Jeffrey A. Sexton v. US Bank National Association as Trustee for Stanley Mortgage Loan Trust 2006-8ar

RENDERED: JANUARY 15, 2021; 10:00 A.M.
NOT TO BE PUBLISHED

Commonwealth of Kentucky
Court of Appeals

NO. 2019-CA-1142-MR

JEFFREY A. SEXTON
AND MARILYN SEXTON APPELLANTS

APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE ANNIE O’CONNELL, JUDGE
ACTION NO. 16-CI-400710

US BANK NATIONAL ASSOCIATION AS
TRUSTEE, SUCCESSOR IN INTEREST TO
BANK OF AMERICA, NATIONAL
ASSOCIATION, AS TRUSTEE, SUCCESSOR
BY MERGER TO LASALLE BANK NATIONAL
ASSOCIATION, AS TRUSTEE FOR MORGAN
STANLEY MORTGAGE LOAN TRUST 2006-8AR,
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 2006-8AR; MERRILL LYNCH CREDIT
CORPORATION, FV-1 INC. IN TRUST FOR
MORGAN STANLEY MORTGAGE CAPITAL
HOLDINGS; COMMONWEALTH BANK AND
TRUST COMPANY; COMMONWEALTH OF
KENTUCKY, DEPARTMENT OF REVENUE,
DIVISION OF COLLECTION; THE UNITED
STATES OF AMERICA, DEPARTMENT OF THE
TREASURY INTERNAL REVENUE SERVICE APPELLEES
 OPINION
AFFIRMING

** ** ** ** **

BEFORE: ACREE, DIXON, AND K. THOMPSON, JUDGES.

DIXON, JUDGE: Jeffrey A. Sexton and Marilyn Sexton appeal from the order

granting summary judgment in favor of US Bank National Association as

trustee, successor in interest to Bank of America, National Association, as trustee,

successor by merger to Lasalle Bank National Association, as trustee for Morgan

Stanley Mortgage Loan Trust 2006-8AR, mortgage pass-through certificates,

series 2006-8AR (“US Bank”), entered June 27, 2019, by the Jefferson Circuit

Court. Following review of the record, briefs, and law, we affirm.

This is a residential foreclosure action. The Sextons executed a loan

to purchase their residence via a Promissory Note (“Note”) and Mortgage with

Morgan Stanley Credit Corporation on April 12, 2006. On June 29, 2010, the

Sextons and Morgan Stanley Mortgage Capital Holdings, LLC, entered into a

Home Affordable Modification Agreement. The Sextons made their loan

payments until January 2013. On November 18, 2015, Ocwen Loan Servicing,

LLC, provided the Sextons Notice of Default on their loan. On March 3, 2016, the

Mortgage was assigned to US Bank, and on April 14, 2016, US Bank filed the

instant action to which the Sextons answered and counterclaimed. US Bank

moved the trial court to dismiss the Sextons’ counterclaim for failure to state a

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claim upon which relief could be granted, which the court granted. US Bank later

moved the trial court for summary judgment and provided an affidavit of Paul

Dickinson, the contract management coordinator for US Bank’s servicer, affirming

that US Bank is the holder of the Note and Mortgage and that the loan is in default.

Following a hearing, during which US Bank produced the original Note—indorsed

in blank—and after the matter was fully briefed, the trial court granted summary

judgment in favor of US Bank. This appeal followed.

Summary judgment is appropriate “if the pleadings, depositions,

answers to interrogatories, stipulations, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a matter of law.” CR1 56.03. An

appellate court’s role in reviewing a summary judgment is to determine whether

the trial court erred in finding no genuine issue of material fact exists and the

moving party was entitled to judgment as a matter of law. Scifres v. Kraft, 916

S.W.2d 779, 781 (Ky. App. 1996). A grant of summary judgment is reviewed de

novo because factual findings are not at issue. Pinkston v. Audubon Area Cmty.

Servs., Inc., 210 S.W.3d 188, 189 (Ky. App. 2006).

On appeal, the Sextons contend that US Bank is not a real party in

interest and, therefore, has no standing to bring this action. However, their claim is

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Kentucky Rules of Civil Procedure.

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simply not borne out by the record. CR 17.01 provides that “[e]very action shall

be prosecuted in the name of the real party in interest, but . . . an assignee for the

benefit of creditors . . . may bring an action[.]” “We think every one [sic] would

agree that ordinarily the real party in interest is the person who is the beneficial

owner of the cause of action sought to be prosecuted. Where the cause of action is

assignable, and the entire cause has been assigned, clearly the assignee has become

the owner of the cause and he is the real party in interest.” Louisville & N.R. Co. v.

Mack Mfg. Corp., 269 S.W.2d 707, 709 (Ky. 1954) (citing Works v. Winkle, 314

Ky. 91, 234 S.W.2d 312 (1950); United States v. Aetna Cas. & Surety Co., 338

U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171 (1949)).

In the case herein, US Bank established that it was in possession of

the Note. This Court has held, “[m]ere possession of the original note [is]

sufficient” to collect on the note. Stevenson v. Bank of Am., 359 S.W.3d 466, 470

(Ky. App. 2011). Further, KRS2 355.3-301(1) provides a “‘[p]erson entitled to

enforce’ an instrument means . . . [t]he holder of the instrument[.]” Likewise, KRS

355.3-205(2) provides, “[w]hen indorsed in blank, an instrument becomes payable

to bearer and may be negotiated by transfer of possession alone until specially

indorsed.” Here, US Bank was lawfully in possession of the original Note and

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Kentucky Revised Statutes.

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Mortgage and, therefore, is a real party in interest clearly entitled to enforce the

obligations secured thereby. The Sextons’ argument to the contrary is without

merit. Furthermore, the March 3, 2016, assignment of the Mortgage to US Bank is

proof of its entitlement to enforce the obligations. Ultimately, there is more than

sufficient evidence supporting the trial court’s finding that US Bank is a real party

in interest and has standing to bring this action. Accordingly, and in the absence of

any genuine issue of material fact, the trial court properly granted summary

judgment in favor of US Bank.

The Sextons further argue that the trial court erred in granting

summary judgment. Yet, there was no genuine dispute as to any material fact

precluding summary judgment. Moreover, the Sextons failed to demonstrate that

they could prevail as a matter of law as there was absolutely no evidence that they

were not in default. Nevertheless, the Sextons contend there must be a showing of

opportunity for and consideration of a loan modification. However, examination

of the Note itself shows only notice of the default is required for the loan to be

accelerated, and notice was provided. Review of the record also demonstrates that

the loan was, in fact, modified at least once. The Sextons’ affidavit provided

testimony that additional discussions of loan modification had occurred.

Nonetheless, the Sextons’ claim of entitlement to loan modification under federal

law was properly dismissed by the trial court as inapplicable to the case herein, and

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as previously discussed, their defense that US Bank lacked standing was wholly

without merit. Thus, we must affirm.

Therefore, for the foregoing reasons, the order entered by the

Jefferson Circuit Court is AFFIRMED.

ACREE, JUDGE, CONCURS.

THOMPSON, K., JUDGE, DISSENTS AND FILES SEPARATE

OPINION.

THOMPSON, K., JUDGE, DISSENTING: I respectfully dissent.

While Jeffrey A. Sexton’s and Marilyn Sexton’s appeal is primarily focused on

their allegation that US Bank is not a real party in interest and, therefore, has no

standing to bring this action, the caselaw is decidedly against them on that issue.

However, I would generously interpret their pro se brief and reverse on the basis

that the conduct they allege occurred from their loan servicer in the original answer

as incorporated into their amended answer, and in their affidavit, should have made

the trial court deny the motion for summary judgment and allow the Sextons the

opportunity to bring claims against Ocwen and develop their defenses by allowing

them to engage in discovery.

I quote extensively from the Sextons’ answer and affidavit to

demonstrate why I believe issues of fact precluded summary judgment. In their

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answer, responding to portions of the complaint stating that the Sextons did not

make payments, the Sextons denied these allegations, explaining:

Regarding the allegations contained in paragraph three
(3) Defendants Sexton attempted to make payments in
accordance with the terms and conditions of the Note and
Mortgage and the modification agreement entered into
between themselves and the Plaintiffs. However, the
Plaintiff, or its servicer, refused to accept payment and
have contributed to the claimed default herein. . . .

Regarding the allegations contained in paragraph number
four (4) Defendants have attempted to make payments in
accordance with the Note, Mortgage, and Modification
Agreement entered into herein. That the Plaintiff, or its
servicer, has failed to accept those payments and
therefore has contributed to the claimed default
herein. . . .

Regarding the allegations contained in paragraph number
five (5) Defendants Sexton have attempted to make
payments in accordance with the Note, Mortgage and
Modification Agreement herein and Plaintiffs have failed
to accept the same. Therefore, it has contributed to the
claimed default herein. . . .

On the basis of such actions, the Sextons stated that the plaintiff, its predecessor, or

its servicer contributed to their default, failed to state a claim for which relief may

be granted, and is estopped from going forward.

In the Sextons’ affidavit in opposition to the plaintiff’s motion for

summary judgment, they explained what happened after they experienced some

financial difficulty and entered into a loan modification:

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Your affiant almost immediately requested a more
meaningful loan modification. This request was directed
to SLS, the servicing company for their loan. Your
affiants indicated that such a loan, with an appropriate
loan modification, would result in a successful loan
payment and a satisfaction of their Note and Mortgage.

Despite numerous attempts and completed documents
and loan modification forms, [the loan servicer] never
responded to your affiants, either affirmatively or
negatively regarding such loan modification. When your
affiants would complete a loan modification document
and provide supporting documents, and subsequently
follow up with personnel at [the loan servicer] we were
told that the documents were not completed properly,
which was not true, or that we had not provided sufficient
and current documentation, which was also not true.

We were counseled not to make payments and [the loan
servicer] denied our offer to make payments. We were
trying to keep any claimed arrearage as small as possible
and, if at all possible, to eliminate that arrearage through
voluntary payments.

Again, [the loan servicer] refused our offer.

We relied, on our detriment, on [the loan servicer] to
ensure that any claims arrearage would be eliminated.

In fact, it got to the point where it seemed as if [the loan
servicer] was more interested in foreclosing upon us that
[sic] being of any help.

Further, [the loan servicer] never indicated to us who the
holder of the Note was and, in addition to the requests to
make payments, where any such payments could be
sent. . . .

We attempted, in good faith, to resolve any claimed
arrearage but [the loan servicer] was unwilling to do so.

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 It is our understanding that Ocwen may be the current
loan servicer or may have been the servicer the entire
time. We never heard from Ocwen with regard to any
loan servicing or loan modification herein.

Because of this, we deny the amount of money claimed
to be due and owing that has been set forth herein.

The Sextons entered into the loan modification in June 2010.

According to the transaction history that US Bank provided and the affidavit in

support of summary judgment from Dickinson, the contract management

coordinator for Ocwen Loan Servicing, the servicer for US Bank, the last payment

Ocwen received was applied to the Sextons’ January 1, 2013 payment.

What the Sextons are likely unaware of is that conduct like that they

complained about is part and parcel of suit by the Consumer Financial Protection

Bureau, forty-nine states, and the District of Columbia filed on December 19,

2013, in the United States District Court for the District of Columbia in case

number 13-cv-2025, against Ocwen Financial Corporation and Ocwen Loan

Servicing, LLC, alleging that Ocwen violated, among other laws, the Unfair and

Deceptive Acts and Practices laws of the plaintiff states and the Consumer

Protection Act of 2010.3 That complaint is available to view here:

3
The consent decree and additional information about it can be accessed here:
https://www.consumerfinance.gov/about-us/newsroom/cfpb-state-authorities-order-ocwen-to-
provide-2-billion-in-relief-to-homeowners-for-servicing-wrongs/ (last accessed December 10,
2020).

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https://files.consumerfinance.gov/f/201312_cfpb_complaint_ocwen.pdf (last

accessed December 10, 2020). In paragraph twenty on pages 12-13 of that

complaint, the plaintiffs alleged:

In the course of their mortgage servicing activities, the
Servicers [Ocwen] have engaged in the following acts
and practices:

a. failing to timely and accurately apply payments made
by borrowers and failing to maintain accurate account
statements;

b. charging unauthorized fees for default-related
services;

c. imposing force-placed insurance when the Servicers
knew or should have known that borrowers already
had adequate coverage;

d. providing false or misleading information in response
to borrower complaints;

e. providing false or misleading information to
borrowers regarding loans that have been transferred
from other servicers;

f. failing to provide accurate and timely information to
borrowers who seek information about loss mitigation
services, including loan modifications;

g. falsely advising borrowers that they must be at least
60 days delinquent in loan payments to qualify for a
loan modification;

h. misrepresenting to borrowers that loss mitigation
programs would provide relief from the initiation of
foreclosure or further foreclosure efforts;

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i. providing false or misleading information to
consumers about the status of the loss mitigation
review, including while referring loans to foreclosure;

j. providing false or misleading information to
consumers about the status of foreclosure proceedings
where the borrower was in good-faith actively
pursuing a loss mitigation alternative offered by the
servicers;

k. failing to properly calculate borrowers’ eligibility for
loan modification programs and improperly denying
loan modification relief to eligible borrowers;

l. failing to properly process borrowers’ applications for
loan modifications, including failing to account for
documents submitted by borrowers and failing to
respond to borrowers’ reasonable requests for
information and assistance, and as a result, denying
loan modifications to consumers who were eligible;

m. providing false or misleading reasons for denial of
loan modifications;

n. with respect to transferred loans, failing to honor in-
process trial modifications agreed to by prior
servicers;

o. with respect to transferred loans with in-process trial
and permanent modifications, deceptively seeking to
collect payments from the consumer under the
mortgage’s original unmodified terms;

p. preparing, executing, notarizing, and presenting false
and misleading documents, filing false and misleading
documents with courts and government agencies, or
otherwise using false or misleading documents as part
of the foreclosure process (including, but not limited
to, affidavits, declarations, certifications, substitutions
of trustees, and assignments); and

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 q. preparing, executing, notarizing, and filing affidavits
in foreclosure proceedings, whose affiants lacked
personal knowledge of the assertions in the affidavits
and did not review any information or documentation
to verify the assertions in such affidavits. This
practice of repeated false attestation of information in
affidavits is popularly known as “robosigning.”

That lawsuit resulted in a consent judgment whereby Ocwen did not

admit liability but agreed to pay $127.3 million within ten days which the member

states would use “to provide cash payments to borrowers whose homes were sold

in a foreclosure sale between and including January 1, 2009, and December 31,

2012, and who otherwise meet criteria set” and agreed to “provide $2 billion of

relief to consumers who meet the eligibility criteria . . . to remediate harms

allegedly caused by the alleged unlawful conduct of Defendant.” Consent

Judgment, https://files.consumerfinance.gov/f/201403_cfpb_entered-judgment-

with-exhibits_ocwen.pdf (last accessed December 10, 2020) (quoting IV. 4-5).

The consent judgment remained in effect for three years. It did not bind individual

mortgage loan borrowers.

The alleged conduct of Ocwen in the Consumer Financial Protection

Bureau complaint bears a remarkable similarity to the conduct of which the

Sextons complain. While the Sextons acknowledge that SLS was not their loan

servicer, it appears that Ocwen may have been using a front to shield itself from

liability or to confuse them and that the timeline in which they allege they had

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trouble receiving a loan modification was during the time that Ocwen was

servicing their loan. It is unconscionable to allow foreclosure and sale of the

Sextons’ home by US Bank if such conduct took place. While the Sextons could

have been clearer in their affidavit with dates and specifics about how they tried to

offer payment, summary judgment should not have been granted while such factual

issues remained.

I note that there is no allegation that US Bank, who was assigned the

mortgage from Ocwen, committed any wrongdoing towards the Sextons.

However, Ocwen’s assignment does not allow it to assign away any fraud or

prohibit the Sextons from making appropriate defenses made based upon its

conduct.

Accordingly, I dissent.

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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE US BANK
NATIONAL ASSOCIATION AS
Jeffrey A. Sexton TRUSTEE, SUCCESSOR IN
Louisville, Kentucky INTEREST TO BANK OF
AMERICA, NATIONAL
ASSOCIATION, AS TRUSTEE,
SUCCESSOR BY MERGER TO
LASALLE BANK NATIONAL
ASSOCIATION, AS TRUSTEE FOR
MORGAN STANLEY MORTGAGE
LOAN TRUST 2006-8AR,
MORTGAGE PASS-THROUGH
CERTIFICATES, SERIES 2006-8AR;
MERRILL LYNCH CREDIT
CORPORATION, FV-1 INC. IN
TRUST FOR MORGAN STANLEY
MORTGAGE CAPITAL
HOLDINGS:

John R. Wirthlin
William L. Purtell
Cincinnati, Ohio

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