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DC Case Note Split From DOT

DC Case Note Split From DOT

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Published by bryllaw
While the "split note" theory is a loser in almost all cases, here is an example of a truly split DOT rendering the note unsecured.
While the "split note" theory is a loser in almost all cases, here is an example of a truly split DOT rendering the note unsecured.

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Published by: bryllaw on Dec 18, 2010
Copyright:Attribution Non-commercial


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Crosby v. First Bank of Beverly Hills, 77 F.Supp.2d 1 (D.D.C., 1999)- 1 -
Page 177 F.Supp.2d 1Reginald L. CROSBY, et al., Plaintiffs,v.FIRST BANK OF BEVERLY HILLS, et al., Defendants.No. Civ. A. 98-82(RCL).United States District Court, District of Columbia.March 25, 1999.
James Bruce Davis, Bean, Kinney &Korman, P.C., Arlington, VA, for Plaintiffs.Elizabeth Gieshman Engle, DingmanLabowitz P.C., Alexandria, VA, for Defendants.
 LAMBERTH, District Judge.This case requires the Court to decide whatis essentially an issue of District of Columbiamortgage law. The matter comes before theCourt on cross-motions for summary judgmentby the plaintiffs, defendant Federal DepositInsurance Corporation (FDIC), and a group of defendants calling themselves the Wilshiredefendants (which includes the First Bank of Beverly Hills, Girard Savings Bank, andWilshire Financial Services a/k/a WilshireCredit Corporation). Upon consideration of thevarious cross-motions, the oppositions thereto,the record in this case, the relevant caselaw, andsome helpful secondary sources, the Court willgrant plaintiffs' motion for summary judgment,deny defendants' two motions, and entersummary judgment in favor of the plaintiffs.I. FACTSThe factual background of this case, whileundisputed in most respects, is nonethelesscomplicated, as is often the case when realproperty, promissory notes, and a mortgageinstrument change hands between many partiesover a number of years.On July 2, 1991, Lester and Diana Foote
 borrowed $160,000 from Theodore RooseveltNational Bank. The loan was evidenced by twonegotiable promissoryPage 2notes in the amounts of $90,000 and $70,000.As security for the entire $160,000 debt,
theFootes executed a Deed of Trust
on twoproperties owned by them, one at 1934 11thStreet, N.W. and the other at 918 S Street, N.W.,both in the District of Columbia. The deed of trust named Gene Fishgrund and C.B. Alonso astrustees; Theodore Roosevelt National Bank wasthe beneficiary. The deed of trust was properlyrecorded on July 3, 1991 as Document Number9100033497.Within a couple of years thereafter, theTheodore Roosevelt National Bank failed, andthe FDIC took over the bank's assets, includingthe July 2, 1991 promissory notes and deed of trust. In early 1993, the FDIC included both of the promissory notes in a package of real estateloans which it offered for public bid. In May of 1993, however, the FDIC withdrew some 400loans from the bid package, including thatrepresented by the $70,000 promissory note. The$90,000 note remained in the bid package.On June 29, 1993, the FDIC successfullysold the loan package to Nomura Asset CapitalCorporation.
In connection with the sale, theFDIC executed an Assignment of Mortgage/Deed of Trust, which stated:FOR VALUE RECEIVED, theundersigned, in its capacity as Receiver,Conservator or Liquidating Agent for TheodoreRoosevelt National Bank hereby grants, assignsand transfers to Nomura Asset CapitalCorporation all of the undersigned's right, titleand interest in and to that certain Deed of Trust/Mortgage listed in Exhibit 1, attachedhereto, together with the note or notes described
Crosby v. First Bank of Beverly Hills, 77 F.Supp.2d 1 (D.D.C., 1999)- 2 -
or referred to in the said Deed of Trust/Mortgage, the money due and to becomedue thereon with interest, and all rights accruedunder the said Deed of Trust/Mortgage, withoutrecourse.Attached to the assignment, and labeled"Exhibit 1 to Assignment of Mortgage/Deed of Trust," was an abstract of the July 2, 1991 deedof trust. The assignment, with attachment, wasrecorded on November 23, 1993.At the time of the June 29, 1993assignment, the FDIC delivered to Nomura the$90,000 promissory note, but it retained the$70,000 note.On November 1, 1993, Nomura in turnexecuted an Assignment of Mortgage,transferring its rights in the July 2, 1991 deed of trust to its mortgage loan servicer, FGB RealtyAdvisors, Inc.
This assignment was recorded onJanuary 18, 1994.About this same time (early 1994), theFootes sold their 11th Street property toReginald Crosby, one of the plaintiffs in thisaction. The sale was evidenced by a Deed datedJanuary 14, 1994 and recorded January 26,1994. Prior to closing, Crosby's settlementattorney contacted FGB to obtain payoff information for the July 2, 1991 deed of trust.An agreement was reached whereby FGB agreedto release the 11th Street property from the deedof trust for payment of $80,000. The $80,000was paid by certified check from the realPage 3estate escrow account of Crosby's attorney, andit was received by FGB on January 24th or 25th,1994. The agreed-upon partial release, however,was never put in writing. FGB sold the July 2,1991 deed of trust to Fairbanks CapitalCorporation shortly after receipt of the $80,000.Approximately one year later, the Footessold the S Street property to Sheila Johnson,predecessor in interest to plaintiffs AlemgenaDawit, Daniel Asrat, and Berhane Kifle.
Thesale was evidenced by a deed dated February 17,1995 and recorded on February 24, 1995.Johnson's settlement was conducted byplaintiff Maximum Title Group, Inc. Prior toclosing, Maximum Title obtained from theFootes a letter from Fairbanks Capital statingpayoff information. Maximum Title alsoobtained a title search showing the July 2, 1991deed of trust and indicating that it had beenassigned to FGB.
When Maximum Titlecontacted FGB, it was informed that FGB hadsold the deed of trust to Fairbanks. MaximumTitle then contacted Fairbanks directly, andFairbanks responded with a fax stating that theupdated payoff amount was $37,836.12 andencouraging Maximum Title to "[p]leaseforward payoff funds to Fairbanks Capital Corp.and I will make sure the collateral is released."At the closing on February 17, 1995, MaximumTitle paid $37,878.12 in exchange for release of the July 2, 1993 deed of trust.At the time of the Johnson closing,Fairbanks had actually transferred the July 2,1993 deed of trust back to FGB. Fairbanksforwarded the payoff monies to FGB, who inturn sent a Deed of Reconveyance, datedOctober 18, 1995, to the Footes purporting torelease the July 2, 1991 deed of trust. TheReconveyance stated:"WHEREAS, on JULY 2, 1991, a certainDeed of Trust was executed by LESTERFOOTE AND DIANA C.M. FOOTE,HUSBAND AND WIFE, Grantor(s), to GENEFISCHGRUND AND C.B. ALONSO,TRUSTEES, THEODORE ROOSEVELTNATIONAL BANK, Beneficiary, for the sum of ONE HUNDRED SIXTY THOUSANDDOLLARS, ... which said Deed of Trust isrecorded as DOCUMENT NUMBER9100033497, of the records of the DISTRICTOF COLUMBIA.WHEREAS, the indebtedness secured bysaid Deed of Trust has been paid in full: NOWTHEREFORE, FGB Realty Advisors, Inc...., thelegal and equitable owner and holder of saidDeed of Trust does hereby reconvey, without
Crosby v. First Bank of Beverly Hills, 77 F.Supp.2d 1 (D.D.C., 1999)- 3 -
warranty, to the person or persons legallyentitled thereto, the estate, title and interest nowheld by it under said Deed of Trust ..."On April 19, 1995, the FDIC sold the$70,000 promissory note
to defendants FirstBank of Beverly Hills and Girard Savings Bank.The FDIC endorsed the note to defendantWilshire Financial Service Group, as servicingagent for First Bank of Beverly Hills and GirardSavings Bank. The FDIC also appears to haveexecuted an assignment transferring the July 2,1991 deed of trust to either Wilshire or FirstBank of Beverly Hills and Girard Savings Bank,a copy of which does not appear in the record,although it isPage 4referenced in another document as being datedSeptember 15, 1997 and recorded October 1,1997 as Document 9700064306.The $70,000 note has never been satisfied,and the Wilshire parties have given notice of their intention to foreclose on the July 2, 1991deed of trust, which they contend still securesthe $70,000 promissory note and still applies toboth the 11th Street and S Street properties. Theplaintiffs filed this action to prevent suchforeclosure and to clear title to the twoproperties.Plaintiffs have now filed a motion forsummary judgment, asking the Court to (1) enter judgment against the Wilshire defendants andthe trustees of the July 2, 1991 deed of trust, (2)divest the trustees of any right or title under thatinstrument, and (3) direct the trustees to executea full release, returning legal title to the currentowners of the two properties. The FDIC hasfiled a cross-motion for summary judgmentasking the Court to dismiss it as a defendant, andthe Wilshire parties have filed a separate cross-motion for summary judgment requesting thatthe Court declare their rights under the July 2,1991 deed of trust to be "ongoing andunchanged" and that the Court appoint substitutetrustees so that the Wilshire parties may pursueall available means to recover the balance of the$70,000 note.II. LAW AND APPLICATIONA.
Standard for Summary Judgment 
 As set forth in Federal Rule of CivilProcedure 56(c), summary judgment shall begranted on motion of a party if the record shows"that there is no genuine issue as to any materialfact and that the moving party is entitled to judgment as a matter of law." From the parties'statements of undisputed facts, it is apparent thatthe facts underlying this action are undisputed.Where the parties disagree
such as whetherthe FDIC's June 29, 1993 assignment of the deedof trust transferred all of FDIC's interest in thedeed of trust or only a partial interest
thedispute is of a legal, rather than factual, nature.Consequently, because there are no genuineissues of material fact and the plaintiffs havedemonstrated that they are entitled to judgmentas a matter of law, summary judgment will beentered in favor of the plaintiffs, for the reasonsset forth below.B.
The Effect of the 1993 and 1997  Assignments
 Plaintiffs offer the Court several theories tosupport their claims against the FDIC and theWilshire defendants. However, the Court needaddress only the first, because it is dispositive of the issues before the Court on the currentmotions for summary judgment.On page eleven of their memorandum insupport of summary judgment, plaintiffs arguethatFDIC's Assignment of Mortgage/Deed of Trust to Nomura, recorded in 1993, extinguished`all of [FDIC's] right, title and interest' in and tothe Theodore Roosevelt Deed of Trust. After the1993 assignment to Nomura, FDIC owned nofurther interest in the Theodore Roosevelt Deedof Trust. Consequently, FDIC's 1997Assignment of Mortgage/Deed of Trust waswholly ineffective to transfer any interest in the

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