State’s Supreme Court Upholds Homeowners’ Challenge of Mortgage Assignment

In a real estate case before Rhode Island’s Supreme Court, the court considered the validity of the assignment of a mortgage in a foreclosure action. Evidently, in 1984, the defendants obtained title to a house in Cranston, Rhode Island. In 2006, the defendants executed a promissory note to a mortgage company, Zurich Mortgage Solutions, for $971,750, secured by the house. Later in 2006, the mortgage company transferred the note and mortgage to another company, American Residential Equities.

Two weeks before the transfer occurred, American Residential Equities assigned the note and mortgage to GMAC, which sought to foreclose on the mortgage. GMAC later assigned the note and mortgaged to a fourth company, ARELIX. At some point, ARELIX realized that the note had been lost after it gave the note to its lawyer. Later, ARELIX purported to assign the note and mortgage to a fifth company, Note Capital—the plaintiffs in the lawsuit. A court granted summary judgment in favor of Note Capital, and the defendants appealed.

The defendants argued that the plaintiff did not have title to the note and mortgage because there was an improper transfer, thereby breaking the chain of title. Specifically, the defendants maintained that American Residential Equities could not transfer the note and mortgage to GMAC, because at the time that it purported to assign them, the note and mortgage had not yet been transferred from Zurich.

In a real estate loan transaction, there are generally two controlling documents: the promissory note and the mortgage. The promissory note is proof that the borrower is required to repay the borrowed money, and the mortgage acts as security for the debt. Under Rhode Island law, a mortgagee also gets legal title to the property, which becomes void once the debt is paid. The Court decided that American Residential Equities did obtain an interest in the note and mortgage later, and that after that point, the defendants could not challenge the validity of the transfer. However, the court found that summary judgment should not have been granted in the plaintiff’s favor.

Summary judgment should be granted in favor of a party only if, viewing the evidence in the light most favorable to the nonmoving party, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Rhode Island courts have stated that summary judgment “is an extreme remedy that should be applied cautiously.” The court held that the defendants raised a genuine issue of material fact regarding the validity of the note. The court explained that ARELIX lost the note and that it was not clear whether the note it possessed was authentic. Therefore, the court reversed the grant of summary judgment.

Consult with an Experienced Rhode Island Real Estate Lawyer

Real estate cases often involve challenging legal issues, and having a Rhode Island real estate lawyer who is well-versed in these matters can make or break your case. If you are concerned about a property dispute or transaction, consult one of the dedicated Rhode Island property attorneys at Bilodeau Capalbo, LLC. The attorneys at Bilodeau Capalbo represent clients in all types of real estate matters, including foreclosure, title issues, adverse possession claims, purchase and sale agreements, and zoning. Call us today at 401-300-4055 or contact us through our online form.