Dow Family, LLC v. PHH Mortgage Corp. (WI)

Summary: Equitable assignment applies to mortgage note transfers with the mortgage in question automatically passing by operation of law upon assignment of the note, satisfying the statute of frauds.


Dow Family, LLC v. PHH Mortg. Corp., 2014 WI 56, 354 Wis. 2d 796, 848 N.W.2d 728 (2014).


Go to full opinion.


Facts: In 2001, U.S. Bank issued a loan to William E. and Jo Y. Sullivan, secured by a note which was secured by a mortgage on a condominium. The mortgage explicitly referenced the 2001 note and listed the Sullivans as the borrower/mortgagor and U.S. Bank as the lender. The mortgage also listed the Mortgage Electronic Registration System (MERS) as both the nominee for U.S. Bank and the mortgagee. The mortgage was recorded on June 22, 2001. PHH argued having received an assignment of the 2001 note within the year.

In 2009, Dow purchased the condominium at issue from the Sullivans. Prior to the purchase, Dow obtained a title commitment indicating the property in question was subject to the 2001 mortgage as well as a 2003 mortgage. The title commitment listed U.S. Bank as the lender for both mortgages.

Prior to closing, Dow's attorney contacted the Sullivans' attorney inquiring about the 2001 mortgage. William Sullivan stated that the 2001 mortgage should not have been on the title, and that the 2001 and 2003 mortgage were the same. Dow apparently relied on this information, concluding that the 2003 mortgage evidenced a refinancing of the note that underlay the 2001 mortgage. Closing documents reflect a payoff to a single mortgage to U.S. Bank, satisfying the 2003 mortgage.

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.

The circuit court ruled in favor of PHH and held that the doctrine of equitable assignment applies in Wisconsin and that PHH possessed the note. The court entered a foreclosure judgment in favor of PHH. Dow appealed.

The appellate court agreed with the circuit court that the doctrine of equitable assignment applies in Wisconsin. It further held that application of equitable assignment did not conflict with the statute of frauds. However, the appellate court found that the circuit court erred in granting summary judgment to PHH because PHH failed to show that it could enforce the note because it could not show that it held an authenticated copy. Dow appealed.


Holding: Affirmed. The Wisconsin Supreme Court addressed (1) whether the doctrine of equitable assignment applies in Wisconsin, and (2) whether the doctrine of equitable assignment constitutes an exception to the statute of frauds.

Under the first inquiry, the court held that the doctrine of equitable assignment applied in Wisconsin. Principally citing Croft v. Bunster, 9 Wis. 503 (1859), the court found that Wisconsin case law indicated that the security for a note was equitably assigned upon transfer of the note, without requiring written assignment. Further, references to equitable assignment principles in Croft were especially noteworthy because that case concerned mortgages on real estate. Likewise, in Tidioute Sav. Bank v. Libbey, 101 Wis. 193 (1898), the court explicitly stated that equitable assignment applies to real estate mortgages. Additionally, Wisconsin Stat. § 409.203(7), which incorporated UCC § 9-203(g), was found to support the application of the doctrine as, “[t]he 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…on personal or real property also transfers the security interest.’ ”

Concerning the second inquiry, the court held the doctrine of equitable assignment constituted an exception to the statute of frauds. Again citing Tidioute, Wisconsin Stat. ch. 104, § 2302 (1898) was found to be substantially similar to Wis. Stat. § 706.001(1)-(2). Under Wisconsin Stat. ch. 104, § 2302, a note transfer was an operation of law which exempted the mortgage from the statute of frauds. The court stated that the automatic nature of the mortgage following the note under equitable assignment was “by operation of law.” Therefore, equitable assignment applied and the mortgage in question could automatically pass by operation of law upon the assignment of a mortgage note, satisfying the statute of frauds.

The Supreme Court ended the discussion by stating that the issue of whether PHH has the necessary documents to enforce the note must be determined by the circuit court.


Opinion Year: 
By: ATG Underwriting Department | Posted on: Wed, 07/08/2015 - 12:12pm