Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Knows About Notes
There is an interesting United States District Court case analyzing the rule of law in various states pertaining to the separation of the mortgage and note for the purposes of making a determination based upon New Mexico law (where there was no guiding authority).  The case was 5-Star Mgmt. v. Rogers, 940 F. Supp. 512, 1996 U.S. Dist. LEXIS 15018 (E.D.N.Y. 1996).

Perhaps someone with ready Lexis or WestLaw access can obtain the full text of the case and post it.

The key finding of this case is:

"Although the New Mexico Supreme Court has not ruled on this issue, the decisive weight of authority within other jurisdictions holds that an assignment of a mortgage without the underlying debt is a nullity, and therefore unenforceable, unless the promissory note in question has been lost or destroyed, or the original contracting parties intended the mortgage to be independently enforceable.  See55 Am.Jur.2d:  Mortgages s 1283, at 1038-39 (1971);  59 C.J.S. Mortgages s 356, at 504-07 (1949);  Federal Deposit Ins. Corp. v. Bracero & Ri vera, Inc., 895 F.2d 824, 827 (1st Cir.1990) (applying Puerto Rico law);  Brunn v. Wichser, 75 F.2d 25, 27 (3d Cir.1934) (applying Pennsylvania law);  In re Leisure Time Sports, Inc., 194 B.R. 859, 861 (9th Cir. BAP 1996) (applying California law);  United States v. Freidus, 769 F.Supp. 1266, 1277-78 (S.D.N.Y.1991) (applying New York law);  In re BNT Terminals, Inc., 125 B.R. 963, 970-71 (Bankr.N.D.Ill.1990) (applying Illinois and Nebraska law);  In re Hurricane Resort Co., 30 B.R. 258, 260-61 (Bankr.S.D.Fla.1983) (applying Florida law);  South Carolina Nat’l Bank v. Halter, 293 S.C. 121, 359 S.E.2d 74, 77 (1987) (applying South Carolina law); Barton v. Perryman, 265 Ark. 228, 577 S.W.2d 596, 600 (1979) (applying Arkansas law);  Rockford Trust Co. v. Purtell, 183 Ark. 918, 39 S.W.2d 733, 736 (1931) (applying Arkansas law);  Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d 92, 93 (2d Dep’t 1988) (applying New Y ork law);  Beak v. Walts, 266 A.D. 900, 42 N.Y.S.2d 652, 653 (4th Dep’t 1943) (per curiam) (applying New York law);  Merritt v. Bartholick, 36 N.Y. 44, 51 (1867) (applying New York law);  see also  Kawai Am. Corp. v. Hilton, 205 A.D.2d 1021, 613 N.Y.S.2d 989, 991 (3d Dep’t 1994) (applying New York law) (exception where intent of the original contracting parties overrode the default rule), leave to appeal dismissed, 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 (1996);  Felin Assocs. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d 413, 415 (1st Dep’t 1971) (applying New York law) (exception where note was lost).

There are a variety of recent New York cases reaffirming this principle.

This is NOT legal advice but rather a starting point for YOUR own legal research and inquiry on the topic of separating the note and the mortgage. 
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Interesting decision.  I will try to find the entire citation.

Let's explore the bifurcation issue one step further.

Smith obtains a new home loan through mortgage broker Doe who worked for mortgage originator XYZ Corporation.  XYX was the paid agent for ABC Mortgage,  The Note was secured by a Deed of Trust against Blackacre.  Smith signs the Note and Deed of Trust but to no ones surprise received NO disclosures - pre or post signing.

Title company I Want Your Money Inc. records the Deed of Trust on behalf of ABC showing an assignment to MERS.  Within 30 days ABC sells the Note to DEF Gargantuan Bank which immediately sells the Note to GHI Depositor Bank which sells the Note to a back room trust Wall Street LLC (caution - note the 'LLC' designation in this example) along with 4,000 other similar Notes.  Wall Street LLC then issues a billion dollars worth of pass-through certificates in tranches of $ 25,000.00 each.  The pooling and servicing agreement names the servicer Shysters Unlimited and the trustee Oben Fuhrer Enterprises.

Smith gets behind on payments to Shysters.  Shysters refuses to cooperate in remediation.  Oben Fuhrer creates a Substition of Trustee appointing Dewey, Cheatem and Howe as new trustee and records it (non judicial sale state).  Smith receives Notice of Trustee Sale from Dewey.

Smith investigates and finds questionable loan documents.  Unable to determine true holder of the Note (which, if you followed so far, is Wall Street LLC) Smith files a lawsuit naming everyone who every touched the Note and Deed of Trust.  Concurrently Smith files a Notice of Lis Pendens against Blackacre.  Smith also files with the Complaint a Request for Temporary and Permanent Injunction prohibiting the trustee sale AND removing Trustee Dewey from handling the matter, now or at any time in the future.  Dewey is gone forever.

Judge Honest enjoins the sale and kicks the substitute trustee off the case.  Honest also issues an Order prohibiting a further sale pending disposition of the case.

Original trustee Oben Fuhrer files a second Substitution of Trustee, this time to Humpem, Dumpem and Screwem.  Smith is now really pissed.  Judge Honest orders the parties back to Court.  Smith receives one day before the hearing for sanctions a:  Notice of Cancellation of the Sale, Notice of Cancellation of Accelleration of the Note and Notice of Cancellation of Default from Oben Fuhrer.  These three documents are recorded.  Concurrently MERS issues an assignment of the original deed of trust to Oben Fuhrer and 'claims' to assign the original Note as well.

Smith continues with his lawsuit.  All parties were served.  Broker Doe, Title Company I Want Your Money and Originator XYZ Corporation settle with Smith - providing stipulations from corporate officers that all required disclosures were NOT provided with the original mortgage and give up any and all future claims against Smith or Blackacre.  Remaining Defendants go into hiding - refuse to comply with discovery, etc.

But Smith persists.  Wall Street LLC although served never appears.  Smith files for a Default Judgment.  Judge Honest hears the Default Motion and grants Smith Quiet Title to Blackacre.  Smith records the Quiet Title Judgment.

Smith is a dogged fellow.  Smith hires the Really Huge Title Insurance Company and fully discloses to Really Huge the Quiet Title Judgment.  Really Huge issues an Owner Title Insurance Policy to Smith for the value of Blackacre naming Smith and his frazzled spouse as the Insured.

Still with me so far?  Smith has a fully executable Quiet Title Judgment to Blackacre against the only Defendant who may have had ownership of the Note but not the Deed of Trust.  BIFURCATION!

So what happened to the Deed of Trust?  Smith consults knowledgeable lawyers.  Each is stunned to see the Quiet Title Judgment as well as an Owner Title Insurance Policy.  The general legal consensus is that the right, title and interest Smith originally granted to the Trustee has been supplanted by the Quiet Title Judgment.  Smith is now the titled owner of Blackacre and the Note, if it still exists, is simply an unsecured debt.

Anyone want to comment?  The core question is:  Does the Quiet Title Judgment against Wall Street LLC in favor of Smith, properly issued by a Court of Equity as a final Judgment in fact invalidate the Deed of Trust?

The opinions of every person so far who understands the above scenario, as well as the Tile Insurer, is that original Deed of Trust is void.

It's late in the day and I realize my spelling, grammer and logic may not be as sharp as it would be at 8 am in the morning.




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Ken,

What a cluster F**k of a mess all for taking out a loan! I may end up having to read this one a couple of times. What's the rhyme and riddle to this one? Sorry! Trying to put some humor into what they've made a horrible business of...

Then they wonder why no one can figure it out!

Be Blessed,

Kathy
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Here's a little secret - it's all true.  The entire mess will be published mid-summer.

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The Equitable One
Ken,

You had some fun coming up with all those ficticious names, didn't you? LOL

I'm involved in a similar situation. Considering a quiet title action myself.
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Ya I did (creating the names)!  Too much caffeiene I guess.

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Knows About Notes
Ken:

That's what I'm talking about, man!!  You the MAN!

I would think that the recorded judgment pretty much extinguishes the deed of trust.  But liability under the now unsecured promissory note may still remain.

I would add a couple of cautions. 

First, IF you are in a state that recognizes a homestead right, you need to check right away to see whether you can declare Blackacre as your homestead.

Next, I would suggest that you carefully check the laws relating to limitations on causes of action on negotiable instruments.  These vary considerably from jurisdiction to jurisdiction.  And rules as to WHEN the limitations period begins also VARY WIDELY.  

In some states, you may find that there is a relatively SHORT limitations period of two to four years, after which a note holder CANNOT bring suit on the negotiable instument.  And in many states a default coupled with a declaration of acceleration may TRIGGER the beginning of the limitations period.  In other places the limitations period might be measured from the due date of each missed payment, absent some loan modification agreement containing an acknowledgement and ratification of amounts owed.

It is UNCLEAR what legal effect a cancellation of acceleration would have.  IF you resumed paying, then I would expect it would be effective.  IF you remained in default and did NOT PAY, then I am uncertain that the asserted cancellation of acceleration would have ANY legal effect.  This is an area of the law I have not studied or briefed.  I would think that the actual case law might vary widely from state to state. 

The scenario you describe would certainly seem to have taken some time.

It occurs to me that publication of additional details of your remarkable case might be premature if you have a chance at running out a limitations period on the promissory note.

Best of luck to you!  And thank you for your thoughtful contributions to the MS Fraud Forum!
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Thanks for the insight.  Securitized notes seem to be an odd beast.  Looking through Arizona cases regarding enforcement of notes secured by single family homes, rarely, if ever, so I see references by the Plaintiff (or Defendant) to the Uniform Commerical Code.  Arizona Revised States Title 47 et. seq. is a restatement of the U.C.C.  I have been perplexed at so little use of the U.C.C. regarding residential note enforcement.

I looked up the ARS Title 47 section that defines a nogotiable instrument.  Here is the verbiage:  (More comments follow)

47-3104. Negotiable instrument

A. Except as provided in subsections C and D, "negotiable instrument" means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:

1. Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;

2. Is payable on demand or at a definite time; and

3. Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain:

(a) An undertaking or power to give, maintain or protect collateral to secure payment;

(b) An authorization or power to the holder to confess judgment or realize on or dispose of collateral; or

(c) A waiver of the benefit of any law intended for the advantage or protection of an obligor.

B. "Instrument" means a negotiable instrument.

C. An order that meets all of the requirements of subsection A, except paragraph 1, and otherwise falls within the definition of "check" in subsection F is a negotiable instrument and a check.

D. A promise or order other than a check is not an instrument if, at the time it is issued or first comes into possession of a holder, it contains a conspicuous statement, however expressed, to the effect that the promise or order is not negotiable or is not an instrument governed by this chapter.

E. An instrument is a "note" if it is a promise and is a "draft" if it is an order. If an instrument falls within the definition of both "note" and "draft", a person entitled to enforce the instrument may treat it as either.

F. "Check" means:

1. A draft, other than a documentary draft, payable on demand and drawn on a bank; or

2. A cashier's check or teller's check.

An instrument may be a check even though it is described on its face by another term, such as "money order".

G. "Cashier's check" means a draft with respect to which the drawer and drawee are the same bank or branches of the same bank.

H. "Teller's check" means a draft drawn by a bank:

1. On another bank; or

2. Payable at or through a bank.

I. "Traveler's check" means an instrument that:

1. Is payable on demand;

2. Is drawn on or payable at or through a bank;

3. Is designated by the term "traveler's check" or by a substantially similar term; and

4. Requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument.

J. "Certificate of deposit" means an instrument containing an acknowledgment by a bank that a sum of money has been received by the bank and a promise by the bank to repay the sum of money. A certificate of deposit is a note of the bank.

I can only presume that mortgage lenders don't want to see the large body of law surrounding the U.C.C. to get into their cases.  That's just a guess on my part.

If a person was to look at ARS Title 47 for guidance on the statute of limitations upon when an action can be brought to enforce a note, the rules are six (6) years after acceleration, or, when the past payment was made.

However, as is being discussed here, a Note left after a Quiet Title Judgment appears to be unsecured.  An interesing hypothesis would be a homeowner who fits the scenario discussed herein, who, after perfecting Quiet Title and obtaining Title Insurance to make the title marketable, obtains a NEW mortgage - hopefully close to the entire value of the home.  It seems to me the new secured note stands ahead of the old unsecured note, as least as it concerns use of the home as collateral for the NEW note.  The unsecured note holder is placed into the position of fighting the new secured note holder.  Where's that Red Kryptonite when you need it?

The conumdrum for holders of securitzed notes is how do they enforce an unsecured note?  The note is literally owned by hundreds or thousands of bond holders.  I don't have a good handle on REIT laws but it would seem the note would have to be OUT of the trust before it could be enforced.  Most of the REIT aagreements I have seen don't allow individual certificate holders to sue on behalf or the REIT, or, if they can sue, the certificate holders must meet some huge hurdle regarding the holders coming together as a large group and indemnifying the Trustee (as well as paying the expenses of the suit).  The certificate holders suing as a group opens an even larger can of worms.  They would either have to sue as individuals, a names group, or as the Trust.  Suing as the Trust would be perfect as that would allow you to attack the actual Trust.  I can not imagine any lawyer dumb enough to advise a bankruptcy remote Trust to open its pants as a Plaintiff.

I leave everyone with this thought.  Let's say Smith obtains Quiet Title, all of the facts mentioned above (the 'scenario') are taken as true, and, most importantly the cancellation of acceleration, default, etc. are known to all actors; YET, the Trustee reports the Note as 'performing' to the certificate holders notwithstanding no payments received and title no longer vesting in the name of the Trust.  Securities fraud???

My head is spinning on my neck and my dogs look at me funny as I speak in tongues...!

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5-Star Management, Inc. v. Rogers, 940 F.Supp. 512 (E.D.N.Y., 1996)

940 F.Supp. 512

5-STAR MANAGEMENT, INC., Plaintiff,
v.
John A. ROGERS, Albuquerque Allsuite Associates, Alfred Denendorf, Associated Plastic Surgeons & Consultants, P.C., Schenck Fuels, Inc., Incorporated Village of the Branch, Huntington Hospital Association, The First National Bank of Chicago, Chemical Bank, "John Doe # 1" To "John Doe # 50," Both Inclusive, The Names Of The Last 50 Defendants Being Fictitious, Said Defendants' True Names Being Thereby Intended To Designate Parties With Liens That Are Subject And Subordinate To The Lien Of The Mortgage Being Foreclosed Herein And Tenants, Lessees, Or Occupants Of Portions Of The Mortgaged Premises Described In The Complaint, Defendants.

No. 95-CV-3121 (JS) (ETB).

United States District Court, E.D. New York.

September 25, 1996.
Page 513

COPYRIGHT MATERIAL OMITTED

Page 514

Joseph J. Ortego, Kevin McElroy, Rivkin, Radler & Kremer, Uniondale, NY, for plaintiff.

Mark C. Dow, Mark C. Dow, P.A., Albuquerque, NM, Lawrence S. Rosen, Kupfer & Rosen, New York City, Christopher P. Bauman, Thomas & Bauman, P.C., Albuquerque, NM, for defendants.

MEMORANDUM AND ORDER
SEYBERT, District Judge:

This is a mortgage-foreclosure action, based upon diversity jurisdiction, that has been commenced by plaintiff 5-Star Management, Inc. ["5-Star"] to enforce its rights pursuant to a mortgage, given by defendant John A. Rogers, that plaintiff holds on certain real property located in East Hampton, New York. As a result of the default of codefendant Albuquerque Allsuite Associates ["Allsuite"] on its obligations pursuant to a promissory note that is secured by Rogers' East Hampton property, plaintiff 5-Star brought this action to foreclose on the mortgage securing said property. In addition to defendants Rogers and Allsuite, the complaint names as defendants a number of persons and entities that have interests in the East Hampton property.

Pending before the Court are two separate motions. First, defendant Allsuite moves to dismiss this action against it for lack of personal jurisdiction. Second, defendants Rogers and Allsuite move to dismiss the complaint for failure to state a cause of action, or alternatively to transfer this case to the United States District Court for the District of New Mexico.

FACTUAL BACKGROUND
On or about August 13, 1984, for value received, Albuquerque Allsuite Partners, Ltd. and Allsuite Management Company duly executed and delivered to Albuquerque Federal Savings and Loan Association ["AFS & L"] a demand note whereby they promised to pay the principal sum of $400,000.00 with interest thereon. Compl. ¶ 23. The remaining principal on this note was later restructured pursuant to a Master Loan Agreement dated January 27, 1988. Compl. ¶ 28, Ex. D. As collateral security for the payment of the demand note, Rogers executed and delivered to AFS & L a mortgage dated August 13, 1984, whereby he mortgaged his East Hampton property in fee [the "Mortgage"]. Compl. ¶ 24, Ex. B. The note and Mortgage were given to AFS & L as constituent parts of a Loan Consolidation Agreement dated August 13, 1984 between AFS & L and Allsuite. Compl. ¶ 26.

In 1988, Allsuite duly executed and delivered to AFS & L a promissory note [the "Note"] whereby it promised to pay the principal sum of $520,000.00 with interest thereon. Compl. ¶ 27, Ex. C. The Note was given pursuant to the terms of a Master Loan Agreement (restructuring and extending the outstanding indebtedness) dated January 27, 1988, and was secured by the Mortgage. Compl. ¶ 28, Ex. D.

On or about July 18, 1991, for purposes of modifying and restating the notes and mortgages described herein, defendant Allsuite executed, duly acknowledged and delivered to the Resolution Trust Corporation ["RTC"], as Receiver for ABQ Federal Savings Bank, successor in interest to AFS & L, an Agreement Modifying and/or Restating Notes, Loan Agreement, Mortgage, Security Agreement and Deeds of Trust [the "Modification Agreement"] whereby said notes and mortgages were modified and restated. Compl. ¶ 29, Ex. E. The Modification Agreement specifically provided that all state-law issues of construction with respect to the documents thereby modified (including the Mortgage) would be determined under the laws of the State of New Mexico. Compl.Ex. E ¶ 27, at 23.

On or about July 18, 1991, as part of the consideration for the making of the Modification Agreement, Rogers duly executed, acknowledged and delivered to RTC an Unconditional Continuing Guaranty [the "Guaranty"] wherein he unconditionally guaranteed the "full and prompt payment, performance and discharge (whether by acceleration or otherwise) of Three Million

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Dollars ($3,000,000.00) of the total of any and all present and future indebtedness, obligations and liabilities of [Allsuite]...." Compl. ¶ 32, Ex. G ¶ 1, at 1.

By Assignment of Mortgage dated January 11, 1995, RTC, for value received, assigned its interest in and to the Mortgage to plaintiff. Compl. ¶ 31, Ex. F. In addition, by Quitclaim Assignment and Assumption of Rights Under Agreement, dated January 11, 1995, RTC assigned its interest in and to the Guaranty to plaintiff. Compl. ¶ 33, Ex. H.

Defendant Allsuite did not comply with the terms and conditions of the applicable note as it failed to pay all unpaid principal, interest, and other fees and charges due and owing on the maturity date of the note, August 1, 1992. Compl. ¶ 36. This default continued for a substantial period of time through and including January 11, 1995, the date that RTC assigned the Mortgage to plaintiff.

By letter dated May 18, 1995, plaintiff 5-Star gave defendants Rogers and Allsuite written notice of the events of default and demanded that said default be remedied by June 5, 1995. Compl. ¶ 39, Ex. I. Thereafter, by letter dated June 6, 1995, 5-Star gave written notice of its demand for payment and declared the entire amount secured by the Mortgage immediately due and payable. Compl. ¶ 40, Ex. J. As of June 5, 1995, the balance of principal and interest and other charges due and owing, and secured by the Mortgage, totalled $477,500.00. Compl. ¶ 41. On August 3, 1995, plaintiff filed the instant mortgage-foreclosure action in this Court.

The Court notes that the complaint does not specifically allege that plaintiff is the holder of the promissory note secured by the Mortgage.

Pending before the Court are two separate motions. First, defendant Allsuite moves pursuant to Fed.R.Civ.P. 12(b)(2) to dismiss this action against it for lack of personal jurisdiction. Second, defendants Rogers and Allsuite move pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the complaint for failure to state a claim on the grounds that, under New Mexico law, the mortgage that plaintiff holds is unenforceable because plaintiff is not the holder of the underlying promissory note secured by said mortgage. With respect to this second application, the parties do not dispute that New Mexico law applies to this case and that the Supreme Court of New Mexico has not spoken concerning this issue. In the alternative, Rogers and Allsuite seek to transfer this case to the United States District Court for the District of New Mexico pursuant to 28 U.S.C. § 1404(a).

DISCUSSION
I. Allsuite's Motion to Dismiss for Lack of Personal Jurisdiction

Defendant Allsuite, a New Mexico joint venture, moves pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure to dismiss plaintiff's complaint against it for lack of personal jurisdiction. In support of its application, Allsuite asserts that the complaint fails to make a prima facie showing that this Court has personal jurisdiction over it because Allsuite conducts no business in New York and has no contacts with New York, and moreover because the underlying loan transactions were negotiated, executed and delivered in New Mexico. Plaintiff, in turn, contends that this Court has personal jurisdiction over Allsuite on the basis that Rogers, Allsuite's general partner, used real property located in New York State on Allsuite's behalf while acting as Allsuite's agent. More specifically, plaintiff contends that by using real property located in New York [the "New York Property"] as collateral to secure the loan made to Allsuite that is the subject of this action, Allsuite, through the acts of its agent Rogers, rendered itself amenable to suit on causes of action stemming from that loan.

"In order to defeat a motion to dismiss for lack of personal jurisdiction ..., plaintiff must make a prima facie showing of facts that, if credited by the trier of fact, would suffice to establish jurisdiction over the defendant."1 Bicicletas Windsor, S.A. v.

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Bicycle Corp., 783 F.Supp. 781, 783 (S.D.N.Y. 1992); Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 (2d Cir.1994); Volkswagen De Mexico, S.A. v. Germanischer Lloyd, 768 F.Supp. 1023, 1027 (S.D.N.Y. 1991). In making this determination, "[a]ll pleadings and affidavits must be construed in the light most favorable to plaintiff[] and all doubts resolved in [its] favor." Volkswagen De Mexico, 768 F.Supp. at 1027.

The determination of whether the Court has personal jurisdiction over Allsuite involves two distinct steps. First, the acts of the non-domiciliary defendant must be within the scope of New York's long-arm statute. Second, personal jurisdiction must comport with the Due Process Clause of the Fifth and Fourteenth Amendments. See Marriott PLP Corp. v. Tuschman, 904 F.Supp. 461, 464 (D.Md.1995), aff'd, No. 96-1659, 1996 WL 534421 (4th Cir. Sept. 19, 1996). The Court will examine each of these issues seriatim.

A. Analysis Under CPLR § 302
New York's long-arm statute is set forth in N.Y.Civ.Prac.L. & R. [CPLR] § 302. This statute provides, in pertinent part:

(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary ... who in person or through an agent:

(4) owns, uses or possesses any real property situated within the state.

CPLR § 302(a)(4). In view of the above statutory language, two questions emerge. First, did Allsuite own, use, or possess real property situated in New York? Second, did the cause of action arise from said real property situated in New York?

Under the circumstances of this case, in order to determine whether Allsuite used real property located in New York, it first must be shown that John A. Rogers acted as an agent for Allsuite in connection with his encumbering of his New York Property with a mortgage as collateral to secure a loan that was made to Allsuite. "Although the New York courts have not marched to the beat of a single drummer when construing section 302, they have customarily interpreted the term `agent' fairly broadly...." Grove Press, Inc. v. Angleton, 649 F.2d 121, 122 (2d Cir.1981). "To constitute an agent for the purposes of [CPLR § 302], the alleged agent must have engaged in purposeful activities in [New York] State for the benefit of and with the knowledge and consent of the non-domiciliary and the non-domiciliary must exercise some element of control over the agent." Teachers Ins. and Annuity Ass'n v. Butler, 592 F.Supp. 1097, 1101 (S.D.N.Y. 1984); CutCo Indus. v. Naughton, 806 F.2d 361, 366 (2d Cir.1986); Mayes v. Leipziger, 674 F.2d 178, 181-82 (2d Cir.1982); Grove Press, 649 F.2d at 122; East New York Savings Bank v. Republic Realty Mortgage Corp., 61 A.D.2d 1001, 402 N.Y.S.2d 639, 641 (2d Dep't 1978). Moreover, "the formal trappings of agency are not as important as the realities of the situation." Teachers Ins., 592 F.Supp. at 1102; see Mayes, 674 F.2d at 181-82; New York Marine Managers, Inc. v. M.V. "TOPOR-1", 716 F.Supp. 783, 785 (S.D.N.Y.1989).

Rogers is the acting general partner for Allsuite. By virtue of his position as general partner, Rogers participated fully in the profits, losses and management of the joint venture. In analyzing the realities of the situation, it appears that Rogers purposefully used his real property located in New York to secure a loan made to Allsuite, and that such actions were done with the knowledge and consent of Allsuite. Indeed, had Rogers' New York Property not been employed as collateral, Allsuite would not have been able to obtain the subject financing. The realities of the situation therefore suggest that Allsuite had knowledge of Rogers' actions, consented to his actions, and benefitted from his actions.

Plaintiff also has made a prima facie showing that Allsuite exercised control over Rogers' actions. "Under traditional agency law, joint participation in a partnership or joint venture establishes `control' sufficient to

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make each partner or joint venturer an agent of the others." CutCo Indus., 806 F.2d at 366. Because Rogers was the acting general partner for the joint venture, his contacts with New York in the course of doing business for the joint venture are properly attributed to Allsuite. See id.

In addition, the Court finds that the present litigation arises from Allsuite's use of the New York Property. In this regard, plaintiff brings this action to foreclose on a mortgage that secured various loans made to Allsuite. According to the complaint, Allsuite's default on a loan secured by the New York Property directly resulted in 5-Star's exercise of its right of foreclosure pursuant to the applicable loan agreement. Thus, this Court concludes that the present action arises from real property situated in New York which Allsuite used. Accordingly, plaintiff has succeeded in making a prima facie showing of personal jurisdiction over Allsuite under CPLR § 302(a)(4).

B. Due Process Analysis
Plaintiff also has succeeded in making a prima facie showing that this Court's exercise of personal jurisdiction over Allsuite is consistent with the Due Process Clause of the Fifth and Fourteenth Amendments. Due process requires that the defendant have "certain minimum contacts with [the forum state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." International Shoe Co. v. State of Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). Where, as in the instant case, specific jurisdiction is asserted, this Court2 is allowed "to exercise `personal jurisdiction over a defendant in a suit arising [out of] or related to the defendant's contacts with the forum.'" Loral Fairchild Corp. v. Victor Co., 803 F.Supp. 626, 631 n. 10 (E.D.N.Y. 1992) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 n. 15, 105 S.Ct. 2174, 2182 n. 15, 85 L.Ed.2d 528 (1985)). This condition is met here because this action arises from Allsuite's single contact with New York State, specifically, the use of real property located in New York State.

In addition, defendant Allsuite's contacts with New York, through the acts of its agent Rogers, are such that it "should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980). Indeed, Allsuite purposefully availed itself of the benefits and protection of the laws of New York by using the New York Property to secure a note, the obligations and remedies of which are the subject of this action. See Burger King, 471 U.S. at 475, 105 S.Ct. at 2183 (citing Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774, 104 S.Ct. 1473, 1478, 79 L.Ed.2d 790 (1984); World-Wide Volkswagen, 444 U.S. at 299, 100 S.Ct. at 568). Accordingly, Allsuite's joinder as a defendant in this action is consistent with due process.

II. Rogers' and Allsuite's Motion to Dismiss For Failure to State a Cause of Action

Defendants Rogers and Allsuite move pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the complaint against them for failure to state a claim on the grounds that, under New Mexico law, the mortgage that plaintiff holds is unenforceable because plaintiff is not the holder of the underlying promissory note secured by such mortgage. With respect to this issue, the parties do not dispute that New Mexico law applies to this case3 and that the Supreme Court of New Mexico has not spoken concerning this issue.

A. Standards Governing Rule 12(b)(6) Motion to Dismiss and Judicial Notice
A district court should grant a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure only if "`it is clear that no relief could be granted under any set

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of facts that could be proved consistent with the allegations.'" H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S.Ct. 2893, 2906, 106 L.Ed.2d 195 (1989) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)). In applying this standard, a district court must "read the facts alleged in the complaint in the light most favorable" to the plaintiff, and accept these allegations as true. Id., 492 U.S. at 249, 109 S.Ct. at 2906; Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168, 113 S.Ct. 1160, 1163, 122 L.Ed.2d 517 (1993) (citing Fed.R.Civ.P. 8(a)(2) to demonstrate liberal system of `notice pleading' employed by the Federal Rules of Civil Procedure).

In connection with their motion to dismiss, defendants Rogers and Allsuite have attached pleadings, motion papers, and a transcript from other judicial proceedings. In this regard, the Court takes judicial notice, pursuant to Rule 201 of the Federal Rules of Evidence, that two related actions have been commenced in respect of the same underlying obligation that is secured by the mortgage in question. First, on November 7, 1995 (more than three months after the instant action was commenced), Rogers and Allsuite filed a declaratory-judgment suit in the United States District Court for the District of New Mexico against 5-Star with respect to the mortgage in question in the present action. See Rogers Aff.Ex. A (copy of complaint). Upon 5-Star's motion, see Dow Aff.Ex. C, the New Mexico federal district court determined that it lacked personal jurisdiction over 5-Star, and transferred said case to the Eastern District of New York pursuant to 28 U.S.C. § 1631. See Rogers v. 5-Star Management, Inc., Civ. No. 95-1331 BB/WWD, at 1, ___ F.Supp. ___ [1996 WL 673491] (D.N.M. May 20, 1996).

Second, an action is pending in New Mexico state court, Second Judicial District Court, County of Bernalillo, which is entitled Bank of America National Trust and Savings Association v. Albuquerque Allsuite Associates and John A. Rogers et al., CV-95-09776 [the "State Court Action"]. According to the complaint in the State Court Action, Bank of America National Trust and Savings Association ["Bank of America"] seeks to foreclose on a mortgage given by Rogers on certain real estate located in Albuquerque, New Mexico. Id. Compl. ¶ 12 (Dow Aff.Ex. B). This action is noteworthy because at a hearing held therein on January 2, 1996, Hayward Taylor, the president of 5-Star, admitted under oath that 5-Star is not in possession of the note being sued upon in the present action and that it filed its complaint in this action without possessing or holding said note. Id. Dow Aff.Ex. A, at 22. The plaintiff has not disputed the authenticity of the transcript containing said admission, which was attached by the defendants as an exhibit in support of their motion to dismiss, or defendants' description of who Mr. Taylor is and the factual significance of his testimony.4 Rather, plaintiff's contentions focus instead upon the legal ramifications attending 5-Star's lack of actual physical possession of the note in question.

The issue arises as to whether it is appropriate for this Court to consider Taylor's statement at the hearing in the State Court Action for the truth of the matter asserted, to wit, that plaintiff lacks actual physical possession of the note in question. This concern arises because, if on a motion pursuant to Fed.R.Civ.P. 12(b)(6), "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Fed.R.Civ.P. 12(b).

When presented with a motion to dismiss, this Court "is permitted to take judicial notice of matters of public record," Clarry v. United States, 891 F.Supp. 105, 109 (E.D.N.Y.1995), aff'd, 85 F.3d 1041 (2d Cir. 1996), including "the fact of such litigation and related filings." City of Amsterdam v. Daniel Goldreyer, Ltd., 882 F.Supp. 1273, 1279 (E.D.N.Y.1995); see Marshall County

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Health Care Auth. v. Shalala, 988 F.2d 1221, 1222 (D.C.Cir.1993). Judicial notice, however, generally does not extend to the truth of the matter asserted in the other litigation. See City of Amsterdam, 882 F.Supp. at 1278-79. This is consistent with Fed.R.Evid. 201(b) which provides, in pertinent part, that "[a] judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b). Further, as a safeguard against a court's improvident application of judicial notice, Fed.R.Evid. 201(e) provides that "[a] party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken." Fed.R.Evid. 201(e). Rule 201, however, does not specifically address the circumstances of the case at bar wherein plaintiff's principal has made a critical admission in another judicial proceeding that bears substantially upon the legal sufficiency of its complaint in the present action, and the plaintiff, upon adequate notice, neither has contested the defendants' factual characterization of its principal's admission nor has sought to convert defendants' motion to dismiss into a motion for summary judgment.

Applying these principles to the unique circumstances presented in the case at bar, the Court regards it to be appropriate to consider Taylor's admission for the truth of the matter asserted — i.e., 5-Star's failure to possess the note in question at all relevant times — and that such may be considered by the Court without converting defendants' motion to dismiss into a motion for summary judgment. In reaching this determination, the Court finds that plaintiff had sufficient notice of the defendants' intention that this Court take judicial notice of its principal's admission in the State Court Action, and the factual significance that the defendants sought to attach to this admission. In view of plaintiff's failure to object, and moreover in the absence of any allegation within its complaint that plaintiff holds the promissory note in question, the Court concludes, for purposes of construing the complaint, that plaintiff does not allege actual physical possession of the promissory note that is secured by the mortgage upon which it seeks to foreclose. As subsequently will be discussed, this determination, in view of the allegations of plaintiff's complaint, holds considerable significance in leading the Court to dismiss the complaint. Nevertheless, consistent with Fed.R.Evid. 201(e), the Court shall not regard this finding in respect of the present complaint to constitute "the law of the case," and any disagreement with the taking of said judicial notice may be addressed by the plaintiff in an amended complaint. See also O'Brien v. DiGrazia, 544 F.2d 543, 546 n. 3 (1st Cir.1976) (An omission of ultimate fact regarding a pivotal element of a pleader's claim justifies the court to assume the non-existence of the operative fact.), cert. denied, 431 U.S. 914, 97 S.Ct. 2173, 53 L.Ed.2d 223 (1977); Ledesma for Ledesma v. Dillard Dep't Stores, Inc., 818 F.Supp. 983, 984 (N.D.Tex.1993) (same).

B. Analysis of Rule 12(b)(6) Motion to Dismiss
In support of their motion to dismiss plaintiff's complaint, defendants Rogers and Allsuite contend that under New Mexico law an assignment of a mortgage without the note is a nullity. Although recognizing that the New Mexico Supreme Court has not spoken on this issue, the defendants assert that this Court, sitting in diversity jurisdiction, in predicting New Mexico law should follow the decisive weight of authority which would regard plaintiff's failure to allege that it possesses the underlying promissory note to be fatal to the legal sufficiency of the complaint.

This Court must apply New Mexico substantive law because the Modification Agreement provides that New Mexico law will govern any dispute arising thereunder. See Compl.Ex. E ¶ 27, at 23. In this regard, "[f]ederal courts sitting in diversity cases will, of course, apply the [choice-of-law rules] of the forum State on outcome determinative issues." Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir.1994) (citing

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Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). Further, "[i]t is well established that the court will honor the parties' choice of law where there is a reasonable basis for the choice or the chosen State has some relation to the agreement." Depositors Trust Co. v. Hudson Gen. Corp., 485 F.Supp. 1355, 1359 (E.D.N.Y. 1980). Thus, because New York courts would apply New Mexico law in determining the rights of the parties to the present dispute, this Court must predict how the Supreme Court of New Mexico would rule on the substantive issues presented in the defendants' motion to dismiss. See Travelers, 14 F.3d at 119.

The task of predicting New Mexico law is rendered somewhat more difficult here because, as the parties agree, the Supreme Court of New Mexico has not addressed the precise issue of whether a mortgage may be foreclosed upon when the holder of such mortgage is not in possession of the underlying note. In addition, it does not appear that the lower courts of New Mexico have addressed this issue either.

In ascertaining a particular state's substantive law when the highest court of that state has not spoken, a federal court should "consider relevant cases from jurisdictions other than [the subject state] in an effort to predict `what would be the decision of reasonable intelligent lawyers,' sitting as judges of the highest ... court [of that state], and fully conversant with [such state's] jurisprudence." Id.

Although the New Mexico Supreme Court has not ruled on this issue, the decisive weight of authority within other jurisdictions holds that an assignment of a mortgage without the underlying debt is a nullity, and therefore unenforceable, unless the promissory note in question has been lost or destroyed, or the original contracting parties intended the mortgage to be independently enforceable. See 55 Am.Jur.2d: Mortgages § 1283, at 1038-39 (1971); 59 C.J.S. Mortgages § 356, at 504-07 (1949); Federal Deposit Ins. Corp. v. Bracero & Rivera, Inc., 895 F.2d 824, 827 (1st Cir.1990) (applying Puerto Rico law); Brunn v. Wichser, 75 F.2d 25, 27 (3d Cir.1934) (applying Pennsylvania law); In re Leisure Time Sports, Inc., 194 B.R. 859, 861 (9th Cir. BAP 1996) (applying California law); United States v. Freidus, 769 F.Supp. 1266, 1277-78 (S.D.N.Y.1991) (applying New York law); In re BNT Terminals, Inc., 125 B.R. 963, 970-71 (Bankr. N.D.Ill.1990) (applying Illinois and Nebraska law); In re Hurricane Resort Co., 30 B.R. 258, 260-61 (Bankr.S.D.Fla.1983) (applying Florida law); South Carolina Nat'l Bank v. Halter, 293 S.C. 121, 359 S.E.2d 74, 77 (1987) (applying South Carolina law); Barton v. Perryman, 265 Ark. 228, 577 S.W.2d 596, 600 (1979) (applying Arkansas law); Rockford Trust Co. v. Purtell, 183 Ark. 918, 39 S.W.2d 733, 736 (1931) (applying Arkansas law); Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d 92, 93 (2d Dep't 1988) (applying New York law); Beak v. Walts, 266 A.D. 900, 42 N.Y.S.2d 652, 653 (4th Dep't 1943) (per curiam) (applying New York law); Merritt v. Bartholick, 36 N.Y. 44, 51 (1867) (applying New York law); Kawai Am. Corp. v. Hilton, 205 A.D.2d 1021, 613 N.Y.S.2d 989, 991 (3d Dep't 1994) (applying New York law) (exception where intent of the original contracting parties overrode the default rule), leave to appeal dismissed, 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 (1996); Felin Assocs. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d 413, 415 (1st Dep't 1971) (applying New York law) (exception where note was lost).

The reasoning behind the default rule was stated In re Hurricane Resort Co., 30 B.R. 258 (Bankr.S.D.Fla.1983): "To allow the assignee of a security interest to enforce the security agreement would expose the obligor to a double liability, since a holder in due course of the promissory note clearly is entitled to recover from the obligor." Id. at 261. Thus, the default rule gives effect to the likely intent of the contracting parties which would protect the maker of a note, who also issues a mortgage, from being exposed to liability twice in respect of the same underlying debt. The consequences of a separation of a mortgage from the note is amply illustrated in the case at bar wherein the pendency of two separate actions in respect of the same underlying obligation threatens Rogers and Allsuite with double liability; a result that probably was not intended at the

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time that the original bargains culminating in the issuance of these respective instruments were struck. At the very least, such intent of the contracting parties to the Modification Agreement has not been pleaded in the complaint at bar.5

Contrary to the view expressed by the defendants in an apparent attempt to anticipate plaintiff's argument, this Court regards New York law to be consistent with the majority default rule that an assignment of a mortgage unaccompanied by the note that it secures is a nullity, absent a contrary intent of the original contracting parties. In this regard, the New York Court of Appeals has held that

a transfer of the mortgage, without the debt, is a nullity, and no interest is acquired by it.... [T]he legal maxim is, the incident shall pass by the grant of the principal, but not the principal, by the grant of the incident. So that, unless we are authorized to say, that such was the intent of the parties, we cannot hold that it did.

Merritt v. Bartholick, 36 N.Y. 44, 51 (1867) (emphasis in original); see Freidus, 769 F.Supp. at 1277-78; Kluge, 536 N.Y.S.2d at 93; Felin Assocs., 326 N.Y.S.2d at 415; Beak, 42 N.Y.S.2d at 653.

Further, the Court regards those New York cases which defendants assert to depart from this principle to fall within the rubric of construing the intent of the original contracting parties in light of the unique factual circumstances presented therein. For example, Felin Assocs. v. Rogers, 38 A.D.2d 6, 326 N.Y.S.2d 413 (1st Dep't 1971), an assignment of the note along with the mortgage was an impossibility because the original note had been lost. The assignor instead issued a replacement note to the assignee. See id., 326 N.Y.S.2d at 414. The court based its holding — that physical delivery of the original note was not necessary for the subject mortgage to be enforceable, in compliance with the New York Real Property Law — on the ground that "there [was] no doubt that there [was] an intent to so transfer the interest in the note and mortgage." Id., 326 N.Y.S.2d at 415. In explicating the limited scope of its analysis, the Felin court stated, "we do agree with the plaintiff ... [that] in ordinary circumstances the mortgagee should also be required to transfer and deliver the mortgage and the original bond or note." Id.

The defendant also cites Kawai America Corp. v. Hilton, 205 A.D.2d 1021, 613 N.Y.S.2d 989 (3d Dep't 1994), leave to appeal dismissed, 87 N.Y.2d 968, 642 N.Y.S.2d 196, 664 N.E.2d 1259 (1996), as authority that New York does not adhere to the majority rule. That case likewise is distinguishable from the facts alleged in the complaint at bar. In Kawai, the defendant executed a series of one-year agreements from 1984 through 1990 in connection with the shipment of merchandise. See id., 613 N.Y.S.2d at 990-91. In 1989, certain of the defendants issued a mortgage as additional security for a shipment of merchandise valued in excess of $50,000. See id. 613 N.Y.S.2d at 991. The defendants claimed that a promissory note was never issued to the plaintiff as a result of disputes that had arisen between the parties. See id. The court found the mortgage to be enforceable, holding that "[w]hen an obligation secured by a mortgage exists aside from the note or bond, the mortgage is not invalidated by the invalidity of the note or bond manifesting the debt." Id. The circumstances at issue in Kawai present a substantially different situation from the successive-assignment scenario in the case at bar. See id. This conclusion obtains because, in Kawai, the mortgage was held by the same party that was a promisee of a commercial transaction for the shipment of goods, the enforceability of which was independently determinable without reference to a promissory note. See id.

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The plaintiff does not disagree with the above analysis of the law but contends that its status as holder of the note in question may be construed from its allegation in the complaint that the RTC assigned its interest in and to the mortgage in question to 5-Star by Assignment of Mortgage dated January 11, 1995. See Compl. ¶ 31. Specifically, in its complaint, 5-Star cited Exhibit F thereof for reference to such assignment. See id. That exhibit, entitled "Assignment of Mortgage or Beneficial Interest in Deed of Trust" [the "Assignment"], includes the following language:

For value received, the undersigned assignor ... does hereby grant, bargain, sell, assign, transfer and convey to the following assignee: Five Star Management ... all of Assignor's right, title and interest in and to that certain Mortgage ... which encumbers the real property ... together with all the indebtedness currently due and to become due under the terms of any promissory note or evidence of indebtedness secured thereby.

Compl.Ex. F, at 1 (emphasis added). According to the plaintiff, because the Assignment explicitly states that all the indebtedness secured thereby was assigned along with the mortgage, "5-Star clearly has alleged its possession of the Note." Pl.'s Mem. of Law, at 5.

The chief difficulty with the plaintiff's argument is that the factual inference which it requests the Court to draw — that it has possession of the Note — is contradicted by its principal's admission in a judicial proceeding of which this Court has taken judicial notice. The Court therefore regards it to be inappropriate to draw this inference in favor of the plaintiff on the present motion to dismiss absent an express allegation in the complaint, made in accordance with Fed.R.Civ.P. 11, that supports it. Moreover, the complaint does not allege that the promissory note in question has been lost or destroyed so as to prevent Rogers from being exposed to double liability in respect of the same underlying obligation. See Felin, 326 N.Y.S.2d at 415 (where original note was lost and therefore rendered impossible to negotiate, mortgage securing such note was enforceable). Furthermore, the complaint does not allege that the original contracting parties, in entering into the Modification Agreement in 1991, specifically intended to expose Rogers and Allsuite to double liability, contrary to the default rule, in the event that different parties came into possession of the note and the mortgage in question. In view of these circumstances, the Court regards the better route to be to dismiss plaintiff's complaint against defendants Rogers and Allsuite with leave to file an amended complaint. Such amended complaint must be served and filed within 45 days of the date that this Memorandum and Order is docketed, and should give proper regard to both the analysis stated herein and the parol evidence rule.6

CONCLUSION
For the foregoing reasons, the Court enters the following orders in this action:

1. Defendant Allsuite's motion to dismiss this action against it for lack of personal jurisdiction is DENIED.

2. Defendants Rogers' and Allsuite's motion to dismiss the complaint for failure to state a claim is GRANTED. Said dismissal shall be with leave to file an amended complaint, which must be served and filed within 45 days of the date that this Memorandum and Order is docketed.

3. In the event that plaintiff does not file an amended complaint within the time parameters established by the Court, plaintiff shall promptly notify the Court in writing of its decision to that effect and state whether it wishes to continue this action against the other named defendants who have not joined

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in the subject motions to dismiss. Failure to notify the Court in accordance herewith will result in the dismissal of this action in its entirety without prejudice, as against all defendants, for want of prosecution.

SO ORDERED.

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Notes:

1. "If, however, the district court holds an evidentiary hearing, the plaintiff must demonstrate personal jurisdiction by a preponderance of the evidence." Robinson v. Overseas Military Sales Corp., 21 F.3d 502, 507 n. 3 (2d Cir.1994) (citing CutCo Indus. v. Naughton, 806 F.2d 361, 364 (2d Cir.1986)) (other citation omitted). In the instant case, because the Court has not held an evidentiary hearing, plaintiff is only required to make a prima facie showing of personal jurisdiction over Allsuite.

2. A federal district court has personal jurisdiction over a defendant who could be subjected to the jurisdiction of a state court in the state in which the district court is located. See Fed. R.Civ.P. 4(k)(1)(A); Marriott PLP Corp., 904 F.Supp. at 464.

3. As previously discussed, the Modification Agreement specifically provided that all state-law issues of construction with respect to the documents thereby modified (including the Mortgage) would be determined under New Mexico law. See Compl.Ex. E ¶ 27, at 23.

4. In addition, the plaintiff did not address these issues at oral argument.

5. The Court observes that a determination that the mortgage at issue, having been separated from the underlying promissory note, may be unenforceable would not leave the plaintiff in possession of a worthless instrument. This conclusion obtains because the plaintiff presumably can sell the mortgage to the holder of the underlying obligation. The plaintiff also can purchase the underlying obligation from the holder of the note. In that case, plaintiff, as holder of both the mortgage and the note, could foreclose on the mortgage on the New York Property.

6. In view of the Court's rulings herein, it is unnecessary for it to reach the defendants' alternative application to transfer this case to the United States District Court for the District of New Mexico pursuant to 28 U.S.C. § 1404(a). For completeness of record, however, the Court notes that said application appears to be unwarranted because the real property that is the subject of this mortgage-foreclosure action is located in New York, and moreover because the declaratory-judgment action commenced by Rogers and Allsuite against 5-Star in the United States District Court for the District of New Mexico has been transferred to the Eastern District of New York pursuant to 28 U.S.C. § 1631.

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Opps, one more thing before I crawl off, throw down half a bottle of sleep aids and hide under the bed another fretful night.

Smith received Quiet Title but he continues to prosecute his original complaint.  Smith included in his original complaint, among other claim, a Tort Claim of improper foreclosure.  It's not a contract claim, it's a Tort.  Smith claimed damages (which are initially unspecified in Arizona's notice pleading rules).  The Tort claim lives on.  Smith also smartly made a demand for a jury during initial pleading.  Obviously Smith's claims exceed the dollar values required for mandatory arbitration.

Now, back to the weary Smith's unsecured Note.  The note holder defaulted and never answered the lawsuit.  Res Judicata ('It has been decided')? 

The note holder had the oppoptunity to defend their Note, or, at least a claim that it may have been their Note, yet chose not to do so.  They skulk off to some hidden place, only to show up later.  I have to believe they are Res Judicata (precluded from reasserting a claim) and Collaterally Estopped (precluded from asserting an issue).  I can't find a local case where a Defaulted Defendant was allowed to reassert a claim or issue (same facts) in a new complaint at some future time.

As always, the usual disclaimer.  I am not a lawyer, this isn't legal advice and I am ETERNALLY grateful to the School Sisters of Notre Dame for teaching me to read at an early age.




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Knows About Notes
Nye:  Thanks for sharing the case text!

Ken:  The UCC is ALWAYS the basis for ANY suit on a promissorynote in ANY STATE.  But the UCC is so ingrained that specific UCC provisions are rarely actually pleaded.  NOR do most of the plaintiff's attorneys REMEMBER that this is a suit under the UCC, UNLESS theygo consult their textbooks.

To the contrary, they consult their forms books and files as to FORMS for a suit on a note and produce a set of pleadings that has been used for generations.  In most states, reference to the underlying law is NOT required in the pleadings.

Your assumption that plaintiffs are somehow steering defendant's attention away fro the UCC is also overstated.  The FACT of the matter is that MOST foreclosure suits are WON BY DEFAULT.  The plaintiff sues and the defendant, already broke and broken, finds that he or she cannot afford a lawyer and the lawyers tell them that the bankis going towin anyway.  The lawyer will not take the case without a retainer and the amount of the retainer EXCEEDS the defendant's resources.

The defendant just GIVES UP and fails to file an answer.  The plaintiff wins by default.

Those few defendants who DO ANSWER and avoid default usually get rolled up in a motionfor summary judgment.

Again, the UNREPRESENTED defendant is presented with amotionfor summary judgment and (a) has FAILED TO UNDERTAKE MEANINGFUL DISCOVERY, (b) fails to understand the defects in the plaintiff's summary judgment evidence, including fabricated and forged evidence, and (c) fails to understand the Court Rules regarding summary judgment and therefore fails to get competant summary judgment evidence before the court.

The defandant therefore LOSES the summary judgment motion and the case is over.

*

The bottom line is that about 98% or more of the cases are disposed this way and that arcane legal arguments about the application of the UCC to the case are never made or considered.

* * *

As to your discussion concerning the promissory note and res judicata, I would think that the application of res judicata would depend upon what the origianal pleading said and what the default judgment said.

IF an owner or holder of the promissory note brought the suit on the note and then abandoned such such WITHOUT filing a voluntary dismissal (non-suit), the prospect that a judgment for the defedant was a FINAL DISPOSITIVE JUDGMENT would seem to me to be quite good (I am giving a LAY opinion UNINFORMED by ANY Arizona case law on this subject).

By contrast, if the plaintiff sued on the promissory note and then filed a voluntary dismissal the case MIGHT be subject to being revived.  That is, intution suggests that such a non-suit would NOT be a final adjudication of the issue.

But even a non-suit MIGHT be fatal to the plaintiff IF you proceeded with counterclaims or crossclaims which WERE ultimately adjudicated in your favor. Many states have rules that require that counterclaims arising out of the SAME SET OF FACTS be pleaded as a counterclaim.

So if the note owner or note holder filed suit on an alleged default of the note and you filed a counterclaim and/or a crossclaim, the non-suit of the original complaint might be a BAD strategy for the plaintiff if you did NOT similarly do a non-suitof your crossclaims and/or counterclaims.  If you crossclaims and/or counterclaims SURVIVE, there MIGHT BE a requirement under your states' court rules requiring the mandatory pleading of any causes of action arising out of the same set of facts.

In FAILING to plead such claims, the original plaintiff might have WAIVED these claims.

Whether this is the case depends both upon the factsofthe case and the Court Rules and case law relating to mandatory counterclaims.

*

To this,I would also add that IF after unwinding their "notice of acceleration", etc., you resumed PAYING on the promissory note, I would think that that the plaintiff would NOT HAVE HAD a valid counterclaim to make and might have WAIVED NOTHING.

On the other hand, if you openly and notoriously REFUSED TO PAY, and you continued with your counterclaims, it would seem to me that this non-payment would have been a cause of action relating to the same common set of facts and MIGHT have required a mandatory counterclaim under the rules of several states.  (Again, this is a LAY IMPRESSION, NOT a matter of studied law on this subject.)

*

In closing, I would offer one other illustrative example that shows some of the dimensions of the confusion that could arise and limits as to res judicata.

Suppose that an entity OTHER THAN the original mortgage lender and/or the mortgagee of record within the county records were to SUE YOU under a negotiable instrument and then FAIL TO prosecute the suit to conclusion.  Further suppose that you ultimately obtained a judgment against this plaintiff.  But suppose, also,  that the plaintiff had NO INTEREST IN THE PROMISSORY NOTE OR MORTGAGE WHATSOEVER.

As a matter of public policy, SHOULD res judicata preclude another suit by the REAL OWNER of the promissory note.  While the public policy desire to prevent owners of mortgaged properties from vexatious litigation might militate in favor of the borrower.  Applying res judicata in such a case invites mischief and is fraught with peril.

As a borrower, I could simply find a SHILL to file a suit against me on my promissory note and then DEFAULT on the suit.  I would then wait for the appeals period to run and for the judgment to become final and unappealable.  The REAL owner of the promissory note might NEVER discover this suit particularly if you continued paying your promissory note throughout.  If the judgment precluded the real owner from suing on the note, my feigned suit abandoned by the shill would obliterate the the real owner's means of enforcing the note.

Here an interesting public policy middle ground creaps in.  The purchasing ENTITY which RECORDS a mortgage assignment SHOWING that it is the owner of record of the mortgage would seem to probably be entitled to be NAMED in a suit that sought by claim or counterclaim to EXTINGUISH the mortgagee's rights under the mortgage.  The RECORDING ACTS might very well PROTECT the interests of the assignee RECORDING THE INTERVENING ASSIGNMENTS.

By contrast, those entities which SEEK TO CONCEAL THEIR OWNERSHIP should perhaps be prepared to SUFFER THE CONSEQUENCES of that concealment.  You COULD NOT name them in a crossclaim in the original suit, because this entity's identity has been WILLFULLY CONCEALED from the borrower and from the public.

If I were a judge and a promissory note holder came into court with a suit on a promissory note which had been subject of a prior final adjudication, I would be interested to know:  (a) was the promissory note already in default at the date of the original suit, (b) did the holder bringing the new suit own or hold at the date of the original suit, (c) was the entity which previously sued an agent or actingon behalf of the actual owner or holder, (d) did the holder bringing the suit after acquire its interest in the promissory note following the earlier adjudication, and (e) did the holder bringing the suit follow the steps provided for by the recording acts inteh jurisdiciton where the propertywas located to perfect its interest in the subject mortgage by recording the assignments.  I would also be interested in the extent to which the earlier suit could have been easily and readily ascertained from public records of the jurisdiction in which the borrower resided and/or the property was located.  So, for example, filing a lis pendens identifying the property and recording the judgment would seem to me to also be relevant.  There are probably some fact situations where I would favor the lender and others where I would favor the borrower.   
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My head just blew up.............

Indeed it is sad the number of defaulted suits.  Looking at the dockets for both complaints and forcible detainers the number comes close to 100%.  I can imagine what would happen to the justice system, at least in Arizona, if some well heeled philanthropist funded a lawsuit for the homeowner each and every time a non-judicial foreclosure was recorded. 

My comments in my most prior e-mail were directed to the few complaints in which the homeowner succeeds - which is damned few.  Looking at either the complaint or the answer  (by the homeowner), when the homeowner alleges they were not in default and attaches some reasonable exhibit avering so, the other side seems to disappear.  It's truly bizarre.

What I was referring to regarding Res Judicata was solely where the homeowner is the Plaintiff and succeeds in obtaining a QT Judgment.  Looking at AZ case law the Court of Appeals seems to have a substanial numbersof opinions where a QT judgment which contains language that it is a final judgment then judgment is an adjudication on the merits.  That is the point I was so poorly trying to make.

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here
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William A. Roper, Jr.
The case cited by "Knows About Notes" is now available on Google Scholar:
5-Star Mgmt. v. Rogers, 940 F. Supp. 512, 1996 U.S. Dist. LEXIS 15018 (E.D.N.Y. 1996).
http://scholar.google.com/scholar_case?case=941380454334049738

The Google Scholar version has links to some of the other cases cited.   This might be useful for those in other jurisdictions.

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