Foreclosure Cases

Horvath v Bank of NY NA 4th Circ Appeals 10-1528 May 19, 2011.


The U.S. Court of Appeals for the Fourth Circuit recently confirmed that a foreclosure plaintiff had standing to foreclose under Virginia law, because the plaintiff was the holder of the note indorsed in blank.

. 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 Borrower.

Under 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 it."

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."