J-A13034-20


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

MB FINANCIAL BANK,                             :   IN THE SUPERIOR COURT OF
                                               :         PENNSYLVANIA
                   Appellee                    :
                                               :
            v.                                 :
                                               :
LAWRENCE J. RAO, JR.,                          :
                                               :
                   Appellant                   :   No. 2564 EDA 2019


                 Appeal from the Order Entered August 8, 2019
             in the Court of Common Pleas of Philadelphia County
               Civil Division at No(s): June Term, 2015 No. 3452

BEFORE:      BENDER P.J.E., LAZARUS, J. and STRASSBURGER, J.*

MEMORANDUM BY STRASSBURGER, J.:                       FILED AUGUST 11, 2020

        Lawrence J. Rao, Jr. appeals from the order entered August 8, 2019

against him and in favor of MB Financial Bank (MB Financial) following a

non-jury trial in this in rem mortgage foreclosure action. We affirm.

        A prior panel of this Court summarized the factual and procedural

history of this matter as follows.

        Rao is the record owner of a mortgaged property located at 1171
        South Darien Street, Philadelphia, PA 19147. On February 9,
        2006, Rao executed a promissory note [(Note)] in favor of
        SunTrust Mortgage, Inc. [(SunTrust)], for $228,000. To secure
        the Note, Rao executed a mortgage to Mortgage Electronic
        Registration Systems, Inc. [(MERS)] as nominee for SunTrust.
        On or around April 22, 2013, SunTrust discovered that the Note
        was missing from their vault and David Van Aken, Vice President
        [of SunTrust], executed a Lost Note Affidavit. On May 13, 2015,

____________________________________________


*   Retired Senior Judge assigned to the Superior Court.
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        MERS, as nominee for SunTrust, assigned the mortgage to MB
        Financial [and SunTrust remained the servicer].

              On June 25, 2015, MB Financial filed [an] in rem
        foreclosure action against Rao DUE TO RAO’S MARCH 1, 2011
        DEFAULT ON THE MORTGAGE. In addition to setting forth
        relevant information, including the parties and date of the
        mortgage, its place of record, a specific averment of default, an
        itemized statement of the amount due, and a demand for
        judgment in rem, MB Financial also averred that MB Financial
        was in possession, either “directly or through an agent,” of a
        “Lost Note Affidavit and has the right to foreclose.”

              Rao filed an answer with new matter challenging MB
        Financial’s standing to proceed with the matter based on MB
        Financial’s failure to have legal possession of the Note, and,
        therefore, failure to have the right to enforce the Note.

               On October 31, 2017, the trial court held a non-jury trial.
        At trial, MB Financial presented testimony from Nancy Johnson,
        Assistant Vice President and the Default Proceedings Officer for
        SunTrust. By and through Johnson’s testimony, MB Financial
        identified and introduced seven exhibits during its case-in-chief,
        including: (1) the original Lost Note Affidavit with a copy of the
        Note attached;[1] (2) a certified copy of the mortgage; (3) a
        certified copy of the assignment of mortgage recorded on May
        13, 2015; (4) the pre-foreclosure notice dated July 14, 2011
        sent to Rao; (5) the payment history for the mortgage; (6) the
        payoff/judgment figures; and (7) the limited power of attorney
        between Rao and SunTrust.          When Rao objected to the
        admission of the Lost Note Affidavit based on hearsay, the trial
        court sustained the objection and precluded its admission into
        evidence. The trial court also precluded from evidence the
        limited power of attorney. MB Financial moved the remaining
        exhibits into evidence.

              Rao did not present any evidence and made an oral motion
        for a nonsuit. [] The trial court granted the motion and made a
        finding in favor of Rao.

____________________________________________


1   The copy of the Note did not include a copy of the indorsement page.



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             On November 13, 2017, MB Financial filed a post-trial
       motion. On February 14, 2018, after oral argument[, ] the trial
       court denied the post-trial motion and entered a judgment of
       nonsuit in favor of Rao and against MB Financial.

MB Financial Bank v. Rao, 201 A.3d 784 (Pa. Super. 2018) (emphasis

added, unnecessary capitalization, emphasis, titles, and record references

omitted).

       M.B. Financial appealed to this Court claiming, inter alia, that the trial

court erred when it precluded from evidence the Lost Note Affidavit as

inadmissible hearsay. This Court concluded the Lost Note Affidavit qualified

as a business record, which is an exception to the rule against hearsay, and

that its preclusion constituted reversible error. Id. at 790-91. Accordingly,

this Court reversed the February 14, 2018 judgment and remanded the case

for a new trial. Id. at 791. In doing so, this Court declined to address MB

Financial’s remaining claims, including whether the Lost Note Affidavit

complies with the requirements of 13 Pa.C.S. § 3309,2 and whether MB

____________________________________________


2 A party not in possession of an instrument is entitled to enforce the
instrument if the party satisfies the following requirements of 13 Pa.C.S.
§ 3309.

              (1) the person was in possession of the instrument and
              entitled to enforce it when loss of possession occurred;

              (2) the loss of possession was not the result of a transfer
              by the person or a lawful seizure; and

              (3) the person cannot reasonably obtain possession of the
              instrument because the instrument was destroyed, its
(Footnote Continued Next Page)


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Financial had standing to proceed in the foreclosure action. Id. Regarding

the latter, this Court noted “MB Financial misstates the law when it asserts

that ownership of the [m]ortgage, without possession of the note, is

sufficient to confer standing to foreclose. Our case law is clear that a person

foreclosing on a mortgage must own or hold the note.”         Id. at 791 n.3,

citing CitiMortgage, Inc. v. Barbezat, 131 A.3d 65, 68 (Pa. Super. 2016).

      On May 6, 2019, a second non-jury trial was held.            MB Financial

introduced the same aforementioned exhibits it introduced in the first non-

jury trial. The trial court, in accordance with this Court’s holding, admitted

the Lost Note Affidavit, which contained the following language.

      The said Note has been misplaced and lost through causes
      unknown and is presently lost and unavailable after diligent
      search has been made. An amount of principal and interest on

(Footnote Continued) _______________________

             whereabouts cannot be determined or it is in the wrongful
             possession of an unknown person or a person that cannot
             be found or is not amenable to service of process.

      (b) Proof.--A person seeking enforcement of an instrument
      under subsection (a) must prove the terms of the instrument
      and the person’s right to enforce the instrument. If that proof is
      made, section 3308 (relating to proof of signatures and status as
      holder in due course) applies to the case as if the person seeking
      enforcement had produced the instrument. The court may not
      enter judgment in favor of the person seeking enforcement
      unless it finds that the person required to pay the instrument is
      adequately protected against loss that might occur by reason of
      a claim by another person to enforce the instrument. Adequate
      protection may be provided by any reasonable means.

13 Pa.C.S. § 3309.



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       said Note is still presently outstanding, due and unpaid, and the
       Seller is still owner and holder in due course of said lost Note.

Lost Note Affidavit, 4/22/2013.            Additionally, MB Financial presented

testimony from Johnson. Regarding the April 22, 2013 Lost Note Affidavit,

Johnson testified it is SunTrust’s practice to prepare such an affidavit upon

determining a note is lost. N.T., 5/6/2019, at 14-15. There is no indication

that the Note was seized or transferred to anyone other than MB Financial.

Id. at 17. SunTrust inquired into the location of the Note, but it could not

be found. Id. at 17-18. Moreover, SunTrust would indemnify Rao if another

entity attempted to enforce the Note. Id. at 20.

       Johnson also testified regarding the ownership of the Lost Note

Affidavit.   Johnson stated that SunTrust was servicing the mortgage on

behalf of MB Financial.      Id. at 16.     When MB Financial’s counsel asked

“what, if anything, did [MB Financial] receive or did they claim to receive

from SunTrust?,” Johnson responded, “They received the [L]ost [N]ote

[A]ffidavit.” Id. at 18. Johnson agreed with MB Financial’s counsel that the

Lost Note Affidavit was attached to MB Financial’s complaint. Id. at 18. But

when    asked   who   owns    the   Lost    Note   Affidavit,   Johnson   answered

“SunTrust.” Id. at 37. Johnson went on to testify that SunTrust transferred

the mortgage to MB Financial, but did not transfer the Note or anything else

to MB Financial, and SunTrust is still holding a copy of the Note. Id. at 40.

       During closing arguments, Rao claimed that because neither the Note

nor the Lost Note Affidavit was transferred, MB Financial lacked standing to

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J-A13034-20


foreclose on the mortgage.           Id. at 53, 55.   Meanwhile, MB Financial’s

counsel pointed out that the terminology of “possession,” “holder,” and

“owner” might have confused Johnson, inferring she was unable to ascertain

the difference. Id. at 53-54. Although the trial court agreed with Rao that

neither the Note nor the Lost Note Affidavit was physically transferred, it

characterized the issue as “one of ownership,” and determined that the Lost

Note Affidavit was held on behalf of and for the use of MB Financial. Id. at

54, 56. As a result, the trial court found in favor of MB Financial and against

Rao in the mortgage foreclosure action.

       On May 15, 2019, Rao timely filed a post-trial motion requesting

judgment in his favor notwithstanding the verdict. On August 8, 2019, the

trial court entered two orders: one denying Rao’s post-trial motion and one

entering in rem judgment in favor of MB Financial in the amount of

$389,067.88.

       This timely-filed appeal followed.3 On appeal, Rao avers that the Lost

Note Affidavit does not comply with the requirements of 13 Pa.C.S. § 3309,

and even if it does, the lack of transfer of any interest in the Note and Lost

Note Affidavit results in MB Financial’s lack of standing to proceed in the

foreclosure action. Rao’s Brief at 16-17.

       Our scope and standard of review of a non-jury verdict is settled.
____________________________________________


3Both Rao and the trial court have complied with the mandates of Pa.R.A.P.
1925.



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      Our appellate role in cases arising from non-jury trial verdicts is
      to determine whether the findings of the trial court are
      supported by competent evidence and whether the trial court
      committed error in any application of the law. The findings of
      fact of the trial judge must be given the same weight and effect
      on appeal as the verdict of a jury. We consider the evidence in a
      light most favorable to the verdict winner. We will reverse the
      trial court only if its findings of fact are not supported by
      competent evidence in the record or if its findings are premised
      on an error of law. However, where the issue concerns a
      question of law, our scope of review is plenary.

      The trial court’s conclusions of law on appeal originating from a
      non-jury trial are not binding on an appellate court because it is
      the appellate court’s duty to determine if the trial court correctly
      applied the law to the facts of the case.

Bank of New York Mellon v. Bach, 159 A.3d 16, 19-20 (Pa. Super. 2017)

(citation omitted).

      Rao argues MB Financial failed to carry its burden to establish the

requirements of a Lost Note Affidavit pursuant to 13 Pa.C.S. § 3309. Rao’s

Brief at 17. Specifically, Rao avers SunTrust failed to introduce any evidence

that SunTrust was ever in possession of or able to enforce the Note. Id. at

18-20.   Rao also asserts that the Lost Note must be in possession of the

party seeking enforcement at the time it was lost, i.e., MB Financial, because

he claims that 13 Pa.C.S. § 3309 limits enforcement of a lost note to the

person who was in possession of the note at the time it was lost. Id. at 18-

19.   Finally, Rao claims that MB Financial did not conduct an adequate

search to satisfy subsection (3) of 13 Pa.C.S. § 3309.       Id. at 21-22.   In

raising these arguments, Rao attacks the content of the Lost Note Affidavit,

implicitly claiming that 13 Pa.C.S. § 3309 is satisfied by the document itself

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J-A13034-20


rather than the circumstances in which the instrument is lost, destroyed or

stolen.

      At the outset, we note the express language of 13 Pa.C.S. § 3309 does

not require any document or affidavit be produced. In the instant case, the

language of the Lost Note Affidavit and testimony presented by MB Financial

established the following.     The Note was in SunTrust’s possession and

SunTrust was entitled to enforce the Note when the loss occurred. The loss

of possession was not due to a transfer by SunTrust or a lawful seizure.

SunTrust conducted a diligent search and was not reasonably able to obtain

possession of the Note and its whereabouts could not be determined. Lastly,

SunTrust stated it agreed to indemnify Rao if another entity attempted to

claim enforcement of the Note, thereby adequately protecting Rao against

loss that might occur via a claim by another person to enforce the Note.

Based on the foregoing, the trial court did not err in concluding that

SunTrust satisfied the requirements of 13 Pa.C.S. § 3309.

      Rao’s argument that 13 Pa.C.S. § 3309 limits enforcement of a lost

note to the person who was in possession of the note at the time it was lost

is erroneous. “Where an assignment is effective, the assignee stands in the

shoes of the assignor and assumes all of his rights.” Barbezat, 131 A.3d at

69. Therefore, the trial court did not err in finding MB Financial, as assignee,

had the ability to enforce the Lost Note Affidavit.




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      We next consider Rao’s claim that MB lacked standing, even assuming

section 3309 was satisfied. Rao’s Brief at 24. The holder of a mortgage has

the right, upon default, to bring a foreclosure action. Bank of Am., N.A. v.

Gibson, 102 A.3d 462, 464 (Pa. Super. 2014). A person foreclosing on a

mortgage, however, also must own or hold the note.             See Gerber v.

Piergrossi, 142 A.3d 854, 859 (Pa. Super. 2016) (emphasis added). This is

so because a mortgage is only the security instrument that ensures

repayment of the indebtedness under a note to real property.               See

Carpenter v. Longan, 83 U.S. 271, 275 (1872) (noting “[a]ll the

authorities agree that the debt is the principal thing and the mortgage an

accessory.”). A mortgage can have no separate existence. Id.

      Here, the trial court found that “SunTrust transferred ownership of the

mortgage to MB Financial but remained servicer of the mortgage....” Trial

Court Opinion, 9/8/2019, at 2.      Additionally, it held, “[t]he fact that the

[L]ost [N]ote [A]ffidavit itself, which was accepted to demonstrate the

existence and ownership of the [N]ote in the first instance, is currently in the

possession of SunTrust does not change the fact that [MB Financial] as

owner of the mortgage is entitled to foreclose on the debt it owns.” Id. at 3.

While Rao relies on this Court’s holding in CitiMortgage, Inc. v. Barbezat,

that ownership of the mortgage without possession of the note is not

sufficient to confer standing to foreclose, that case is inapposite.        MB




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Financial here holds the note equivalent, the Lost Note Affidavit, because it

is being held by its servicer, i.e., agent, SunTrust.

      Based upon the record evidence produced by MB Financial, we

conclude MB Financial had standing to pursue the underlying mortgage

foreclosure action. Contrary to Rao’s claims, MB Financial has both averred

and produced evidence that it holds the mortgage and is the owner of the

Lost Note Affidavit. MB Financial was assigned the mortgage through MERS

as nominee for SunTrust. The mortgage contains the following language.

      TRANSFER OF RIGHTS IN THE PROPERTY

      This Security Instrument secures to Lender: (i) the repayment of
      the Loan, and all renewals, extensions and modifications of the
      Note; and (ii) the performance of Borrower's covenants and
      agreements under this Security Instrument and the Note. For
      this purpose, Borrower does hereby mortgage, grant and convey
      to MERS (solely as nominee for Lender and Lender's successors
      and assigns) and to the successors and assigns of MERS the
      following described property....

Mortgage, 2/9/2006, at 3 (emphasis added). The assignment of mortgage

recorded on May 13, 2015 listed MERS as the assignor and MB Financial as

assignee, thereby granting to MB Financial the rights that were assigned to

MERS, including Rao’s covenants and agreements under the mortgage and

the Note. MB Financial attached to its complaint the Lost Note Affidavit and

a copy of the Note.      Clearly, if MB Financial did not own or hold these

documents, it would not have been able to produce them.       Moreover, MB

Financial would not have been able to have SunTrust vouch for it if MB

Financial was not the owner. The foregoing, along with Johnson’s testimony

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that the MB Financial received the Lost Note Affidavit from SunTrust and it

was held on behalf of and for the use of MB Financial, are competent

evidence that MB Financial owns or holds the underlying Lost Note Affidavit.

In light of the procedural posture of this case, in which we are not bound by

the trial court’s legal conclusions and our standard of review requires us to

determine whether the trial court correctly applied the law, because MB

Financial has established that it owns the underlying Lost Note Affidavit, we

therefore conclude that it has standing to foreclose on the mortgage.

      We conclude that the trial court’s verdict is supported by competent

evidence, and affirm the trial court’s verdict in favor of MB Financial.

      Judgment affirmed.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 8/11/2020




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