note to "Deutsche Bank as Trustee" was not sufficient to allow "Deutsche
Bank Trust Company Americas as Trustee for Residential Accredit Loans,
Inc. Series 2006-QA6" to enforce the instrument. A copy of the opinion is
Respondent-Borrower ("Borrower") executed a note to refinance an existing
mortgage on his home. The Note was originated by First National Bank of
Arizona and subsequently indorsed to "Deutsche Bank Trust Company Americas
as Trustee" ("Deutsche Bank"). When Borrower defaulted, "Deutsche Bank
Trust Company Americas as Trustee for Residential Accredit Loans, Inc.
Series 2006-QA6" ("Deutsche Bank/Residential") initiated foreclosure
proceedings. Borrower challenged those proceedings, contending that
Deutsche Bank/Residential had not proved that it was the holder of the
Note. The Superior Court of Hyde County permitted the foreclosure to
continue. The borrower appealed.
As you may recall, North Carolina law provides that the party seeking
foreclosure must prove that it is the holder of a valid debt. N.C. Gen.
Stat. § 45-21.16(d)(1) (2009). The holder of an instrument is defined as
"[t]he person in possession of a negotiable instrument that is payable
either to bearer or to an identified person that is the person in
possession." Id. at § 25-1-201(b)(27). North Carolina law further
provides that if an instrument is payable to a person described as
trustee, then the instrument is payable to that trustee, "whether or not
the beneficiary or estate is also named." Id. at § 25-3-110(c).
Deutsche Bank/Residential contended that its possession and production of
the original Note evidenced that it was the holder of that instrument, and
therefore entitled to enforce it. However, the Court held that the Note
was not indorsed to Deutsche Bank/Residential or to bearer, and therefore
that mere possession of a note was not enough to prove ownership or holder
status. Therefore, the Note as indorsed did not constitute "competent
evidence that (Deutsche Bank/Residential) is the holder" of that
instrument, and consequently the Court reversed the lower court's order
permitted the foreclosure to proceed.
Deutsche Bank/Residential also produced affidavits from two employees of
the sub-servicer of the loan. The first affiant claimed that Deutsche
Bank/Residential was the owner and holder of the Note. The Court rejected
this claim as conclusory, and because "[t]he record is void of any
evidence that the Note was assigned and securitized to a trust." The
second affidavit averred that Deutsche Bank/Residential had possession of
the original Note. However, the affidavit did not provide any basis for
the Court to conclude that the affiant had personal knowledge of the facts
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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