Borrower Loses Show Me the Note Lawsuit

Just so we’re clear, “show me the note” lawsuits have not fared well in the Eighth Circuit Court of Appeals. If you decide that you want to file one of these claims, don’t say we didn’t tell you.

Mary and William Butler filed a “show me the note” lawsuit against Bank of America, N.A., BAC Home Loan Servicing, and the law firm of Peterson, Fram, and Bergman, P.A. (PFB), challenging the foreclosure on their home. The district court dismissed the case for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The Eighth Circuit affirmed.

This isn't the first time that the Eighth Circuit has dismissed a show me the note lawsuit, so let's discuss what went wrong.

In 2006, the Butlers borrowed $280,000 from Marshall & Isely Bank to purchase a home in Hennepin County, Minnesota. They signed a note promising to repay the loan and executed a mortgage pledging the property as security for their promise to repay. Mortgage Electronic Systems, Inc. (MERS) was designated as the mortgagee and nominee for the lender.

The mortgage provided that if the Butlers defaulted on their note, the lender "may require immediate payment in full ... and may invoke the power of sale and any other remedies permitted by applicable law."

There wouldn't be a lawsuit if the Butlers had kept up with their payments, so we're going to skip most of the default details. Suffice it to say, BAC Home Loan Servicing accelerated the loan because the Butlers were delinquent, the Butlers still didn't pay, and PFB instituted foreclosure proceedings.

While all that drama was occurring, MERS assigned the note to BAC, (and properly recorded the assignment).

The Butlers clearly thought they had a way out of paying their debt. They sued BofA, BAC, and PFB, alleging 16 causes of action that were premised on a single theory -- the foreclosure was invalid because BAC -- the entity holding the mortgage -- did not also hold the promissory note (i.e., the "show-me-the-note" theory).

They were mistaken. Minnesota law clearly forecloses that argument.

The Eighth Circuit concluded that BAC, as the legal and record holder title of the mortgage, could undeniably initiate foreclosure proceedings under Minnesota law because the right to enforce a mortgage through foreclosure by advertisement lies with the legal, rather than equitable, holder of the mortgage.

In other words, a party may commence foreclosure proceedings, even if it does not hold the promissory note, as long as the party is the mortgagee of record and holds the legal title to the mortgage.

Related Resources:

• William B. Butler v. Bank of America, N.A. (Eighth Circuit Court of Appeals)
• Show Me the Note: Borrower Loses Note Possession Foreclosure Challenge (FindLaw's Eighth Circuit Blog)
• Produce the Note: Foreclosure Delay Tactic Can Encourage Lenders to Negotiate (FindLaw's Common Law)