On July 10, 2014, the Wisconsin Supreme Court ruled that the doctrine of equitable assignment is still the law in Wisconsin. Equitable assignment, first recognized in Wisconsin cases dating from the 1880s but rarely invoked since, is a doctrine pursuant to which the holder of a promissory note also automatically holds the mortgage that secures the note. When the note is assigned, the mortgage follows the note to the new holder by operation of law. Equitable assignment does not require a written or recorded assignment of the mortgage.
In Dow Family, LLC v. PHH Mortgage, the Supreme Court ruled that equitable assignment is “alive and well” in Wisconsin. Writing for the Court, Justice Patrick Crooks clarified that section 409.203(7) of the Wisconsin Statutes (part of Wisconsin’s Article 9 of the Uniform Commercial Code) codifies equitable assignment. Furthermore, the court noted that equitable assignment does not violate the statute of frauds because of an exception to the statute for real property transferred by “act or operation of law.” Ordinarily, the statute of frauds requires any real estate transfer to be in writing, but because a mortgage automatically transfers with a promissory note under the doctrine of equitable assignment, the transfer is an automatic operation of law that does not require a writing.
In a concurring opinion, Chief Justice Shirley Abrahamson discussed the implications of equitable assignment in the 21st century, specifically examining the Mortgage Electronic Recording System (MERS). MERS is a member-based organization of lenders, servicers, investors, and government institutions. As a benefit of membership, MERS holds the legal title of a mortgage while the lender holds the note. This enables the lender to assign the promissory note without the hassle and expense of recording a mortgage assignment. Chief Justice Abrahamson expressed concern regarding the secrecy and lack of notice inherent to the MERS system. She also noted that equitable assignment might cause a great deal of confusion regarding MERS’ rights and obligations if the mortgage automatically transfers with the promissory note.
Special thanks to Diana Eisenberg, 2014 summer associate, for her assistance in preparing this post.
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