The Vermont Supreme Court has firmly rejected a bank’s request to loosen long-standing requirements for proving standing in mortgage foreclosure cases, affirming a lower court’s decision that dismissed the bank’s suit against a homeowner. The ruling doubles down on the precedent set in *U.S. Bank National Ass’n v. Kimball*, insisting that a foreclosing plaintiff must prove it had the legal right to enforce the underlying promissory note *at the exact moment* the lawsuit was filed.
The case, involving The Bank of New York Mellon (the Bank) and Daniel T. Quinn, showcased a protracted legal battle spanning over a decade, characterized by numerous motions, remands, and procedural hurdles. At its core, the Bank challenged the strict interpretation of standing, arguing that being able to produce the properly endorsed note later in the litigation should be sufficient. The Supreme Court disagreed, prioritizing stability and predictability in the law.
The Long Road to Judgment
The dispute began back in 2007 when Mr. Quinn took out a $365,000 loan secured by a mortgage on his Woodstock property. The Bank filed for foreclosure in October 2009, claiming it held the note and that the mortgage had been assigned to it.
However, the initial documentation presented by the Bank was problematic. The copy of the note attached to the 2009 complaint was payable to the original lender, Countrywide Home Loans, Inc., and lacked any necessary endorsements showing transfer to the Bank. This immediately raised questions about the Bank’s standing, an issue that plagued the case through multiple court appearances.
In 2010, the trial court denied the Bank’s first motion for summary judgment, concluding that the Bank had not established its standing under the Uniform Commercial Code (UCC) as the enforceable holder of the note. After further procedural twists, the Bank won summary judgment in 2013, only for that decision to be vacated. The case eventually went to a merits hearing, which resulted in a reversal and remand by the Supreme Court following the exclusion of certain evidence by the trial court.
The Crux: When Must Standing Be Proven?
The key hearing occurred in May 2024. The Bank finally produced the original note, which featured an undated endorsement in blank by the lender’s executive vice president. The trial court acknowledged that the Bank had proven default and was *currently* a holder of the note.
However, the court felt constrained by *Kimball* (2011), the Vermont Supreme Court precedent stating that standing requires demonstrating a right to enforce the note *at the time the complaint was filed*. Because the chain of custody for the note did not reach back to the 2009 filing date, the trial court ruled the Bank lacked standing when it initiated the suit and entered judgment for Mr. Quinn.
On appeal, the Bank launched a multi-pronged attack against the *Kimball* ruling.
Challenging the *Kimball* Precedent
The Bank, supported by amici briefs from Vermont Legal Aid and the National Consumer Law Center, argued that standing—often associated with constitutional separation of powers when suing government entities—should not apply to private foreclosure actions. They suggested the proper mechanism was substitution of the real party in interest under Rule 17, allowing the Bank to substitute itself once it later obtained the properly endorsed note.
Chief Justice Reiber, writing for the Court, firmly rejected these arguments. The Court emphasized that Vermont’s concept of standing, even in private suits, requires the plaintiff to show a legally protected interest and an actual injury traceable to the defendant to invoke the court’s jurisdiction over actual controversies.
“We decline to overrule *Kimball* or alter the standing requirements for a mortgage foreclosure case,” the opinion stated. The Court noted that *Kimball* was consistent with jurisprudence in many other states, which require foreclosing plaintiffs to show they are entitled to enforce the note at the outset. This requirement, the Court explained, is crucial to protect homeowners from “double liability”—being sued multiple times for the same debt by different entities claiming ownership.
The Court found no compelling reason to overturn established precedent, noting that *Kimball* has provided stability for lenders, borrowers, and courts for fourteen years.
Retroactivity and Curing Defects
The Bank also argued that *Kimball* should not apply retroactively since it was decided after the Bank filed its initial 2009 complaint. The Supreme Court found this argument unpersuasive for two main reasons. First, the Bank failed to properly preserve the issue by asking the trial court to apply the ruling prospectively. Second, the Court found that *Kimball* did not establish a new rule but was “foreshadowed” by earlier decisions emphasizing the need to establish the right to sue upfront. Furthermore, the trial court had already signaled in 2010 that the Bank needed to prove its holder status.
Regarding substitution under Rule 17, the Court pointed out that the Bank never actually sought to substitute itself as the real party in interest. Instead, the Bank consistently maintained throughout the proceedings that it *was* the holder when the suit was filed. The Court declined to address whether Rule 17 could ever cure a standing defect because the Bank failed to raise that specific issue below.
The Future of the Judgment
Finally, the Bank requested that the judgment be declared “without prejudice” to refile, arguing that a dismissal based on standing is not a decision on the merits. While *Kimball* suggested this outcome, the Supreme Court followed the “best practice” articulated in *Cenlar FSB v. Malenfant*: courts should refrain from dictating the preclusive effects of a judgment at the time of the first decision. The Court affirmed the judgment but declined to speculate on how a future court should treat this ruling in any subsequent action between the parties.
The result is an affirmation of the strict rule: in Vermont, if you initiate a foreclosure, you must have the properly endorsed note in hand when you file suit, or you lack the standing to proceed.