foreclosure plaintiff had standing to foreclose under Virginia law,
because the plaintiff was the holder of the note indorsed in blank. A
copy of the opinion is attached.
Plaintiff-Appellant borrower ("Borrower") received a loan from America's
Wholesale Lender ("AWL") that was secured by a deed of trust on Borrower's
home. The note evidencing the loan was endorsed in blank and securitized,
and was in the possession of the Bank of New York ("BNY") when Borrower
defaulted on his loan. After the default, BNY foreclosed on Borrower's
home. Borrower filed suit, arguing that only the originator of the loan
had the authority to foreclose on the property. The district court
dismissed the lawsuit.
In affirming the district court's decision, the Court began by examining
the terms of the note, which provided that AWL could transfer the note at
any time. Transferees were to obtain the powers of the note holder upon
transfer, including the rights to receive payment and to accelerate the
payment of the loan upon default. The terms of the deed of trust also
provided that it was freely transferable, without prior notice to the
Next, the Court noted that longstanding principles of Virginia law provide
that negotiable instruments are freely transferrable. Further, Virginia
has adopted the provisions of the Uniform Commercial Code governing
negotiable instruments. As you may recall, those provisions allow for
negotiable instrument to be endorsed in blank. Whoever possesses a
negotiable instrument that is endorsed in blank "has full power to enforce
Based on that examination of the terms of the loan documents and Virginia
law, the Court concluded that "it is difficult to debate" that BNY had the
authority to enforce the note.
Borrower advanced several arguments to the contrary. First, he argued
that although BNY might have the authority to enforce the note, it did not
have the authority to enforce the deed of trust. The latter document,
borrower contended, was governed by the law of real property and by
equitable principles, which suggested that only the originator of the loan
could enforce the deed of trust. Second, Borrower contended that per the
terms of the deed of trust, only AWL could appoint a substitute trustee
and foreclose on the property. The Court rejected both of these arguments
because, among other reasons, accepting either argument would render the
note unenforceable upon purchase - a result that the Court considered
Finally, the Court noted that Borrower's briefs "are filled with
allegations of fraud in the mortgage industry and discussions of the
financial crisis that have plagued the country of late." However, the
Court considered those allegations to be merely a distraction from "what
in reality is a straightforward commercial case."
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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