Eighth Circuit Reinstates Portions of Minnesota Quiet Title Action, Upholds Dismissal of “Show-Me-The-Note” Claims

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On November 8, the U.S. Court of Appeals for the Eighth Circuit revived two claims brought by a group of borrowers alleging that the nominal mortgagee on their mortgage loans, and the servicer to whom the mortgagee assigned each mortgage, were not entitled to foreclose on their properties. Murphy v. Aurora Loan Servs. LLC, No. 12-1398, 2012 WL 5439284 (8th Cir. Nov. 8, 2012). The Eighth Circuit, following the Minnesota Supreme Court’s interpretation of state law, has previously held that the servicer has an undeniable right to initiate foreclosure as the legal holder of title. Here, the district court earlier dismissed claims that the servicer and mortgagee lacked authority to foreclose as repackaged “show-me-the-note” claims. The appeals court determined that two of the borrowers’ theories do not rely on the failure of the foreclosing party to produce the note, and therefore should be reinstated. The court reinstated theories that the assignments from the mortgagee to the servicer either were unrecorded or executed by individuals who lacked authority to do so, resulting in a defective chain of title that would undermine the servicer’s authority to foreclose. Because the parties did not specifically brief these theories the court remanded to allow the district court to address the two claims at issue. Specifically, the court directed that additional briefing should address whether the borrowers still have any interest in the properties and whether the borrowers’ interest is adverse to the interests of the mortgagee or servicer.