The Court of Appeals of Maryland recently held that the holder of note, properly indorsed in blank from the original payee, and secured by a deed of trust, is entitled to foreclose without the necessity of proving the chain of title to the note, or the legal existence of the owner of the note, which was a Securitized Trust.
A copy of the opinion is available at: http://mdcourts.gov/opinions/coa/2013/55a12.pdf
The Borrower filed a separate lawsuit claiming that, because the Securitized Trust (through its trustee) that held her loan had terminated its SEC filings, it did not "legally exist." Alternatively, the Borrower claimed that the Securitized Trust did not own the subject promissory note, and had no authority to appoint the substitute trustees or invoke the power of sale under the deed of trust.
The defendants, the Securitized Trust and sub-servicer for the loan, jointly moved for summary judgment, presenting evidence that the note was assigned to the Securitized Trust, and sub-serviced by the sub-servicer, who as attorney-in-fact for the Securitized Trust, had appointed the substitute trustees. The trial court granted summary judgment in favor of the defendants (as well as the substitute trustees).
Upon the Borrower's appeal, the intermediate appellate reversed the trial court's grant of summary judgment, determining that the facts were in dispute and/or were not established by the lender. The Securitized Trust and sub-servicer filed a petition for certiorari with the Court of Appeals of Maryland, which was granted.
The Court of Appeals reversed the intermediate appellate court, and directed that the judgment of the trial court be reinstated. The Court reiterated that "a deed of trust securing a negotiable promissory note cannot be transferred like a mortgage, rather the corresponding note may be transferred, and carries with it the security provided by the deed of trust." Op. at 14. Accordingly, the Court observed that the Maryland version on the Uniform Commercial Code resolved who may enforce the deed of trust.
Determining that the subject note contained all the necessary indorsements, the Court distinguished its prior opinion in Anderson v. Burson, which had required a transferee of an "underindorsed" note to prove its rights in the note, by proving the transaction through which the transferee acquired it. Op. at 19. Unlike Anderson which involved an "underindorsed note", the sub-servicer was in possession of the Note, which was indorsed in blank. Therefore, the Court determined that the sub-servicer was the holder of the Note, and as the holder, was a person or entity entitled to enforce it. See id.
Consequently, the Court rejected the Borrower's claims that the Securitized Trust that owned the note did not exist, explaining "whether the Trust is (or is not) the owner of the Note is irrelevant for present purposes." Id. Likewise, the Court also rejected the Borrower's claim that the appointment of the substitute trustee was ineffective.
To that end, the borrower had argued that, if the Trust was nonexistent, the appointment of substitute trustee was ineffective, because, according the borrower, the sub-servicer could not act as an agent for an entity which does not legally exist. Disagreeing, the Court explained: "whether [the sub-servicer] signed the Deed of Appointment on its own authority or as agent on behalf of the Trust 'is a distinction without a difference.'"
The Court held that, in either capacity, the sub-servicer has the authority to appoint the substitute trustees and is bound by the Deed of Appointment. Thus, even if there is a dispute of fact over the Trust's continued existence, is not material to the outcome of the case."
Accordingly, the Court of Appeals held that the trial court properly dismissed the borrower's lawsuit.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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