITABLE ASSIGNMENT ARGUMENT IS WITHOUT MERIT BECAUSE AURORA DID NOT PRODUCE EVIDENCE THAT THE NOTE WAS ASSIGNED TO IT.

CONCLUSION FORM AND LENGTH CERTIFICATION

6 7

TABLE OF AUTHORITIES Cases First Nat. Leasing Corp. v. City of Madison, 81 Wis.2d 205, 208, 260 N.W.2d 251 (1977) Statutes 401.201 403.201 403.203 403.301 403.309 706.001 706.01 706.02 706.04 3 3 3 5 5 1, 4 2 1, 2, 4 2 Page 1

ii

I.

STANDARD OF REVIEW. The standard of review is de novo. There was only one witness. While the

admissibility of evidence was disputed, the facts admitted into evidence were not. When there is not a factual dispute, the only questions presented on appeal are matters of law, to which the appellate court need not give special deference to the trial court. First Nat. Leasing Corp. v. City of Madison, 81 Wis.2d 205, 208, 260 N.W.2d 251 (1977). II. THE TRIAL COURT ERRED BECAUSE WRITTEN INSTRUMENTS WERE NOT ADMITTED INTO EVIDENCE TO SUBSTANTIATE AURORAS CLAIM. Aurora does not dispute that written documentation was not admitted into evidence. Wis. Stats. 706.001 states that, with limited exceptions, Chapter 706 governs every transaction by which an interest in land is created, alienated, mortgaged, assigned or may be otherwise affected in law or in equity. (Emphasis added.) Wis. Stat. 706.02(1) provides that transactions under 706.001(1) shall not be valid unless evidenced by a conveyance that meets the following formal requirements: (a) Identifies the parties; and (b) Identifies the land; and (c) Identifies the interest conveyed, and any material term, condition, reservation, exception or contingency upon which the interest is to arise, continue or be extinguished, limited or encumbered; and (d) Is signed by or on behalf of each of the grantors; and (e) Is signed by or on behalf of all parties, if a lease or contract to convey; and (f) Is signed, or joined in by separate conveyance, by or on behalf of each spouse, if the conveyance alienates any interest of a married person in a homestead under s. 706.01 (7) except conveyances between spouses, but on a purchase money mortgage pledging that property as security only the purchaser need sign the mortgage; and (g) Is delivered.

A conveyance is a written instrument, evidencing a transaction governed by this chapter. Wis. Stat. 706.01(4). Wis. Stat. 706.04 provides that a transaction which does not satisfy all the requirements of 706.02 may be enforceable if all of the elements of the transaction are clearly and satisfactorily proved. The elements of a transaction are the formal requisites stated in 706.02. In reaching its decision, the trial court looked beyond evidentiary facts to documents that were not in evidence. The courts decision appears to have been based on its colloquy with Auroras counsel which revolved around an examination of documents not admitted into evidence. Aurora asks this court to abandon the fundamental rules of evidence and to allow the circuit court to base its decision on a review of the entire record of this case. (Brief and Appendix of Plaintiff-Respondent, pp. 6 and 7.) Aurora points to affidavits filed with its motion for summary judgment to support its argument. (Brief and

Appendix of Plaintiff-Respondent, pp. 8-9.) But an affidavit is hearsay and serves a limited purpose in a summary judgment motion. Aurora asks the court to consider the trial witness testimony about documents allegedly in its possession, even though Aurora did not lay a foundation for their admission into evidence, did not attempt to admit them into evidence, and they were not admitted into evidence. Aurora asks this court to construe the Carlsens decision to not present any evidence in its favor. This is a red herring. The burden of proof was on Aurora to establish its right to foreclose. It did not. Absent Aurora meeting its burden of proof, whether the Carlsens testified or presented evidence is irrelevant.

III.

THE EVIDENCE DOES NOT SHOW THAT AURORA IS THE HOLDER OF A NOTE. Auroras claim that it is the holder of a note on the Carlsens property is not

supported by the evidence. The only evidence regarding the holder of the note was that David and Nancy Carlsen were the holder of the note. (Trial Transcript, R.28, p.29, ln.17 to p.30, ln.5., Appx. 33-34.) Yet Aurora claims it is the holder of the note, and cites Wis. Stat. 401.201(20) to support its contention. However, Aurora does not meet the definition of a holder. A holder means the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession. Wis. Stats. 401.201(20)1. (emphasis added). While Auroras employee testified she had the original note in her possession, mere possession by a non-issuer does not make the possessor a holder of the note. The note must be endorsed to the bearer of the note or to an identified person that is the person in possession. Wis. Stat. 401.201(20). There was no evidence that the note was endorsed. There was no evidence of the negotiation of the note. Negotiation means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder. 403.201(1). Wis. Stat.

Endorsement of the note is necessary for the note to be negotiated:

if an instrument is transferred for value and the transferee does not become a holder because of lack of endorsement by the transferor, the transferee has a specifically enforceable right to the unqualified endorsement of the transferor, but negotiation of the instrument does not occur until the endorsement is made. Wis. Stat. 403.203(3) (emphasis added). Aurora did not present any evidence at trial regarding the endorsement of the note. Auroras argument that the court should consider the affidavit it submitted with its

motion for summary judgment completely ignores the rules of evidence and the fact that the court denied Auroras motion for summary judgment. The court is left to guess as to how David and Nancy Carlsen became holders of the note and why Aurora is asserting an interest in the note. IV. AURORAS EQUITABLE ASSIGNMENT ARGUMENT IS WITHOUT MERIT BECAUSE AURORA DID NOT PRODUCE EVIDENCE THAT THE NOTE WAS ASSIGNED TO IT. Auroras reliance on the equitable assignment doctrine is unfounded for two reasons. First, Aurora relies on cases that are over 100 years old and pre-date Chapters 706 and 403. Chapters 706 and 403 are controlling. Wis. Stats. 706.001(1) provides that every transaction by which any interest in land is created, alienated, mortgaged, assigned or may be otherwise affected in law or equity must be evidenced by a written instrument that satisfies the formal requisites of 706.02. This requirement that the

transaction must be evidenced by a written instrument would have had to occur at least twice in this case: first, when the Carlsens took out the original note and mortgage; and, second, when the note and mortgage were assigned to Aurora. In both transactions, Aurora failed to produce a written instrument to substantiate its employees assertions, despite the employee testifying such documents were in her possession. This is not a case in which a party is claiming the written instrument is lost or destroyed; this is a case in which the party claims to have written instruments but does not admit them into evidence. By not admitting the documents into evidence, Aurora has taken the fact finding decision making out of the hands of the court and has asked the court to accept Auroras employees conclusions on the content and validity of the documents and its legal interests.

Second, Auroras witness testimony regarding two apparent assignment transactions lacked significant elements of 706.02. Conner testified there were two assignments of mortgage in Auroras file and one of the assignments, Exhibit C, was an assignment of mortgage from U.S.A. Funding to MERS, and Patricia Parr, assistant vice president of U.S.A. Funding signed the assignment. There was not testimony about the identity of the land, the interest conveyed, or any material terms of the assignment of mortgage referred to as Exhibit C. There was not testimony about any of the details of the assignment of mortgage referred to as Exhibit D. Finally, Auroras argument is predicated on the assumption that it has the right to enforce the note because the note was in its possession. Mere possession of a note is not enough to convey the right to enforce the note. A person is entitled to enforce an instrument if the person is (1) the holder of the instrument, (2) a nonholder in possession of the instrument who has the rights of a holder, or (3) a person not in possession who is entitled to enforce a lost, destroyed or stolen instrument under certain circumstances. Wis. Stats. 403.301 and 403.309(1). As argued above, Aurora was not the holder of the instrument because there was not evidence that the note was endorsed. Furthermore, Aurora was not a nonholder in possession of the instrument who had the rights of a holder, because there was not evidence presented showing Aurora had the rights of a holder. Finally, Aurora was not a person not in possession entitled to enforce a lost, destroyed or stolen instrument because Aurora claimed it possessed written instruments. Aurora failed to prove that it had the right to enforce the note.

CONCLUSION Aurora failed to produce any evidence of written instruments to substantiate its claims, despite its employees testimony that it had such documents in its possession. Without such evidence, or evidence that the documents were lost, destroyed or missing, Aurora failed to meet its burden of proof. This court must find that as a matter of law, if a party seeking to foreclose on a property asserts that it possesses written instruments that give it the right to foreclose, the party must admit the written instruments into evidence for the courts review. To allow otherwise would take away the courts fact finding responsibility and would vest the fact finding determination in the hands of the party seeking to foreclose. This would be absurd, would open the door to fraudulent

foreclosures, and would be completely contradictory to the purpose of the statute of frauds. The trial courts judgment in favor of Aurora must be reversed and the trial court ordered to enter judgment for the defendants-appellants. Dated: November 22, 2010. Respectfully submitted, /s/ Reed J. Peterson Reed J. Peterson Attorney for the Carlsens State Bar No. 1022323 Reed Peterson & Associates 7818 Big Sky Drive, Ste. 214 Madison, WI 53719 (608) 212-2322

FORM AND LENGTH CERTIFICATION I hereby certify that this brief conforms to the rules contained in s. 809.19 (8) (b) and (c) for a brief and appendix produced with a proportional serif font. The length of this brief is 1,695 words. I further certify that I have filed an electronic copy of this brief pursuant to s. 809.21(12) and the text of the electronic copy is identical to the text of the paper copy of the brief. Dated: November 22, 2010.
/s/ Reed J. Peterson

Reed J. Peterson Attorney for the Carlsens State Bar No. 1022323 Reed Peterson & Associates 7818 Big Sky Drive, Ste. 214 Madison, WI 53719 (608) 212-2322