Investors in the Maryland mortgage loan purchase market can breathe a sigh of relief (at least for now) as a result of a recent decision by the Court of Special Appeals of Maryland where the Court held that a non-holder in possession of a note has the same rights as a holder to enforce the terms of a note. In Anderson, et ux. v. Burson, et al., No. 00434, filed December 22, 2010, the Court of Special Appeals of Maryland was asked to address a challenge to a mortgage loan assignee’s right to enforce the rights and remedies contained in the subject loan documents.
The facts of the case are as follows. In 2006 Hosea Anderson and his wife, Bernice, refinanced their home in Columbia, Maryland. The Andersons borrowed a total of $277,250.00 from Wilmington Finance, Inc., which was evidenced by a note and deed of trust. Subsequently, the rights to the loan were transferred several times and ultimately ended up in the hands of Deutsche Bank Trust Company Americas, as Trustee and Custodian for Morgan Stanley Home Equity Loan Trust, MSHEL 2007-2.
Sometime in 2007, the Andersons defaulted on the note and deed of trust and Deutsche Bank began foreclosure proceedings by appointing substitute trustees to file an order to docket against the Andersons and schedule the property to be auctioned. The Andersons challenged Deutsche Bank’s right to appoint substitute trustees and standing to foreclose on the property, alleging that Deutsche Bank could not prove it was the holder of the note. Accordingly, the Andersons contended that Deutsche Bank had no right to appoint substitute trustees to foreclose on the property. In support of their argument, the Andersons pointed out that Deutsche Bank could not prove that the note was indorsed by anyone in the chain of title besides the original lender, Wilmington Finance, Inc, and such indorsement by Wilmington Finance was not effective because it was allegedly done after Wilmington Finance relinquished its rights and interest in the note and deed of trust.
In response, the substitute trustees appointed by Deutsche Bank stressed the fact that the Andersons did not dispute that they were in default nor did they dispute that they were responsible to pay under the terms of the note. Further, the substitute trustees addressed the facts that no other party had claimed ownership of the note and that Mr. Anderson had named “Saxon Mortgage,” Deutsche Bank’s servicer of the loan, as the creditor in connection with the note and deed of trust in a recent bankruptcy filing. Thus, Deutsche Bank argued, the Andersons couldn’t claim the substitute trustees did not have the right to foreclose or that they had no standing to foreclose.
The Court of Special Appeals of Maryland disagreed with the Andersons, pointing out that although Deutsche Bank did not meet the definition of a “holder” pursuant to Md. Comm. Code Ann. § 1-201(20), Deutsche Bank did prove it was a non-holder in possession of the note pursuant to Md. Comm. Code Ann. § 3-301(ii). Accordingly, pursuant to Md. Comm. Code Ann. § 3-203(a), the Court concluded that Deutsche Bank had the same rights as a holder to enforce the terms of the note.
Considering the huge number of loans that changed hands many times and/or were securitized over the course of the real estate boom and bust, this Court of Special Appeals of Maryland’s decision has huge implications because it provides clarification and confidence to investors that the loans they are purchasing or have purchased should not be considered unenforceable in Maryland solely because an investor cannot show a clear chain of title. As homeowners, investors and businesses continue to default on their loans in Maryland and lenders institute foreclosure procedures, it is likely that challenges to such foreclosures will continue to mount. While the Anderson case provides some sense of security to investors, it is important for investors to keep abreast of developments in Maryland cases and statutes to properly protect their interest in the notes. For example, it is possible that the Court of Appeals of Maryland will review this case and overturn it. Therefore, the most successful investors will be the ones who not only make sound investments, but those who understand the current state of the legal landscape and keep track of emerging trends to know how their business will be impacted.
For the full Anderson, et ux. v. Burson, et al. opinion, visit the following link: http://www.courts.state.md.us/opinions/cosa/2010/434s09.pdf