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Birmingham Bar Association Bulletin - Winter 2013

Real Estate Law C. Harris v. Deutsche Bank National Trust Co. The Court’s decision in Harris v. Deutsche Bank National Trust Co. examined the proof needed to establish authority to exercise the power of sale. As previously mentioned, lenders often sell the promissory notes associated with a mortgage to third parties, who pool them into trusts and resell them as securities. Trustees often manage these trusts, and when a promissory note goes into default, it is the trustee who forecloses on the property. Under GMAC Mortgage, when a trustee executes a foreclosure deed in its own name, it must have the power of sale in the mortgage. But holding the power of sale is not enough to empower the trustee (or other entity) to exercise it. The power of sale is part of the security for the debt underlying the mortgage, and to exercise that power (i.e., execute the foreclosure deed), the trustee (or other entity) must also have authority to collect the underlying debt. While a trustee usually has this authority, it must be prepared to offer supporting documentation. Harris v. Deutsche Bank National Trust Co.10 emphasizes this proof requirement. In Harris, the mortgage was assigned to a trustee who conducted a foreclosure sale and executed the foreclosure deed in its own name, and not as the representative of any entity entitled to collect on the note. The borrower argued that the trustee lacked authority to execute the foreclosure deed because the mortgage assignment had not (on the facts presented in Harris) also transferred to the trustee the right to collect the debt secured by the mortgage. Furthermore, the trustee had submitted no proof of its authority to collect the underlying debt in its own name. Despite this lack of proof, the circuit court entered summary judgment against the borrower. On appeal, the trustee conceded that the entry of summary judgment was improper based on the existing record, and requested that the case be remanded so that it could submit the required proof. Though the Court did remand the case, Harris is a reminder of the need to create a record sufficient to support a foreclosure and sustain a judgment in an ejectment action. Harris teaches that a trustee (or other entity) should be prepared to offer proof of their authority to collect the underlying debt. Additionally, if a trustee is merely acting as a representative of the entity entitled to collect the underlying debt, the trustee should execute the foreclosure deed on behalf of that entity rather than in its own name. D. Ex parte BAC Home Loan Servicing, LP While not directly related to the power of sale, the Supreme Court’s decision in Ex parte BAC Home Loan Servicing, LP11 has significant implications for secured lenders in Alabama. Obtaining possession of a foreclosed property often requires a lender to sue the occupant for possession. But under Cadle Co. v. Shabani, 12 a 2006 decision from the Alabama Supreme Court, a party lacks standing to sue for possession of real property if it cannot show that it has legal title to that property. In the foreclosure context, legal title is acquired through a valid foreclosure sale and the execution of a foreclosure deed. Thus, under Cadle, a successful attack on a foreclosure sale not only invalidated the sale, but also deprived the court of authority to adjudicate the case. As a result, a borrower had two bites at the apple. If a borrower failed to invalidate a foreclosure sale in the circuit court, he or she could raise new arguments on appeal because these arguments, if successful, would make the circuit court’s judgment void for lack of jurisdiction. While this second bite was not a substantial advantage for borrowers, it no doubt created obstacles for secured lenders whose goal was to obtain possession of the foreclosed property. For example, Cadle played a significant role in Sturdivant, where the Alabama Court of Civil Appeals relied on Cadle in allowing a borrower to raise, for the first time on appeal, the argument that the mortgage was not assigned prior to the “initiation of the foreclosure.” After accepting the borrower’s position, the court dismissed the appeal and ordered the circuit court to dismiss the case for lack of subject matter jurisdiction. Judge Pittman dissented, saying: I cannot account for the difference in the way the main opinion treats the defect in the foreclosure sale that forms the basis for the ejectment action in this case from the way this court treated the defect in a prior case decided just the year before—both of which defects, if proved, would result in invalidation of the foreclosure sale—other than to surmise that we have been led astray by the standing analysis in Cadle, a decision that, as I have already stated, I think is misguided and should be overruled. 13 In BAC Home Loan, the Alabama Supreme Court reversed Sturdivant and expressly overruled Cadle.14 Justice Murdock, writing for the majority, noted that Alabama courts have too often confused the issue of standing with a party’s fail- Continued on page 14 12 Birmingham Bar Association


Birmingham Bar Association Bulletin - Winter 2013
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