Dow Family, LLC v. PHH Mortgage Corporation

2014 WI 56

SUPREME COURT OF WISCONSIN
CASE NO.: 2013AP221
COMPLETE TITLE: Dow Family, LLC,
Plaintiff-Appellant-Petitioner,
v.
PHH Mortgage Corporation,
Defendant-Respondent,
U.S. Bank, N.A.,
Defendant.

REVIEW OF A DECISION OF THE COURT OF APPEALS
Reported at 350 Wis. 2d 411, 838 N.W.2d 119
(Ct. App. 2013 – Published)
PDC No: 2013 WI App 114

OPINION FILED: July 10, 2014
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: March 19, 2014

SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Barron
JUDGE: James D. Babbitt

JUSTICES:
CONCURRED: ABRAHAMSON, C.J., concurs. (Opinion filed.)
DISSENTED:
NOT PARTICIPATING: BRADLEY, J., did not participate.

ATTORNEYS:
For the plaintiff-appellant-petitioner, there were briefs
by Joe Thrasher and Thrasher, Pelish, Franti & Heaney, Ltd.,
Rice Lake, and oral argument by Joe Thrasher.

For the defendant-respondent, there was a brief by Mary Sue
Anderson and Mallery & Zimmerman, S.C., Wausau, and oral
argument by Mary Sue Anderson.

An amicus curiae brief was filed by John E. Knight, Kirsten
E. Spira, and Boardman & Clark LLP, Madison, on behalf of
Wisconsin Bankers Association, and oral argument by John E.
Knight.

An amicus curiae brief was filed by Michael B. Apfeld and
Godfrey & Kahn, S.C., Milwaukee; and Robert J. Pratte and
Fulbright & Jaworski LLP, Minneapolis, on behalf of Mortgage
Electronic Registration Systems, Inc.

2
 2014 WI 56
NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2013AP221
(L.C. No. 2010CV355)

STATE OF WISCONSIN : IN SUPREME COURT

Dow Family, LLC,

Plaintiff-Appellant-Petitioner,

v.
FILED
PHH Mortgage Corporation,
JUL 10, 2014
Defendant-Respondent,
Diane M. Fremgen
U.S. Bank, N.A., Clerk of Supreme Court

Defendant.

REVIEW of a decision of the Court of Appeals. Affirmed and

cause remanded to the circuit court.

¶1 N. PATRICK CROOKS, J. In 2009, Dow Family, LLC, (Dow)

purchased a condominium located at unit four in the Island of

Happy Days Condominiums. Unfortunately, the purchase did not

result in happy days for Dow because PHH Mortgage Corporation

(PHH) asserted that the condominium remained burdened by a

mortgage after closing. Dow asks this court to find that the
outstanding mortgage is unenforceable. Specifically, Dow argues
 No. 2013AP221

that even if PHH can prove it holds the underlying note in

question, it does not follow that PHH also holds the mortgage,

which would give PHH the right to bring a foreclosure action in

regard to the property to satisfy any outstanding debts.

¶2 At the time of purchase, Dow satisfied a mortgage from

2003. Before closing, Dow also inquired about another mortgage

from 2001 that was listed on the title commitment. The sellers'

attorney informed Dow that the 2001 mortgage was mistakenly

listed on the title commitment. This information, however, was

incorrect because the 2001 mortgage, purportedly owed to PHH,

did exist and went unsatisfied at the time of closing.

¶3 Dow sought declaratory judgment that the 2001 mortgage

did not constitute a lien on the property at the time of the

2009 sale. Dow's position is that the statute of frauds

requires written documentation of mortgage assignments.

Specifically, Dow asserts that PHH is unable to produce

documentation indicating that the mortgage was assigned to PHH

at the time of closing. Therefore, Dow argues the 2001 mortgage
was not an enforceable lien at the time it purchased the

condominium in 2009. After PHH initiated a foreclosure action

against Dow, the circuit court consolidated the two cases.

¶4 We are asked to determine whether PHH could properly

enforce the 2001 mortgage at the time Dow purchased the property

in 2009. PHH argues 1) that it received the applicable note by

assignment in 2001, and 2) that it also held the mortgage at the

time of the 2009 sale because, under the doctrine of equitable
assignment, the mortgage follows the note. To evaluate PHH's
2
 No. 2013AP221

argument we must determine whether the doctrine of equitable

assignment exists in Wisconsin. We must then determine whether

that doctrine exempts mortgage assignments from the statute of

frauds.

¶5 We agree with the circuit court and the court of

appeals that the doctrine of equitable assignment is alive and

well in Wisconsin. The doctrine's existence is evidenced in our

case law, and we are convinced that the case law we rely upon

should not be distinguished or discredited due to its age or

changes in banking practices. We further conclude that the

language of Wis. Stat. § 409.203(7) (2011-12),1 which governs

liens securing the right to payment, codifies equitable

assignment. Finally, the application of equitable assignment in

this case results in no unfairness to Dow.

¶6 We further hold that the doctrine of equitable

assignment does not conflict with the statute of frauds outlined

in Wis. Stat. § 706.02. Equitable assignment occurs by

operation of law, which satisfies Wis. Stat. § 706.001(2)(a),2 a
statutory exception to the statute of frauds.

1
All references to the Wisconsin statutes are to the 2011-
12 version unless otherwise indicated. Wisconsin Stat.
§ 409.203(7) governs "Lien securing right to payment." It
provides, "The attachment of a security interest in a right to
payment or performance secured by a security interest or other
lien on personal or real property is also attachment of a
security interest, mortgage, or other lien." Wis. Stat.
§ 409.203(7).
2
Wisconsin Stat. § 706.001(2)(a) excludes transfers of land
from the statute of frauds when the land transaction occurs
"[b]y act or operation of law."

3
 No. 2013AP221

¶7 Therefore, under the doctrine of equitable assignment,

we hold that a mortgage automatically passes by operation of law

upon the assignment of a mortgage note, which, as we noted

above, satisfies a statutory exception to the statute of frauds.

Accordingly, we affirm the court of appeals decision, which

affirmed the circuit court, in part, reversed in part, and

remanded the cause. Like both the circuit court and court of

appeals, we conclude that the doctrine of equitable assignment

applies and does not violate the statute of frauds; however, the

issue of whether PHH has the necessary documents to enforce the

note in question must be determined by the circuit court.

I. PROCEDURAL BACKGROUND

¶8 The circuit court ruled in favor of PHH and held that

"there is no material issue of fact as to PHH holding the note

and thereby getting the mortgage equitably assigned to them."

This ruling from the bench by the Barron County Circuit Court,

Honorable James D. Babbitt presiding, followed arguments on

PHH's summary judgment motion. The circuit court held that the
doctrine of equitable assignment is alive and well in Wisconsin

and that PHH possessed the underlying note. Therefore, it

concluded that under the doctrine of equitable assignment, the

2001 mortgage was equitably assigned to PHH when it received the

note in 2001. Because the 2001 mortgage remained unsatisfied at

the time of the 2009 sale, foreclosure in favor of PHH was

appropriate. Accordingly, the circuit court granted PHH's

motion for summary judgment. The circuit court later issued its

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 No. 2013AP221

written findings of fact, conclusions of law, and judgment of

foreclosure.

¶9 We now review a published court of appeals decision

that affirmed the circuit court in part, reversed in part, and

remanded for further proceedings. Dow Family, LLC v. PHH Mortg.

Corp., 2013 WI App 114, ¶2, 350 Wis. 2d 411, 838 N.W.2d 119.

The court of appeals, relying on Tidioute Sav. Bank v. Libbey,

101 Wis. 193, 77 N.W. 182 (1898), Tobin v. Tobin, 139 Wis. 494,

121 N.W. 144 (1909), Muldowney v. McCoy Hotel Co., 223 Wis. 62,

269 N.W. 655 (1936), and Wis. Stat. § 409.203(7), agreed with

the circuit court that the doctrine of equitable assignment

applies in Wisconsin. Dow Family, LLC, 350 Wis. 2d 411, ¶¶26-

37. It further held that application of equitable assignment

did not conflict with the statute of frauds outlined in Wis.

Stat. § 706.02. Id., ¶38. It held that because the mortgage

was equitably assigned to PHH by virtue of PHH holding the note,

the transfer of the mortgage occurred by operation of law, which

is an exception to the statute of frauds. Id.; see also Wis.
Stat. § 706.02(2)(a).

¶10 The court of appeals, however, found that the circuit

court erred in granting summary judgment to PHH because PHH

failed to show that it could enforce the note. Dow Family, LLC,

350 Wis. 2d 411, ¶24. Specifically, the court of appeals

concluded that PHH's documentation at summary judgment did not

show that it held an authenticated copy of the note in question.

Id. Furthermore, the court of appeals held that PHH's arguments
as to whether the note could be considered self-authenticating
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 No. 2013AP221

were undeveloped, and it declined to address those arguments.

Id., ¶22. Therefore, the court of appeals reversed and remanded

for trial on the issue of PHH's ability to enforce the note in

question.3 Id., ¶24.

¶11 Dow appeals, arguing that even if the doctrine of

equitable assignment exists in Wisconsin, a point that it does

not concede, the doctrine cannot serve as an exception to the

statute of frauds, which it argues requires that mortgage

assignments be done in writing. Dow further contends that

because the statute of frauds cannot be overcome by the doctrine

of equitable assignment, no enforceable lien existed when Dow

purchased the condominium in question; therefore, Dow asserts

that PHH cannot foreclose on the property.4

II. FACTUAL BACKGROUND

¶12 In 2001, U.S. Bank loaned William E. Sullivan and Jo

Y. Sullivan $146,250. A note dated May 17, 2001, which lists

3
PHH did not appeal the portion of the court of appeals'
decision that reversed the circuit court and remanded the cause.
Therefore, the issue of whether PHH can produce and enforce an
authenticated copy of the note in question is not before this
court.
4
If this court were to decide that the doctrine of
equitable assignment does not apply, Dow asks this court to
decide two additional issues. First, Dow asks the court to hold
that it took the property in question free and clear of the 2001
mortgage. Second, Dow asks whether its good faith in purchasing
the property is relevant to PHH's ability to foreclose on the
property. Because we conclude that equitable assignment applies
and is not in conflict with the statute of frauds, we do not
address Dow's additional arguments.

6
 No. 2013AP221

U.S. Bank as the lender and the Sullivans as the borrowers

evidences this transaction.

¶13 The 2001 note is secured by a mortgage on a

condominium located at unit four, Island of Happy Days, Mikana,

Wisconsin, in Barron County. The mortgage documentation is

dated May 17, 2001, and explicitly references the above-

described 2001 note. The mortgage lists the Sullivans as the

borrower/mortgagor and U.S. Bank as the lender. The mortgage

also lists the Mortgage Electronic Registration System (MERS)5 as

both the nominee for U.S. Bank and the mortgagee.6 The mortgage

was recorded with the Barron County Register of Deeds on June

5
Generally speaking,

Mortgage Electronic Registration Systems, Inc.,
commonly known as MERS, is a corporation registered in
Delaware and headquartered in the Virginia suburbs of
Washington, D.C. MERS operates a computer database
designed to track servicing and ownership rights of
mortgage loans anywhere in the United States.
Originators and secondary market players pay
membership dues and per-transaction fees to MERS in
exchange for the right to use and access MERS records.

Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending,
and the Mortgage Electronic Registration System, 78 U. Cin. L.
Rev. 1359, 1361 (2010).
6
It is unclear to us how MERS can act as both a nominee of
U.S. Bank and as the mortgagee. See Peterson, supra note 5, at
1374-75 (explaining that MERS cannot act as "both an agent and a
principal with respect to the same property right"). To resolve
the narrow questions before us, we need not determine whether
the dual role of MERS is proper.

7
 No. 2013AP221

22, 2001. PHH asserts that it received an assignment of the

2001 note shortly after it came into existence.7

¶14 In 2009, Dow purchased the condominium at issue8 from

the Sullivans. Prior to the purchase, Dow obtained a title

commitment that indicated that the property in question was

subject to the above-described 2001 mortgage as well as a 2003

mortgage in the amount of $140,000.9 The title commitment

7
This court takes no position on whether PHH received an
assignment of the note or whether PHH holds an authenticated
copy of the note. However, the record contains a "notice of
assignment, sale, or transfer of servicing rights" signed by the
Sullivans. The notice states, "You are hearby notified that the
servicing of your mortgage loan . . . is being assigned, sold or
transferred from U.S. Bank, N.A. to PHH Mortgage Services,
effective immediately following the closing of your loan." This
notice is undated except for an electronic date stamp that
appears to read May 11, 2001; therefore, the document may refer
to the 2001 note.

The record also contains a copy of the 2001 note that
includes an undated endorsement in blank to Cendant Mortgage
Corporation, d/b/a PHH Mortgage Services Corporation. Finally,
the record contains a copy of a letter dated November 24, 2009,
which PHH's counsel sent to Dow's attorney. In regard to the
2001 note, the letter states,

A copy of the assignment of the Note and Mortgage from
USBank to MERS has not yet been located. However, our
records clearly evidence that the Note and Mortgage
were assigned into MERS and are now owned by Fannie
Mae. PHH has serviced the loan since 2001 in the name
PHH Mortgage Corporation.
8
Dow's purchase of the condominium was one part of a larger
transaction; however, only the sale of unit four is at issue
here.
9
The title commitment also evidenced a third mortgage,
which is not at issue.

8
 No. 2013AP221

documentation listed U.S. Bank as the lender for both the 2001

and 2003 mortgages.10

¶15 Prior to closing, Dow's attorney contacted the

Sullivans' attorney to inquire about the 2001 mortgage. Email

correspondence between the attorneys indicates that William

Sullivan represented that the 2001 mortgage should no longer be

on the title and that the 2001 mortgage was the same as the 2003

mortgage. Dow apparently relied on this information to conclude

that the 2003 mortgage evidenced a refinancing of the note that

underlay the 2001 mortgage. Closing documents reflect that Dow

satisfied a single mortgage to U.S. Bank in the amount of

$143,140.89.

¶16 On November 24, 2009, PHH's counsel informed Dow's

attorney that the 2001 note, serviced by PHH, remained

outstanding and delinquent and that PHH would commence a

foreclosure action if necessary. On June 23, 2010, Dow filed

suit against PHH and U.S. Bank seeking a declaratory judgment

that it purchased the condominium free and clear of the 2001
mortgage. On August 9, 2010, PHH initiated a foreclosure action

against Dow. On February 1, 2011, Dow and PHH stipulated to the

consolidation of the two cases.

¶17 Questions about the assignment, location of, and

authenticity of the 2001 note are not before this court.

Instead, we are asked to determine whether the doctrine of

10
Dow asserts that the title commitment should have
indicated that MERS was the mortgagee under the 2001 mortgage
rather than U.S. Bank.

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 No. 2013AP221

equitable assignment applies in Wisconsin. We first consider

this question before discussing whether the doctrine of

equitable assignment constitutes an exception to the statute of

frauds.

III. STANDARD OF REVIEW AND PRINCIPLES OF INTERPRETATION

¶18 Whether or not the doctrine of equitable assignment

exists in Wisconsin is a question of law. This court reviews

questions of law de novo. D.S.P. v. State, 166 Wis. 2d 464,

471, 480 N.W.2d 234 (1992).

¶19 The question of whether the doctrine of equitable

assignment violates the statute of frauds requires statutory

interpretation. "Statutory interpretation is a question of law

for our independent review; however, we benefit from the

discussions of the court of appeals and the circuit court."

Kroner v. Oneida Seven Generations Corp, 2012 WI 88, ¶78, 342

Wis. 2d 626, 819 N.W.2d 264.

¶20 When conducting statutory interpretation we first look

to the plain language of the statute. State ex rel. Kalal v.
Circuit Court for Dane Cnty., 2004 WI 58, ¶45, 271 Wis. 2d 633,

681 N.W.2d 110. We consider extrinsic sources to determine

statutory meaning only when the plain language of the statute

could reasonably be interpreted in more than one way. Id.,

¶¶46-47.

IV. ANALYSIS

A. EQUITABLE ASSIGNMENT

¶21 Under the doctrine of equitable assignment, the
assignment of a mortgage note is automatically followed by the
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 No. 2013AP221

mortgage. Dow's arguments regarding equitable assignment are

intertwined with its arguments regarding the statute of frauds,

which we address in turn. However, Dow specifically questions

references to equitable assignment in Wisconsin's common law,

which it asserts are outdated and distinguishable.

¶22 PHH counters that equitable assignment is alive in

Wisconsin as evidenced by established case law. PHH also

asserts that Wis. Stat. § 409.203(7) codifies the doctrine of

equitable assignment. Finally, PHH contends that the

application of equitable assignment results in no unfairness to

mortgagors.

¶23 We agree with both the circuit court and the court of

appeals that the doctrine of equitable assignment is alive and

well in Wisconsin. We also agree with the court of appeals'

reliance on both case law and Wis. Stat. § 409.203(7) as

evidence of the doctrine's existence and application in

Wisconsin.

¶24 Evidence of the doctrine of equitable assignment
exists in Wisconsin case law dating back to at least 1859. In

Croft v. Bunster, 9 Wis. 503 (1859),11 a case involving real

estate transfers that were encumbered by mortgages, this court

stated,

The debt is the principal thing, the mortgage the
incident; the transfer of the debt carries with it the
mortgage. It is the debt which gives character to the
11
Both WestLaw and Lexis use 9 Wis. 503 as the citation for
Croft v. Bunster; however, the case appears at 9 Wis. 457 in the
Wisconsin Reports, published by Callaghan & Company.

11
 No. 2013AP221

mortgage, and fixes the rights and remedies of the
parties under it, and not the mortgage which
determines the nature of the debt. It cannot be
contended that the securing of a negotiable instrument
by a mortgage, destroys its negotiable character. We
are of opinion, therefore, that both principle and
sound policy require that the rights and remedies of
an assignee, under the mortgage, should be co-
extensive with those which he has under the instrument
securing the debt.
Croft, 9 Wis. at 511.12 While the same party in Croft appears to

have held both the mortgage and the note, see id. at 506, this

fact does not discredit the court's early recognition of the

idea of equitable assignment.

¶25 In addition to Croft, Tidioute, 101 Wis. 193, Tobin,

139 Wis. 494, and Muldowney, 223 Wis. 62, support the existence

and application of equitable assignment in Wisconsin, as the

court of appeals recognized. See Dow Family, LLC, 350 Wis. 2d

411, ¶¶26-37. In Tidioute, Libbey, the defendant, secured two

notes held by W.T. Richards & Co., who later sold each note to a

different bank. Tidioute, 101 Wis. at 193-95. "[N]o formal

assignment of the defendants' guaranty was made in either case."

Id. at 195. While the issue in this case specifically addressed

the distinction between a general guaranty and a special

guaranty to determine whether the defendant could be held

accountable to the current holders of the notes in question, the

12
Croft utilizes a lengthy quotation from Mathews v.
Wallwyn, 4 Vesey 118 (1798), an English case. It appears to rely
on Mathews as the origin of equitable assignment. However, the
conclusion of this quotation is unclear as the Croft opinion
fails to include closing quotation marks. Reference to the text
of Mathews v. Wallwyn itself confirms that the quotation we cite
is from Croft and not from Mathews.

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 No. 2013AP221

case gives ample support for the doctrine of equitable

assignment. The court stated,

A guaranty is defined to be "a separate, independent
contract, by which the guarantor undertakes, for a
valuable consideration, to be answerable for the
payment of some particular debt, or future debts, or
the performance of some duty, in case of the failure
of another person primarily liable to pay or perform;"
and it is said that such guaranty is assignable, with
the obligation secured thereby, and that it goes with
the principal obligation, and is enforceable by the
same persons who can enforce that. The rule is that
the transfer of a note carries with it all security
without any formal assignment or delivery, or even
mention of the latter.
Id. at 196 (citations omitted). The court further explained,

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.
Id. at 197 (emphasis added).

¶26 In Tobin, a father, Joseph Tobin, loaned money to a

third party. Tobin, 139 Wis. at 494. Joseph named his son,

John Tobin, in the note and mortgage related to this loan

without informing John; Joseph continued to hold the note and

recorded the mortgage. Id. at 494-95. Following John's death,

Joseph petitioned the court to declare that John never had any
interest in the note and mortgage. Id. at 495. John's widow

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 No. 2013AP221

later opposed the petition. Id. at 495-96. While no transfer

of the note from Joseph to John occurred in this case, the court

still stated the rule of equitable assignment in its discussion.

Id. at 499. It stated, "A mortgage securing a promissory note

passes as an incident upon transfer of the note." Id.

¶27 Finally, in Muldowney, Esther Muldowney loaned money

to the McCoy Hotel Company (McCoy). Muldowney, 223 Wis. at 64.

Muldowney held on to three of the notes that resulted from this

loan and endorsed the remaining 12 notes. Id. Later, the

Niagara Building Corporation (Niagara) purchased the remaining

12 notes from a third party. Id. McCoy defaulted on its loan

and Niagara initiated a replevin action. Id. McCoy argued

"that the Niagara Building Corporation cannot maintain this

action because no formal assignment of the mortgage or any

interest therein was executed and delivered to it in connection

with the transfer of the notes." Id. at 65. Although this case

addressed a chattel mortgage, the court cited the general

principle of equitable assignment in holding in favor of
Niagara,

It is well established that, in the absence of an
agreement to the contrary, the purchase of a note or
debt secured by a mortgage carries with it the lien of
the mortgage, because of which, in the absence of any
formal assignment of the latter to the purchaser, he
is considered the equitable owner thereof and of the
security afforded thereby.
Id. at 65-66.

¶28 Dow argues that these cases, which each support the
existence and application of equitable assignment of mortgages,

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 No. 2013AP221

are outdated and distinguishable. We recognize that the cases

relied upon by PHH, the court of appeals, and now this court

each deal with different issues and factual scenarios. However,

we agree with the court of appeals that each case stands for

"the general proposition that the security for a note is

equitably assigned upon transfer of the note, without the need

for a written assignment." Dow Family, LLC, 350 Wis. 2d 411,

¶34. Furthermore, references to equitable assignment principles

in Croft are especially noteworthy as that case concerned

mortgages on real estate. Likewise, in Tidioute, the court

explicitly stated that equitable assignment applies to real

estate mortgages.

¶29 We also note that the doctrine of equitable assignment

is not unique to Wisconsin case law. In Carpenter v. Longan, 83

U.S. 271, 275 (1872), the United States Supreme Court stated:

"The transfer of the note carries with it the security, without

any formal assignment or delivery, or even mention of the

latter." In the Restatement (Third) of Property (Mortgages)
§ 5.4(a) (1997) we find additional support for the doctrine of

equitable assignment: "A transfer of an obligation secured by a

mortgage also transfers the mortgage unless the parties to the

transfer agree otherwise."

¶30 Further, we agree with the court of appeals' reliance

on Wis. Stat. § 409.203(7) and hold that § 409.203(7) codifies

the doctrine of equitable assignment. Chapter 409 sets forth

Wisconsin's adoption of the Uniform Commercial Code (UCC)
governing secured transactions. Wisconsin Stat. § 409.203(7) is
15
 No. 2013AP221

titled, "Lien securing right to payment," and it provides: "The

attachment of a security interest in a right to payment or

performance secured by a security interest or other lien on

personal or real property is also attachment of a security

interest in the security interest, mortgage, or other lien."

¶31 The parties disagree over the plain meaning of Wis.

Stat. § 409.203(7). Dow argues that the statute "merely means

that when a secured debt is itself assigned as a security to

another, the original security interest accompanies the debt."

In contrast, PHH argues that the language of § 409.203(7)

codifies equitable assignment.

¶32 Like the court of appeals, we conclude that each party

provides a reasonable interpretation of the plain language of

§ 409.203(7). Therefore, we must look outside of the plain

language of the statute for additional clarification. See

Kalal, 271 Wis. 2d 633, ¶50.

¶33 Wisconsin Stat. § 409.203(7) adopted the exact

language from Section 9-203(g) of the UCC. Compare U.C.C. § 9-
203 (2000), with Wis. Stat. § 409.203(7). The UCC comment to

§ 9-203(g) provides: "Subsection (g) codifies the common-law

rule that a transfer of an obligation secured by a security

interest or other lien on personal or real property also

transfers the security interest or lien." U.C.C. § 9-203 cmt. 9

(2000). The language of the comment directly supports PHH's

argument that § 409.203(7) codified equitable assignment.

¶34 Finally, the application of equitable assignment to
this case results in no unfairness to Dow. Dow spends a
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 No. 2013AP221

considerable amount of time in its brief discussing MERS. In

doing so, Dow cites to numerous authorities that have been

highly critical of MERS practices. We recognize that MERS has

been criticized; however, this case is not about MERS' practices

and MERS is not a party to this case.

¶35 Instead, our decision today clarifies the existence

and application of equitable assignment in Wisconsin. This

clarification results in no unfairness to Dow. First, in

general, equitable assignment does not require mortgagors to

satisfy anything beyond their debt(s) and accompanying liens.

In addition, specific to this case, Dow had notice of the 2001

mortgage prior to the 2009 sale. Here, the title commitment

informed Dow of the outstanding 2001 mortgage. Dow apparently

relied on information from the Sullivans and their attorney to

conclude that the 2001 mortgage was listed on the title

commitment in error. However, Dow had full opportunity to

investigate the existence of the 2001 mortgage prior to the

purchase.
¶36 Our determination that the doctrine of equitable

assignment has long existed in Wisconsin, however, does not end

our discussion. We next consider the heart of Dow's argument:

whether the statute of frauds prevents the application of

equitable assignment under these circumstances.

B. EQUITABLE ASSIGNMENT AND THE STATUTE OF FRAUDS

¶37 Generally speaking, the statute of frauds applies to

real estate conveyances. It requires that "every transaction by
which any interest in land is created, aliened, mortgaged,
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 No. 2013AP221

assigned or may be otherwise affected in law or equity" must be

in writing. Wis. Stat. §§ 706.001, 706.02. Wisconsin Stat.

§ 706.001(2), however, provides several exceptions to the

statute of frauds requirements outlined in Wis. Stat. § 706.02.

One such exception includes "transactions which an interest in

land is affected by act or operation of law." Wis. Stat.

§ 706.001(2)(a).

¶38 Dow argues that this exception does not exempt a

mortgage assignment from the statute of frauds, which thus

invalidates the doctrine of equitable assignment. Specifically,

Dow argues that this court should adopt a definition of "by

operation of law" that is similar to the definition relied upon

by the Michigan Supreme Court in Kim v. JPMorgan Chase, N.A.,

493 Mich. 98, 825 N.W.2d 329 (2012). The Michigan Supreme Court

explained that "a transfer that takes place by operation of law

is one that occurs unintentionally, involuntarily, or through no

affirmative act of the transferee." Id. at 117. Under this

definition, Dow argues that PHH's acquisition of the mortgage
could not have been by operation of law because it occurred

intentionally through the assignment of the note.

¶39 PHH asks this court to hold that equitable assignment

falls within the "by operation of law" exception found in Wis.

Stat. § 706.001(2)(a).

¶40 We agree with PHH and hold that under the doctrine of

equitable assignment a mortgage is automatically transferred by

operation of law when the note is transferred. Therefore, we
hold that the "by operation of law exception" found in Wis.
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 No. 2013AP221

Stat. § 706.001(2)(a) exempts the mortgage assignment at issue

from the statute of frauds.

¶41 In reaching our conclusion, we first draw support from

Tidioute. There this court stated, "The transfer of these notes

to the plaintiffs carried with it, by operation of law, all

securities for their payment." Tidioute, 101 Wis. at 197

(emphasis added). Although Tidioute does not explicitly address

the statute of frauds, the statute of frauds existed at the time

the case was decided.

¶42 Wisconsin Stat. ch. 104, § 2302 (1898) was in

operation when this court decided Tidioute in 1898. Section

2302, titled "Conveyance of land, etc. to be in writing"

provided:

No estate or interest in lands, other than leases for
a term not exceeding one year, nor any trust or power
over or concerning lands, or in any manner relating
thereto, shall be created, granted, assigned,
surrendered or declared, unless by act or operation of
law, or by deed or conveyance in writing, subscribed
by the party creating, granting, assigning,
surrendering or declaring the same, or by his lawful
agent, thereunto authorized by writing.
The statute of frauds operating in 1898 contains substantially

similar language to our current statute. Compare Wis. Stat. ch.

104, § 2302 (1898), with Wis. Stat. § 706.001(1)-(2).

¶43 Even earlier evidence exists that the statute of

frauds was operating in the background of this court's

statements in Tidioute and other early cases discussing

equitable assignment. In Yates v. Martin, Justice Hubbell,
writing in dissent, stated, "The statute of frauds of this state

19
 No. 2013AP221

declares every contract for the sale of any interest in lands

void, unless it is in writing . . . ." Yates v. Martin, 2 Pin.

171, 178 (Wis. Jan. 1849).

¶44 Furthermore, we are convinced that equitable

assignment can be considered "under operation of law" under

Dow's proposed definition of the phrase. Here, PHH allegedly

obtained the note through assignment. PHH, however, took no

action with regard to the mortgage itself because the mortgage

automatically transferred upon the alleged assignment of the

note. We consider the automatic nature of the mortgage

following the note under equitable assignment to be "by

operation of law."

V. CONCLUSION

¶45 We agree with the circuit court and the court of

appeals that the doctrine of equitable assignment is alive and

well in Wisconsin. The doctrine's existence is evidenced in our

case law, and we are convinced that the case law we rely upon

should not be distinguished or discredited due to its age or
changes in banking practices. We further conclude that the

language of Wis. Stat. § 409.203(7), which governs liens

securing the right to payment, codifies equitable assignment.

Finally, the application of equitable assignment in this case

results in no unfairness to Dow.

¶46 We further hold that the doctrine of equitable

assignment does not conflict with the statute of frauds outlined

in Wis. Stat. § 706.02. Equitable assignment occurs by

20
 No. 2013AP221

operation of law, which satisfies Wis. Stat. § 706.001(2)(a), a

statutory exception to the statute of frauds.

¶47 Therefore, under the doctrine of equitable assignment,

we hold that a mortgage automatically passes by operation of law

upon the assignment of a mortgage note, which, as we noted

above, satisfies a statutory exception to the statute of frauds.

Accordingly, we affirm the court of appeals decision, which

affirmed the circuit court, in part, reversed in part, and

remanded the cause. Like both the circuit court and court of

appeals, we conclude that the doctrine of equitable assignment

applies and does not violate the statute of frauds; however, the

issue of whether PHH has the necessary documents to enforce the

note in question was not appealed and must be determined by the

circuit court.

By the Court.—The decision of the court of appeals is

affirmed and cause remanded to the circuit court.

¶48 ANN WALSH BRADLEY, J., did not participate.

21
 No. 2013AP221.ssa

¶49 SHIRLEY S. ABRAHAMSON, C.J. (concurring). This is a

mortgage foreclosure case, one of many in Wisconsin and across

the country.1 PHH Mortgage Corporation, which claims to be

assignee of the note and the mortgage in the instant case, has

been a party in over 2,300 cases filed in the Wisconsin circuit

courts, with many cases still open. PHH, and by extension the

Mortgage Electronic Recording System (MERS), upon which it

relies, represent the modern mortgage system, which has become

the subject of frequent litigation in the Great Recession,

during which many homeowners have lost the American dream——

private home ownership.

¶50 Some fear the economic damage from foreclosures;

others fear the economic damage from encumbering the mortgage

financing industry. MERS benefits its members, but the question

remains whether the MERS system provides benefits to home buyers

and borrowers and whether MERS has a deleterious effect on real

property and mortgage law.

¶51 I do not join the majority opinion or support its
blanket application of the nineteenth-century doctrine of

equitable assignment to the modern mortgage system.

¶52 The doctrine of equitable assignment and the

longstanding state policy favoring recording of documents

1
After the housing bubble burst, foreclosure filings in
Wisconsin "more than doubled from 2005 to 2008." James
McNeilly, An Introduction to Mortgage Foreclosure in Wisconsin,
Inside Track (State Bar of Wisconsin, Madison, Wis.), Mar. 18,
2009, available at
http://www.wisbar.org/newspublications/insidetrack/pages/article
.aspx?volume=1&issue=4&articleid=5513 (last visited June 30,
2014).

1
 No. 2013AP221.ssa

affecting real estate are being applied to twenty-first-century

transactions that were not imagined when the equitable

assignment doctrine and the Wisconsin recording statutes

developed. The majority opinion does not attempt to address the

practical concerns of the current mortgage foreclosure crisis,

the realities of the modern mortgage market, the values of the

recording system, or the current and future problems associated

with the modern mortgage system presented in the instant case.

¶53 My concurrence describes the characteristics of

traditional and modern real estate mortgages, the doctrine of

equitable assignment, the purpose and value of the recording

statutes, and unresolved issues raised by the majority opinion's

blanket acceptance of the doctrine of equitable assignment and

MERS.

I

¶54 PHH is just one of a long list of MERS's members.2

Developed in 1993, MERS is a major player in the modern real

estate mortgage system and the secondary mortgage market. MERS
is a private, "member-based organization" whose members include

"lenders, servicers, sub-servicers, investors, and government

institutions."3 Members pay fees to subscribe to MERS's system

2
See MERS Member Search, www.mersinc.org/about-us/member-
search (last visited June 30, 2014).
3
Shelby D. Green & JoAnn T. Sandifer, MERS Remains Afloat
in a Sea of Foreclosures, Prob. & Prop., July/Aug. 2013, at 18,
19.

2
 No. 2013AP221.ssa

of "electronic processing and tracking of ownership and

transfers of mortgages."4

¶55 MERS is the mortgagee of record and, as the majority

opinion points out, is strangely also the agent for the entity

that ultimately holds the note and mortgage.5 MERS is presumably

both principal and agent, and the entity on whose behalf MERS

holds legal title to the mortgage changes every time the

promissory note is assigned.6

¶56 MERS does not have an interest in the promissory

notes; it has never had such an interest.7 Yet sometimes the

debtor is advised that MERS does have an interest in the note.8

Further, MERS does not lend money or collect on the notes

secured by mortgages for which it is named as mortgagee.9

¶57 MERS facilitates transfers of mortgage notes without

the necessity of recording an assignment of the mortgage.10

Members of MERS avoid recording fees because "MERS remains the

4
MERSCORP, Inc. v. Romaine, 861 N.E.2d 81, 83 (N.Y. 2006).
5
Majority op., ¶13, n.6.
6
Jackson v. Mortgage Elec. Registration Sys., Inc., 770
N.W.2d 487, 503 (Minn. 2009) (Page, J., dissenting).
7
Green & Sandifer, supra note 3, at 18, 19.
8
See majority op., ¶13, n.7.
9
Christopher L. Peterson, Foreclosure, Subprime Mortgage
Lending, and the Mortgage Electronic Registration System, 78 U.
Cin. L. Rev. 1359, 1377-78 (2010).
10
Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 278 (N.Y. App.
Div. 2011).
3
 No. 2013AP221.ssa

mortgagee of record" in county recording offices regardless of

how many times the note is transferred.11

II

¶58 The doctrine of equitable assignment is a common-law

principle that "a transfer of an obligation secured by a

mortgage on property also constitutes a transfer of the

mortgage."12 The idea of equitable assignment is that a mortgage

has no significance without reference to the note it secures.

¶59 Although the majority opinion concludes "that the

doctrine of equitable assignment is alive and well in

Wisconsin"13 "as evidenced by established case law,"14 its

proffered case law does not support its conclusion.

¶60 The majority opinion cites no Wisconsin precedent

explaining or applying the doctrine of equitable assignment in a

case involving real estate in which the note and mortgage were

held by two different persons. See majority op., ¶¶24-28. The

11
Id.
12
James M. Davis, The Mortgage-Follows-the-Note Rule,
Norton Bankr. L. Adviser, Sept. 2013. See also Carpenter v.
Longan, 83 U.S. (16 Wall.) 271 (1872); 5 Herbert Thorndike
Tiffany, The Law of Real Property § 1449 (3d ed. 1939).

Article 9 of the Uniform Commercial Code, Wis. Stat.
§ 409.203(7), declares that it codifies the common-law rule of
equitable assignment. However, this provision may apply only to
personal property. See Uniform Commercial Code Comment 1, Wis.
Stat. Ann. § 409.101 (West 2003).
13
Majority op., ¶23.
14
Majority op., ¶22.

4
 No. 2013AP221.ssa

Wisconsin cases upon which the majority relies are not analogous

to the instant case.

¶61 The Wisconsin cases cited by the majority opinion do

not all involve real estate and do not involve instances in

which the note and the mortgage are held by different persons.

For example, Tidioute Savings Bank v. Libbey addresses the

validity of a guaranty to repay a sum of money after the

corresponding notes were sold,15 and Muldowney v. McCoy Hotel Co.

concerns the equitable assignment of a chattel mortgage.16 The

majority opinion glosses over the policy concerns unique to real

estate transactions, particularly notice, in its use of these

cases.

¶62 More importantly, the Wisconsin cases the majority

opinion highlights that do address real estate mortgages concern

situations in a traditional setting in which the note and the

mortgage are held by the same party, as in Tobin v. Tobin,17

Croft v. Bunster,18 and Carpenter v. Longan.19 In the instant

case, however, the foreclosure proceedings were initiated when
the note and the mortgage were separated.

15
Tidioute Sav. Bank v. Libbey, 101 Wis. 193, 197, 77
N.W. 182 (1898) (cited by majority op., ¶25).
16
Muldowney v. McCoy Hotel Co., 223 Wis. 62, 269 N.W. 655
(1936) (cited by majority op., ¶27).
17
Tobin v. Tobin, 139 Wis. 494, 498, 121 N.W. 144 (1909)
(cited by majority op., ¶26).
18
Croft v. Bunster, 9 Wis. 503, 506 (1859) (cited by
majority op., ¶24).
19
Carpenter v. Longan, 83 U.S. 271, 272 (1872) (cited by
majority op., ¶29).

5
 No. 2013AP221.ssa

¶63 The majority opinion relies on "dicta" in nineteenth-

and early-twentieth-century cases (when "dicta" really meant

dicta) and applies the dicta to a new set of twenty-first-

century facts.

¶64 Modern mortgage transactions differ from traditional

mortgage transactions. In the traditional, non-MERS mortgage,

the homeowner borrows money from a lender-mortgagee. The

lender-mortgagee keeps the note and records the mortgage. The

lender-mortgagee may transfer both the note and mortgage but

generally keeps them together, and the assignment of the

mortgage is ordinarily recorded.20

¶65 In a MERS transaction, MERS is neither the lender nor

is it the payee on the promissory note. The borrower executes a

note to the lender. The borrower executes the mortgage,

however, to MERS. MERS is the holder of the mortgage but not of

the promissory note. The mortgage is recorded, with MERS as the

mortgagee.21 Under the traditional view of equitable assignment,

naming MERS as the mortgagee separates the mortgage from the
promissory note and may cause the note to become unsecured.22

20
Adam Leitman Bailey & Dov Treiman, Moving Beyond the
Mistakes of MERS to A Secure and Profitable National Title
System, Prob. & Prop., July/Aug. 2012, at 40, 41.
21
Silverberg, 86 A.D.3d at 278 ("MERS remains the mortgagee
of record in local county recording offices regardless of how
many times the mortgage is transferred . . . .").
22
Restatement (Third) of Property (Mortgages) § 5.4 cmt. a
(1997); Christian J. Hansen, Note, Property: Innovations to
Historic Legal Traditions——Jackson v. Mortgage Electronic
Registration Systems, Inc., 37 Wm. Mitchell L. Rev. 355, 368
(2010).

6
 No. 2013AP221.ssa

¶66 The MERS system assists the secondary mortgage market

in which mortgages are bought and sold. Many entities may hold

a partial interest in the note. Indeed, it is sometimes

difficult to track all the assignments of the note.23 Lenders

have been sloppy about keeping track of the promissory notes.

In the present case, PHH asserts that it has the note, yet the

case is remanded to the circuit court to determine whether PHH

actually has the note (and thus the mortgage interest by

equitable assignment) entitling it to foreclosure.

¶67 The majority opinion ignores the characteristics of

the modern real estate mortgage to find a simple solution to the

instant case——a solution that creates its own set of problems.

III

¶68 I turn to the Wisconsin statutes regarding recording

of real estate transactions. Wisconsin statutes governing

recording of real estate transactions date back to 1849.24 The

recording statutes serve the important purpose of compiling a

reliable and public history of title for real estate25 in order
to provide protection, in the form of notice, to all parties

23
See majority op., ¶13 n.7.
24
Wis. Stat. ch. 59, § 24 (1849) ("Every conveyance of real
estate within this state hereafter made, which shall not be
recorded as provided by law, shall be void as against any
subsequent purchaser in good faith, and for a valuable
consideration of the same real estate, or any portion thereof,
whose conveyance shall first be duly recorded.").
25
Kordecki v. Rizzo, 106 Wis. 2d 713, 718 & n.4, 317
N.W.2d 479 (1982) (citing Thauer v. Smith, 213 Wis. 91, 96, 250
N.W. 842 (1933)).

7
 No. 2013AP221.ssa

involved in the transfer of real estate, that is, the

purchasers, sellers, creditors, and debtors.

¶69 In the nineteenth century, transfers of real estate

rights were expected to be documented at the county recording

office,26 and mortgages were rarely separated from the promissory

note.27

¶70 Today under MERS, MERS remains the mortgagee of

record. When MERS members transfer the notes, non-MERS members

cannot access the identity of the true owner of a note and

mortgage through the public recording system.28 As Chief Judge

Judith Kaye of the New York Court of Appeals has written:

[T]he MERS system, developed as a tool for banks and
title companies, does not entirely fit within the
purpose of the Recording Act, which was enacted to
"protect the rights of innocent
purchasers . . . without knowledge of prior
encumbrances" and to "establish a public
record . . . ." It is the incongruity between the
needs of the modern electronic secondary mortgage
market and our venerable real property laws regulating
the market that frames the issue before us.29
26
W. Scott Van Alstyne, Jr., Land Transfer and Recording in
Wisconsin: A Partial History—Part I, 1955 Wis. L. Rev. 44, 44-45
(describing the recording process as expressing "a basic social
value" underlying the recording system).
27
See, e.g., Carpenter v. Longan, 83 U.S. 271, 272 (1872)
("[T]he note and mortgage" were assigned to the appellant); In
re Tobin's Estate, 139 Wis. 494, 498, 121 N.W. 144 (1909)
("[T]he note and the mortgage" were in the name of the same
person).
28
MERS tracks member-to-member mortgage assignments within
its private system, leaving non-MERS members unaware of these
assignments. Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 278
(N.Y. App. Div. 2011).
29
Romaine, 861 N.E.2d at 86 (Kaye, C.J., dissenting in
part) (citations omitted).
8
 No. 2013AP221.ssa

¶71 The modern mortgage system represented in the instant

case by MERS and PHH has increasingly challenged Wisconsin's

recording statutes and the state's strong policy in favor of

recording all real estate transactions. The recording system

fosters disclosure of real estate transactions; MERS fosters

secrecy. Under the MERS system, a borrower may access only his

or her loan servicer, not the underlying lender.30 As Chief

Judge Kaye has written, this secrecy and avoidance of public

recording have undesirable consequences:

The lack of disclosure may create substantial
difficulty when a homeowner wishes to negotiate the
terms of his or her mortgage or enforce a legal right
against the mortgagee and is unable to learn the
mortgagee's identity. Public records will no longer
contain this information as . . . the MERS system will
render the public record useless by masking beneficial
ownership of mortgages and eliminating records of
assignments altogether. Not only will this
information deficit detract from the amount of public
data accessible for research and monitoring of
industry trends, but it may also function, perhaps
unintentionally, to insulate a noteholder from
liability, mask lender error and hide predatory
lending practices.31
IV

¶72 Mortgage foreclosure actions are frequently before the

Wisconsin circuit courts. Numerous issues may arise from the

application of the equitable assignment doctrine to the MERS

system. Indeed, we do not know the extent of the concerns that

30
Bailey & Treiman, supra note 20, at 40, 42. ("MERS does
not allow nonmembers access to any of its records.").
31
Romaine, 861 N.E.2d at 88 (Kaye, C.J., dissenting in
part).

9
 No. 2013AP221.ssa

will be realized. They are left for another day. Here are a

few raised in the case law and the literature:

• Does MERS have standing to bring a foreclosure action?

• Must MERS assign the mortgage to the note owner before

a foreclosure action can be initiated?

• What difference does it make that an assignment of the

promissory note operates as an equitable rather than

legal assignment of the security instrument?

• Can legal and equitable title be separated?

• Must the entity seeking to foreclose have both

equitable and legal title?

• What information must be disclosed to the borrower

when the mortgage transaction is negotiated?

• What protocols are warranted for dealing with a

borrower in financial distress?

• Does the lack of disclosure create difficulty when the

homeowner wants to renegotiate the terms of the

mortgage or enforce a legal right against the
mortgagee and is unable to learn the mortgagee's

identity?

• Does the majority opinion preclude federal remedies

that are otherwise available to homeowners?

• Are existing rules on negotiable instruments suitable

for transfers of mortgages?

• What is the distinction between note ownership and

entitlement to enforce a note?

10
 No. 2013AP221.ssa

• What is the impact of the comment to Restatement

(Third) of Property (Mortgages) § 5.4 cmt a. (1997),

which states, "When the right of enforcement of the

note and the mortgage are split, the note becomes, as

a practical matter, unsecured"?32

¶73 It seems wise, at a minimum, to call the legislature's

attention to the disparity that exists between the recording

statute and the modern-day electronic mortgage industry.

¶74 Although the outcome in the instant case seems

reasonable enough, I cannot join the majority opinion, whose

ramifications stretch far beyond this case.

¶75 For the foregoing reasons, I write separately.

32
These questions and more are discussed in U.S. Bank
National Ass'n v. Ibanez, 941 N.E.2d 40 (Mass. 2011);
Silverberg, 86 A.D.3d at 278; Jackson, 770 N.W.2d at 490, 500-
02; Shelby D. Green & JoAnn T. Sandifer, MERS Remains Afloat in
A Sea of Foreclosures, Prob. & Prop., July/Aug. 2013; Zachary A.
Kisber, Reevaluating MERS in the Wake of the Foreclosure Crisis,
42 Real Est. L.J. 183 (2013); Bailey & Treiman, supra note 20,
at 40; Christopher L. Peterson, Two Faces: Demystifying the
Mortgage Electronic Registration System's Land Title Theory, 53
Wm & Mary L. Rev. 111 (2011).

11
 No. 2013AP221.ssa

1