Ms. Bass signed a promissory note and Deed of Trust with Mortgage Lenders Network USA, Inc. ("MLN") in 2004. After several purported assignment, Ms. Bass default in 2008 on her payments and U.S Bank, as Trustee for Wells Fargo, commenced foreclosure. After the Clerk of Court allowed the foreclosure to proceed, Ms. Bass appealed to Superior Court, asserting the U.S. Bank was not the holder of the note.
The Superior Court found that the note was originally made to MLN. The first purported indorsement was a stamp that read "PAY TO THE ORDER OF EMAX FINANCIAL GROUP, LLC WITHOUT RECOURSE By: MORTGAGE LENDERS NETWORK USA, INC" and had not handwritten signature. The second stamp read "RESIDENTIAL FUNDING CORPORATION CHAD JONES VICE PRESIDENT" and had his signature. Lastly, the note had a stamp and signature from Residential Funding Corp. to U.S. Bank. Additionally, a signed allonge was attached to the note, that stated "Pay to the order of Without recourse: Residential Funding Corporation." At issue was whether the un-signed stamp from MLN to Emax was sufficient.
The Court of Appeals held that in order to be the holder of a note, it must either have been issued to that party or obtained through negotiation of that note. N.C.G.S. § 25-3-201(b) and Comment 1. For MLN to negotiate the note and transfer holder status upon subsequent transferees, ML was required to both indorse the note and transfer possession of the note to the intended transferee. Applying N.C.G.S. § 25-3-204(a)(1), the Court of Appeals held that an indorsement is "a signature, other than that of a signer or maker . . . that alone or accompanied by other words [may be] made on an instrument for the purpose of . . . negotiating the instrument . . . ."
North Carolina has adopted a broad definition of the term "signature" to include any mark, symbol or initials, whether "printed, stamped or written". See N.C.G.S. § 25-1-201(b)(37). Accordingly, the North Carolina Supreme Court had held that a stamp may constitute a valid signature, See Mayers v. McRimmon. Those same opinions, however, holder that "the person placing the stamp must act with authorization and with the intent to indorse the instrument."
Relying on In re Vogler, 2009 WL 41113704 (Bank. M.D.N.C 2009), U.S. Bank asserted that pursuant to N.C.G.S. § 25-3-308(a), Ms. Bass had the burden of showing the stamp was invalid. Rejecting the reasoning of the bankruptcy court, the Court of Appeals instead noted that while N.C.G.S. § 25-3-308(a) presumes the validity of signatures, in order to foreclose under a power of sale, N.C.G.S. § 45-21.1.16(d) clearly places the burden on U.S. Bank to show that it is the holder of the valid note. To resolve this conflict, it turned to Official Comment 1 of N.C.G.S. § 25-3-308(a) which states that "[t]he question of the burden of establishing the signature arises only when it has been put in issue by a specific denial", at which point the burden would be on U.S. Bank to show its validity. The assertion at trial by Ms. Bass’ attorney that more than a stamp was needed, shifted the burden of showing its validity to U.S. Bank, particularly since it was possible to conclude that the unsigned indorsement was not made by an authorized individual and was thus facially invalid.
The Court of Appeals specifically limited this opinion to apply to notes that were indorsed with unsign stamps and the Debtor questioned its validity. It did not address whether a bald denial of the validity of a signed stamp would shift the burden.