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Maryland Court of Appeals Rules Lender Must Prove Authority to Foreclose - Deutche Bank v. Brock

April 4, 2013

At Howard Law, P.C., our Riverside County foreclosure defense attorneys have worked closely with homeowners facing foreclosure since the housing downturn. In that time, courts across the United States have confronted the issue of when a bank or loan servicer has the legal right to foreclose. That's an issue because during the housing bubble, lenders swapped loans so much that they sometimes lost track of who owned the loans, and sometimes didn't follow through with the proper paperwork. Then, when the loans were in foreclosure, the purported owners were unable to show proof of ownership--and judges often halted the foreclosures until ownership was clear. That was the issue at the heart of Deutsche Bank National Trust Co. v. Brock, in which Maryland's highest court permitted a foreclosure, reversing a lower appeals court ruling.

Angela Brock went into default on a home in the Washington, D.C. suburbs. Before a scheduled foreclosure sale took place, she sued Deutsche Bank, the trustee for the security her mortgage was bundled into, as well as BAC Home Loans Servicing. She alleged the defendants had no right to foreclose and that there were defects in the foreclosure process. In particular, she pointed to the series of indorsements on the note, which showed transfers from the originator to a second and third owner, but a final indorsement in blank. The trust seeking to foreclose was not part of the indorsements, which Brock said cast doubt on its right to foreclose. She also argued that the trust purporting to own the note may no longer exist because it terminated its SEC registration and stopped making reports in 2007. The defendants successfully moved for summary judgment. However, the Maryland Court of Special Appeals reversed, finding that there was a genuine fact issue over both the existence of the trust and the ownership of the note.

The Maryland Court of Appeals, the state's highest court, granted review to decide whether the entity possessing a note indorsed in blank is a holder of the note or a non-holder for foreclosure purposes. A Maryland deed of trust securing a note cannot be transferred, but the note can be transferred and the right to enforce the deed of trust follows. The Commercial Law Article of the Maryland Code requires borrowers like Brock to pay "a person entitled to enforce the instrument." Those entitled to enforce the note include a "holder," "the person in possession of a negotiable instrument that is payable either to bearer" or to a named person. And a promise is payable to the bearer if, among other things, it does not state a payee or "otherwise indicates that it is not payable to an identified person." Thus, Brock's distinction between owner and holder is irrelevant, the court said; a note indorsed in blank is adequate to make the bearer the holder for legal purposes. For the same reason, the high court said, the existence of the trust is irrelevant.

This decision is interesting to Vincent Howard and our Santa Ana foreclosure defense attorneys because it could create conflicts between lenders in the future. If possession of a note indorsed in blank is adequate to create foreclosure rights, a lot depends on whether the note is in the possession of the owner of record. If those are not the same companies, one company may be legally permitted to foreclose on another's property. Unfortunately, recent history tells us that's not far-fetched; there was so much confusion after the housing downturn that there were several cases of lenders attempting to foreclose on properties that were not subject to any mortgage. Vincent Howard and our San Bernardino foreclosure defense lawyers believe that with people's homes at stake, courts should be very careful with the rules they create.

If your home is heading for a foreclosure sale and you believe your lender deceived you, don't wait to call Vincent Howard and the team at Howard Law. You can reach us through our website or call 1-800-872-5925.

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