Deutsche Bank National Trust Company, Plaintiff-Respondent-Petitioner,
Thomas P. Wuensch, Defendant-Appellant, Heidi Wuensch, Appellant.
Submitted on Briefs: oral argument: October 2, 2017
from a decision of the court of appeals. Reversed.
Circuit County La Crosse Todd W. Bjerke, Judge (L.C. No.
the plaintiff-respondent-petitioner, there were briefs filed
by Thomas C. Dill and BP Peterman Group, Brookfield; Robert
W. Brunner and Bryan Cave LLP, Chicago, Illinois; and Kenneth
Lee Marshall and Bryan Cave LLP, San Francisco, California.
There was an oral argument by Kenneth Lee Marshall.
the defendant-appellant there was a brief filed by Christa 0.
Westerberg, Susan M. Crawford, Aaron G. Dumas, and Pines Bach
LLP, Madison. There was an oral argument by Christa 0.
REBECCA GRASSL BRADLEY, J.
This is a review of an unpublished court of appeals summary
disposition reversing the La Crosse County Circuit
Court's foreclosure judgment against Thomas P.
Wuensch in favor of Deutsche Bank National Trust Company
(Deutsche Bank). The circuit court admitted the promissory
note signed by Wuensch (the Note) into evidence when offered
by Deutsche Bank through its attorney, and permitted the Bank
to enforce the Note, ruling that the original Note, endorsed
in blank, was sufficient to establish possession. We reverse
the court of appeals' summary disposition and affirm the
circuit court's judgment of foreclosure.
The issue before this court is whether presentment by a
party's attorney of an original, wet-ink note endorsed in
blank is admissible evidence and enforceable against the
borrower without further proof that the holder had possession
at the time the foreclosure action was filed. To answer this
question, we must determine the evidence necessary to prove
that an entity seeking to enforce a note against a borrower
has the right to do so. We hold that presentment to the trier
of fact in a mortgage foreclosure proceeding of the original,
wet-ink note endorsed in blank, establishes the holder's
possession and entitles the holder to enforce the note.
In December 2006, Wuensch signed an adjustable rate Note
issued by HLB Mortgage for $301, 500. Wuensch secured the
Note with a mortgage he executed in favor of the mortgagee,
Mortgage Electronic Registrations Systems, Inc. as nominee
for HLB Mortgage, the lender. By the time this action was
filed, HLB had transferred the Note to American Home Mortgage
Servicing, Inc. (AHM),  HLB's parent entity, and AHM had
endorsed the Note in blank.
It is uncontested that in February 2008, Wuensch defaulted.
He failed to make any payment on the Note after February 2008
and has remained in default through the pendency of this
foreclosure action. The events surrounding the default
underlie the circuit court's ruling that "equity
dictates that Wuensch be allowed one last opportunity to cure
his default, because his default on the Note may have been
caused by the actions of the preceding Note holders."
They also color Wuensch's arguments on the primary issue
regarding whether Deutsche Bank in fact possessed the
Wuensch's Note required him to remain current on all
property taxes by paying into an escrow account serviced by
the lender, which would pay his property taxes directly from
the escrow account. His promised monthly mortgage payment,
due the first of each month, totaled $1, 487.68, consisting
of $1, 210.98 for the Note itself, plus $276.70, which went
into escrow to cover property taxes. In August 2007, although
Wuensch was current on his mortgage payments, he received
notice from the Town of Onalaska that his property taxes had
not been paid. Around this time, Wuensch learned that AHM,
then in possession of his Note, had filed for bankruptcy
earlier in the month.
In a letter dated February 23, 2008, AHM informed Wuensch it
had not received his February mortgage payment. Wuensch
claimed he had submitted payment via Western Union on
February 15, 2008. Wuensch's attempts to resolve the
February payment issue were unsuccessful. Allegedly based on
the recommendation of an AHM employee, Wuensch stopped making
payments on the Note altogether. As a result, AHM sent
Wuensch notice of acceleration dated March 4, 2008,
indicating that he was in default and owed $2, 355.89, which
had become due on or after February 1, 2008. Regardless of
why Wuensch stopped making payments, there is no dispute that
AHM never received any mortgage payments from Wuensch after
February 15, 2008.
Deutsche Bank filed this foreclosure action against Wuensch
in August 2009, attaching a copy of the Note to the
complaint. It elected to proceed to foreclosure under
Wis.Stat. § 846.101 (2013-14), waiving any deficiency
judgment against Wuensch, and consenting to Wuensch's
continued occupancy of the property until the circuit court
entered confirmation of a sale.
Deutsche Bank claimed to be the "lawful holder of said
note and mortgage." During the life of the loan,
Wuensch's Note and mortgage were transferred multiple
times, ultimately landing with Deutsche Bank on August 4,
2009. Because of the nature of a note endorsed in blank,
precisely how Deutsche Bank came into physical possession of
the Note is not relevant. For purposes of enforcing the Note,
it is enough that Deutsche Bank was in possession of the
original Note at trial, a copy of which was attached to the
In his answer, Wuensch denied that Deutsche Bank was a holder
entitled to enforce the Note and denied that any payments
were past due. Wuensch also asserted the following
affirmative defenses: material misrepresentation, laches,
estoppel, lack of standing, improper joinder of parties, and
lack of note. In an amended answer, Wuensch also alleged
fraud and unclean hands by Deutsche Bank and again asserted
that the Bank lacked the ability to foreclose.
Pretrial proceedings continued for five years before the case
finally came before the circuit court for a bench trial. In
May 2014, Deutsche Bank's attorney presented the
original, wet-ink Note to the circuit court to inspect and
asked the circuit court to admit into evidence a copy of the
Note as a self-authenticating, "non-hearsay instrument .
. . offered for its legal significance, not to prove the
truth of the matter asserted." Wuensch's counsel
objected on the bases of hearsay and lack of personal
knowledge on the part of Deutsch Bank's counsel, while
also asserting that Deutsche Bank's counsel was
impermissibly acting as a witness. The circuit court
overruled these objections and after inspecting the Note,
THE COURT: When I looked at the document purporting to be an
original, looks like original ink on signatures and appears
to be the same as what has now been marked as a copy Exhibit
1 . . . .
It will be admitted.
circuit court then concluded that "plaintiff is, in my
mind, the holder in due course of a note endorsed in blank
and they can proceed on it." Wuensch's counsel
objected to the admission of the Note and questioned the
validity of the signatures on and the assignment of the
instrument, arguing that there were "no indentations on
the initials" and "the assignments of the mortgage
are relevant because of the false nature of them." The
circuit court responded, "the law is pretty clear that
somebody that is holding a note endorsed in blank has the
right to seek foreclosure of such a document" and that
it did not think "the assignments were relevant when
there's a note endorsed in blank."
Deutsche Bank called one witness at trial, Rasheed Blanchard,
a loan analyst from Ocwen Financial Corporation, the entity
that serviced the loan. He testified as to Wuensch's
payment history and the processes by which Ocwen serviced the
Wuensch testified regarding the difficulty he had contacting
AHM to resolve the 2007 property tax issue, the payment
history leading up to his default, and the events that
followed his default. He also claimed that the Note presented
by Deutsche Bank did not contain his original, wet-ink
In December 2014, the circuit court issued findings of fact
and conclusions of law in its judgment and order. It
determined that Deutsche Bank "is entitled to a judgment
of foreclosure of the Defendant's mortgage." It
found Deutsche Bank:
is the holder of the original Note, endorsed in blank. The
Court is satisfied that the Plaintiff has in its possession
the original ink Note. The Plaintiff produced the original
Note at trial and the Court examined it. The Court is
satisfied that it is the original Note executed by Wuensch on
December 18, 2006. Exhibit 1 is a true and accurate copy of
the original ink Note.
further found Wuensch was in default on the Note in the
principal amount of $315, 233.64.
The circuit court concluded that Wuensch's arguments
regarding allegedly fraudulent practices associated with
mortgage-backed securities comprised of pooled mortgages such
as his own were "beyond the scope of this case."
Relying on Dow Family, LLC v. PHH Mortgage Corp.,
2014 WI 56, ¶21, 354 Wis.2d 796, 848 N.W.2d 728, the
circuit court ruled that "[u]nder the doctrine of
equitable assignment, a mortgage automatically follows the
assignment of the note." The circuit court applied the
Dow Family holding that "security for a note is
equitably assigned upon transfer of the note, without need
for a written assignment." Pivotally, the circuit court
held that "[t]he holder of an original note endorsed in
blank has the right to enforce the note"; therefore,
Deutsche Bank had standing to bring the foreclosure action
The circuit court, however, exercised its equitable authority
to delay entry of the foreclosure judgment and permit Wuensch
the opportunity to return to the position he occupied prior
to the default event of February 2008. It explained:
Even if the Plaintiff is without blame for the problems with
Wuensch's mortgage, the same cannot be said about the
preceding holders of his Note. Although the question of
whether Wuensch's Note was fraudulently passed between
creditors before it came into the Plaintiff's possession
is beyond the scope of this case, the Court is convinced that
the seemingly unregulated transferring of mortgages during
the housing bubble and crash contributed to Wuensch finding
himself in this position.
the circuit court stayed entry of the judgment until January
24, 2015, to allow Wuensch to cure the default by paying
Deutsche Bank $347, 826.03-the sum of the unpaid principal,
plus expenses paid by Deutsche Bank for property taxes,
hazard insurance, and other costs and fees. If Wuensch did
not pay that amount by January 24th, the circuit court would
enter judgment of foreclosure in favor of Deutsche Bank for
the entire amount sought-totaling $455, 641.85.
Wuensch appealed in September 2015 and the court of appeals
summarily reversed the judgment of foreclosure. Deutsche
Bank Nat'1 Trust Co. v. Wuensch, No. 2 015AP175,
unpublished order (Wis. Ct. App. Aug. 23, 2016). Wuensch
argued the circuit court lacked a factual basis to enter
judgment of foreclosure against him because Deutsche Bank did
not prove it was the holder of the original Note entitled to
enforce it. Id. at 4. He contended that Deutsche
Bank was required to present evidence not only that the
purported original Note was in fact the original Note, but
also that Deutsche Bank's counsel had obtained the Note
from the Bank. Id. Wuensch insisted that possession
alone of the purported original Note endorsed in blank was
not enough to prove possession. Id.
The court of appeals agreed. It held that Wuensch's
pleadings and his objections as to authenticity and
possession at trial placed "possession of the original
note in dispute, and there is no dispute that this was an
issue that the plaintiff had to prove at trial."
Id. Citing Wis.Stat. §§ 906.02 ("A
witness may not testify to a matter unless evidence is
introduced sufficient to support a finding that the witness
has personal knowledge of the matter."), 906.03(1)
("which provides that a witness must take an oath before
testifying"), and 901.04(2) ("a judge is to make
preliminary determinations on the qualifications of a person
to be a witness"), the court of appeals held as
"axiomatic" the rule "that 'unsworn
statements' have 'no proper place' as substitutes
for evidence in a trial." Id. at 5 (citations
omitted). The court of appeals recognized the
"difficulties" the Bank's counsel would have
encountered had he attempted to testify as to his personal
knowledge surrounding the Note and its possession.
Id. at 5. Nevertheless, the court of appeals held
that the Bank was required to present testimony from a
witness with personal knowledge who could verify possession
of the Note by the Bank up to the moment Deutsche Bank's
attorney presented the Note to the circuit court.
Id. at 6-7.
Acknowledging that the "mandate reversing the judgment
of foreclosure in this action may appear at first blush to
elevate form over substance and to produce a highly
inefficient result, " the court of appeals nonetheless
persisted in holding that possession by the Bank's
counsel would not suffice to prove possession by the Bank
itself or the concomitant right to enforce the Note endorsed
in blank. Id. at 8. Deutsche Bank filed a petition
for review, which this court granted.
STANDARD OF REVIEW
"Our review requires us to construe a statute and apply
it to the facts of the case." Warehouse II, LLC v.
DOT, 2006 WI 62, ¶4, 291 Wis.2d 80, 715 N.W.2d 213.
Ordinarily, a circuit court's "[f]indings of fact
shall not be set aside unless clearly erroneous, and due
regard shall be given to the opportunity of the [circuit]
court to judge the credibility of the witnesses."
Wis.Stat. § 805.17(2). Furthermore, "the decision
whether to admit evidence is within the circuit court's
discretion." State v. Zamzow, 2017 WI 29,
¶10, 374 Wis.2d 220, 892 N.W.2d 637 (citing State v.
Griep, 2015 WI 40, ¶17, 361 Wis.2d 657, 863 N.W.2d
567), cert, denied, 138 S.Ct. 501 (2017). However,
the application of a statute to the facts of a case is a
question of law this court reviews de novo, although the
court benefits from the analyses of the circuit court and
court of appeals. Warehouse II, 291 Wis.2d 80,
¶4 (first citing State v. Reed, 2005 WI 53,
¶13, 280 Wis.2d 68, 695 N.W.2d 315; and then citing
State v. Cole, 2003 WI 59, ¶12, 262 Wis.2d 167,
663 N.W.2d 700).
In mortgage foreclosure actions, the plaintiff has the burden
of proving the terms of indebtedness secured by a mortgage.
Mitchell Bank v. Schanke, 2004 WI 13, ¶32, 268
Wis.2d 571, 676 N.W.2d 849 (citing Doyon & Rayne
Lumber Co. v. Nichols, 196 Wis. 387, 390, 220
N.W. 181 (1928)) (noting the "requirement that the
mortgagee prove the existence of debt in order to foreclose
on the mortgage, as a mortgage cannot exist without a
debt"); see PNC Bank, N.A. v. Bierbrauer, 2013
WI.App. 11, ¶10, 346 Wis.2d 1, 827 N.W.2d 124. This
includes verifying that foreclosure proceedings are
maintained by the party with the right to enforce the note, a
requirement that is not a mere formality. See
Bierbrauer, 346 Wis.2d 1, ¶10. It is in fact a
foundational precondition for any foreclosure action,
protecting borrowers from wrongful loss of their homes,
affording lenders a procedure for enforcing notes, and
providing certainty surrounding property rights in mortgages.
See, e.g., David A. Dana, Why Mortgage
"Formalities" Matter, 24 Loy. Consumer L. Rev.
505, 507-08 (2012); Elizabeth Renuart, Uneasy
Intersections: The Right to Foreclose and the U.C.C., 48
Wake Forest L. Rev. 1205, 1212 (2013); Adam J. Levitin,
The Paper Chase: Securitization, Foreclosure, and
the Uncertainty of Mortgage Title, 63 Duke L.J. 637,
648 (2013) .
In ascertaining who has the right to enforce a note, we begin
with the language of the relevant statutes, a step the court
of appeals mostly relegated to footnotes. State ex rel.
Kalal v. Cir. Ct. for Dane Cty., 2004 WI 58, ¶45,
271 Wis.2d 633, 663, 681 N.W.2d 110. Article 3 of the Uniform
Commercial Code (U.C.C.), codified in Wisconsin at ch. 403 in
1995, provides that where a note is negotiable,
may be enforced by a "holder." Wis.Stat. §
403.301. A "holder, " as relevant here, includes
"the person in possession of a negotiable instrument
that is payable ... to bearer." Wis.Stat. §
401.201(2)(km)l. A "bearer" includes a person in
possession of an instrument endorsed in blank. Wis.Stat.
§ 401.201(2) (cm) . "If endorsed in blank, an
instrument becomes payable to bearer, " and can be
"negotiated by transfer of possession
alone." Wis.Stat. § 403.205(2);
Bierbrauer, 346 Wis.2d 1, ¶12.
Wuensch makes a variety of arguments undercut by a plain
reading of the statutes and application of relevant case law.
First, Wuensch argues that Deutsche Bank is not a
"holder." He asserts that self-authentication is
not equivalent to showing physical possession. He also
insists that physical possession of the original Note by
Deutsche Bank's trial counsel does not make the Bank a
"bearer" and that ...