IN THE SUPREME COURT OF OHIO U.S BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF AEGIS ASSET BACKED SE^,URITiES TRUST,v^ifiRTGAGE T i55- THROUGH CERTIFICATES, SERIES 2004-2 Plaintiff-U.S. Bank, V. GEORGE N. KAFANTARIS, et al. Defendants-Kafantaris, Case No. 11-2105 On Appeal From The Trumbull County Court Of Appeals, Eleventh Appellate District Court of Appeals Case No. 2011-TR- 0002 U.S. BANK U.S. BANK NATIONAL ASSOCIATION'S MEMORANDUM IN RESPONSE TO MEMORANDUM IN SUPPORT OF JURISDICTION Phillip Barragate (0063017) Shapiro, Van Ess, Phillips & Barragate, LLP 4805 Montgomery Road, Suite 320 Cincinnati, Ohio 45212 Telephone (216) 373-3116 Facsimile (847) 627-8805 Email pbarragate@logs.com Counsel for U.S. Bank National Association Irene K. Makridis (0016706) 183 West Market Street Warren, Ohio 44481 (330) 394-1587 JAN 1 12Gi2 CLERK OF COURT SUPREME COURT OF OHIO
Table of Contents Explanation of Why This Case is Not a Case of Great General Interest..................................................:................ 3 Statement ofthe Case and the racts... 3 Law and Arguments... 5 Conclusion.................................................................................. 12 Proof of Service...... 13 2
EXPLANATION OF WHY THIS CASE IS NOT A CASE OF GREAT GENERAL INTEREST George Kafantaris and Maria Kafantaris ("Kafantaris") claim this case is one of great general interest because "it deals with the foreclosure litigation affecting thousands of Ohio families, and perplexing the common pleas and appellate courts of Ohio." However, they have not presented or identified any issue for this Honorable Court to address. In support of this claim Kafantaris offers materials from their foreclosure case that are not part of the record on appeal and that consist largely of news articles from other states and internet blogs. In fact, the evidence offered in Kafantaris' Memorandum in Support of Jurisdiction was not introduced in the Trial Court and was subsequently stricken from the record by the Court of Appeals for the Eleventh District on May 19, 2011. The record does properly contain evidence of the proper transfer of the promissory note and the mortgage that secures the note to U.S Bank National Association, as Trustee For The Registered Holders of AEGIS Asset Backed Securities Trust, Mortgage Pass-Through Certificates, Series 2004-2 ("U.S. Bank"). For that reason the Court of Appeals for the Eleventh District affirmed Trial Court's judgment. There is no doubt that the people of Ohio are struggling through what appears to be the end of the foreclosure crisis. However, the issue as presented by Kafanataris amounts to a request for this Honorable Court to issue an advisory opinion and address a hypothetical question. Therefore, U.S. Bank submits that this Honorable Court should reject jurisdiction of this matter. Statement of the Case and the Facts The judgment rendered by the Trial Court was the result of a default in payment in March 2007, which was admitted by Kafantaris. The foreclosure case that resulted in this appeal was 3
filed on August 24, 2009. On November 30, 2009 Kafantaris filed a Motion to Dismiss the foreclosure case, which was denied on February 4, 2010. Kafantaris then filed their Answer to the Complaint on February 19, 2010. U.S. Bank filed its Motion for Summary Judgment on April 30, 2010. Kafantaris then filed numerous requests to delay a ruling on the Motion for Summary Judgment while they conducted discovery. The Motion for Summary Judgment was granted on December 3, 2010. Kafantaris appealed to the Court of Appeals for the Eleventh District on January 3, 2011. The property was subsequently sold at sheriff s sale on April 28, 2011. The sale was confirmed on June 30, 2011 and the Sheriff of Trumbull County executed the writ of possession and moved Kafantaris out of the subject property on September 29, 2011. On October 31, 2011 the Court of Appeals for the Eleventh District affirmed the judgment of the Trial Court. The issues raised in the Court of Appeals for the Eleventh District and in this matter center on the transfer of the promissory note and mortgage. Therefore, a brief summary of the transactions is necessary. The foreclosure judgment was the result of a default on the promissory note signed solely by George Kafantaris on February 24, 2004. Both George and Maris Kafantaris executed the mortgage that secured the promissory note. The promissory note and mortgage were transferred in the following manner: Promissorv Note 1. February 24, 2004 George Kafantaris to Aegis Lending Corporation. 2. Aegis Lending Corporation to Aegis Mortgage Corporation via special indorsement. 3. Aegis Mortgage Corporation to U.S. Bank National Association, As Trustee For The Registered Holders Of Aegis Asset Backed Securities Trust, Mortgage Pass-Through Certificates, Series 2004-2 via blank indorsement. 4
Morteage 1. Mortgage dated February 24, 2004 and recorded March 1, 2004 form George Kafantaris and Maria Kafantaris to Mortgage Electronic Registration Systems, Inc. acting solely as nominee for Aegis Lending Corporation. 2. Assignment of Mortgage recorded September 14, 2007 from Mortgage Electronic Registration Systems, Inc. acting solely as nominee for Aegis Lending Corporation to U.S. Bank National Association, Successor In Interest To Wachovia Bank N.A. As Trustee For The Registered Holders Of Aegis Asset Backed Securities Trust, Mortgage Pass-Through Certificates, Series 2004-2. 3. Assignment of Mortgage recorded on March 3, 2009 from U.S. Bank National Association, Successor In Interest To Wachovia Bank N.A. As Trustee For The Registered Holders Of Aegis Asset Backed Securities Trust, Mortgage Pass-Through Certificates, Series 2004-2 to U.S. Bank National Association As Trustee For The Registered Holders Of Aegis Backed Securities Trust, Mortgage Pass-Through Certificates, Series 2004-2. Law and Argument With regard to the Supreme Court's authority to hear and decide cases, "it has been long and well established that it is the duty of every judicial tribunal to decide actual controversies between parties legitimately affected by specific facts and render judgments that can be carried into effect." Fortner v. Thomas (1970) 22 Ohio St.2d 13, 14. In accordance with this basic principal the Supreme Court will not issue advisory opinions based upon hypothetical situations. Wallace v. University Hospitals of Cleveland (1961) 171 Ohio St. 487. A justiciable controversy exists when the litigants demonstrate "a real controversy presenting issues which are ripe for judicial resolution and which will have a direct and immediate impact on the parties." Bureer Brewing Co. v. Liguor Control Comm (1973) 34 Ohio St.2d 93. Finally, it is without question that any court's jurisdiction is limited to "the power to hear and decide a case on the merits." Morrison v. Steiner (1972) 32 Ohio St.2d 86. 5
U.S. Bank provided sufficient evidence in the Trial Court to demonstrate that it was entitled to enforce the promissory note. In contrast, Kafantaris has submitted no admissible evidence and they rely soley upon items that are not part of the record in this case. Consequently, Kafantaris has not presented a controversy for this Honorable Court can decide. There is no question that one must have standing, or an interest in the subject matter of the litigation to maintain the foreclosure case, Wells Fargo Bank, N.A. v. Bprd (2008) 178 Ohio App.3d 285; 897 N.E.2d 722 and Wells Fargo Bank. N.A. v. Jordan (2009) Cuyahoga App. No. 91675; 2009 Ohio App. LEXIS 881. To have standing a party must demonstrate a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. Fenner v. Parcels of Land. etc., (1997) Ohio App. Lexis 803 (citing Middletown v. Fer ug son (1986) 25 Ohio St.3d 71, 75; Sierra Club v. Morton (1972) 405 U.S. 727, 731-732. U.S. Bank demonstrated in the Trial Court that a promissory note is a negotiable instrument whose transfer is governed by Ohio Revised Code 1303.22, which states in relevant part: (A) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. (B) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a direct or indirect transfer from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument. A promissory note may be transferred by special indorsement or blank indorsement: (A) A "special indorsement" means an indorsement that is made by the holder of an instrument, whether payable to an identified person or payable to the bearer, and that identifies a person to whom it makes the instrument payable. An instrument, when specially indorsed, becomes payable to the 6
identified person and may be negotiated only by the indorsement of that person. Section 1303.08 of the Revised Code applies to special indorsements. (B) "Blank indorsement" means an indorsement that is made by the holder of the instrument and that is not a special indorsement. When an instrument is indorsed in blank, the instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed. Ohio Revised Code 1303.25 Ohio Revised Code 1303.31 provides the right to enforce a promissory note in many different circumstances: (A) "Personl entitled to enforce" an instrument means any of the following persons: (1) The holder of the instrument; (2) A nonholder in possession of the instrument who has the rights of a holder; (3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 1303.38 or division (D) of section 1303.58 of the Revised Code. (B) A person may be a "person entitled to enforce" the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. Given this statutory framework, U.S. Bank argues that that it had the right to enforce the promissory note. Delivery of the promissory note as contemplated in Ohio Revised Code 1303.22(A) is evidenced by the indorsements on the promissory note. Aegis Lending Corporation and Appellant George Kafantaris originated the promissory note on February 24, 2004. The promissory note was first transferred by special indorsement from Aegis Lending Corporation to Aegis Mortgage Corporation. It was then transferred by blank indorsement from Aegis Mortgage Corporation. 'Ohio Revised Code 1301.1(DD) defines "person" to include an individual or organization. 7
Kafantaris takes issue with the form of the promissory note as presented in the Complaint and the Motion for Summary Judgment. Specifically, Kafantaris suggests that the indorsements may have been added to the promissory note after the default and potentially after the indorser, Denise Flippen left the employment of Aegis Lending. Kafantaris make this allegation because the indorsements do not appear on the copy of the promissory note that was attached to the Complaint, but they do appear on the copy of the promissory note that was made a part of U.S. Bank's Motion for Summary Judgment. On September 29, 2010 Kafantaris deposed Gina Johnson, Senior Loan Analyst for Ocwen Loan Servicing, LLC, U.S. Bank's loan servicing agent with regard to the subject loan. In her deposition Ms. Johnson explained why the indorsements appear on one copy of the promissory note, but not another: Q So that endorsement by Denise Flippen occurred between February 24th, 2004 and April 30th, 2004? That was your answer, correct? A Yes. Q Where would that note have been kept? A It's been kept in the vault at Ocwen since May the 1 st of 2004... Q I believe one of the exhibits attached to this complaint is the adjustable rate note, and I believe it's marked Exhibit A, and it's also marked as Exhibit C that's in front of you today. If you can look at Exhibit A that's attached to the complaint and Exhibit C that's in front of you today, the note attached to the complaint marked Exhibit A is missing the endorsement that Exhibit C has that's in front of you by Denise Flippen. A Yes, Ma'am. Q Would you have any idea why that would be? Why does one have it and one does not have it? A Yes. The copy in our imaging file is just the copy in the closing file. And the copy -- we don't normally pull the original documents from the vault 8
unless there is some type of contested litigation. At which time that this matter became contested, I personally requested the original mortgage documents from the vault to be submitted to our counsel. In addition to Ms. Johnson's testimony Kafantaris' counsel conducted an independent investigation into the indorsements on the promissory note that consisted of a series of emails with Mike Balog, General Counsel for Aegis Mortgage Corporation. The end result of the investigation was an email from Mike Balog to Appellent's counsel on September 29, 2010: Denise Flippen worked from October 2003 to November 2004 for Aegis Lending Corporation at its headquarters in Baton Rouge, LA. I can't speak for the source of the note copies used before, but I can say that the endorsements on the copy of the note you provided to Mickey are perfectly consistent with Aegis's customary business practices at that time. The loan was originated by Aegis Lending Corporation, which endorsed it to the parent company Aegis Mortgage Corporation, which in turn endorsed it in blank as part of the process of securitizing the loan. AMC was the entity that served as our "conduit" to the secondary market, so all notes originated by ALC and securitized by AMC would bear endorsements similar to the ones you see on the Kafantaris note. The endorsements would have been done in Baton Rouge, so of course, copies of the note made prior to the time the original note was endorsed in Baton Rouge would not bear the endorsements. Numerous employees in Baton Rouge, including Ms. Flippen, would have had the authority to affix the endorsements as part of their work for ALC. The investigation conducted by Appellant's counsel clearly demonstrated that U.S. Bank is the holder of the promissory note by virtue of the indorsements. Based on the evidence presented U.S. Bank was the party entitled to enforce the promissory note in accordance with Ohio Revised Code 1301.31(A) (1). Thus, as the party who is entitled to enforce the promissory note, U.S. Bank had standing to file the foreclosure case. With regard to the issue of enforcement of the mortgage the Supreme Court of Ohio has stated, "[i]t is pertinent... to call attention to the principle that the promissory note is the primary 9
evidence of the debt, and that the mortgage on the real estate in question is merely the security for the payment of the note. The obligation of the maker of the note is the full amount found to be due thereon. The fact that there is security therefore takes away no right or remedy of the holder of the note, nor does it affect the liability of the maker of the note." Washer v. Tontar (1934), 128 Ohio St. 111, citing Simon v. Union Trust Co. (1933), 126 Ohio St. 346. The above case law supports the long established concept that the mortgage is a consequence to the obligation secured. Riegel v. Belt, (1928) 119 Ohio St. 369; see also 69 Oh Jur3d 64, Mortgages and Deeds of Trust. Thus, "[a] mortgage is not property separate and distinct from the note which it secures, but that, on the other hand, the mortgage security is an incident of the debt which it is given to secure, and, in the absence of a specific agreement to the contrary, passes to the assignee or transferee of such debt." Edgar v. Haines, (1923) 109 Ohio St. 159, 164. See also Restatement (Third) of Property, 5.4. Consequently, the assignments of mortgage executed in this case were not the event that served to transfer ownership of the promissory note, the instrument upon which U.S. Bank's claim is based. See, e.g., Pinney v. Merchants' Nat. Bank of Defiance, (1904) 71 Ohio St. 173, 72 N.E. 884 (finding that the purpose of the recording statutes in Ohio is "to secure a record which will apprise all interested of the real condition of the title with respect to encumbrances."). Therefore, it is well established that enforcement of the mortgage is predicated upon a default in payment or other breach in the underlying obligation of the promissory note. A party cannot be entitled to enforce a mortgage if it is not entitled to enforce the underlying note. As a result, the relevant issue when considering who has standing in a foreclosure action is not when the assignment of mortgage was completed, but rather who is holder of the promissory note. 10
In light of the foregoing, U.S. Bank submits that the allegations Kafantaris make with regard to signatures on assignments are not dispositive of the standing issue and do nothing to support their case. Kafantaris argues that one of the mortgage assignments was executed by Scott Anderson who admitted irregularities in document execution in other cases in other states. The admissions made by Mr. Anderson were not made with regard to the assignment in this case and there was no evidence presented in the Trial Court to support the theory. In fact, all of the materials offered by Kafantaris in support of Memorandum in Support of Jurisdiction amount to conjecture founded upon internet blogs and scraps from cases in other states. These materials are not properly part of the record on appeal and they should not be considered. In contrast U.S. Bank submits that a party may demonstrate standing in the matter by showing it is entitled to enforce the subject promissory note, as U.S. Bank has done herein. 11
Conclusion When one considers the complete lack of evidence to support the allegations made in the Memorandum in Support of Jurisdiction, it becomes clear that Kafantaris is requesting this Honorable Court to issue an advisory opinion based upon hypothetical facts. Kafantaris has neither presented a true controversy, nor any facts that are in existence. As such there is no relief that can be afforded to them through this attempted appeal. Therefore, U.S Bank requests that this Honorable Court deny jurisdiction. Respectfully submitted, Phillip 13arragate (0063017) Shapiro, Van Ess, Phillips & Barragate, LLP 4805 Montgomery Road, Suite 320 Cincinnati, Ohio 45212 Telephone (216) 373-3116 Facsimile (847) 627-8805 pbarragate@logs.com 12
Proof of Service The undersigned hereby certifies that a true and accurate copy of the foregoing Memorandum was served upon the following by US Mail, postage prepaid, this 9th day of January 2012: Irene K. Makridis 183 West Market Street Warren, Ohio 44481 Phillip Barragate (0063017) Counsel for U.S. Bank 13