N.C. Ct. of Appeals: U.S. Bank v. Pinkney- Chain of Indorsements of Note

Summary: The Pinkneys executed a mortgage note (“the Note”) in favor of Ford Consumer Finance, secured by a Deed of Trust. The Note was later indorsed to Credit Based Asset Servicing and Securitization (“CBASS”), which, in turn, assigned the Note to U.S. Bank, as Indenture Trustee, and lastly to U.S. Bank, without recourse. When U.S. Bank later sought to foreclose and a judgment for money owed, the Pinkney moved to dismiss that action on the basis that U.S. Bank was not the holder of the Note, which did not contain the “magic words” denoting a that it was, under the Uniform Commercial Code, N.C.G.S. § 25-3-301, a negotiable instrument, specifically “Pay to the Order” or “Pay to the Bearer”. The trial court dismissed and, upon the Pinkney’s request, also found that any balance owed under the Note, which was not signed under seal, was uncollectible due to the Statute of Limitations. The Court of Appeals held that a determination of whether a party may foreclose requires a showing that it is the holder of the note. In re Adams, 204 N.C. App. 318, 321 (2010). To meet this burden requires both competent evidence of a valid debt and that the foreclosing party actually is the holder of the Note. When the party asserting possession of the Note is not the original holder, if the Note is payable to an identified person, the chain of transfers requires indorsement by each previous holder. In re Foreclosure of Deed of Trust Executed by Bass, 366 N.C. 464, 368, (2013). When CBASS assigned rather than indorsed the Deed of Trust, the chain of transfers was broken, leaving U.S. Bank unable to show that it is the holder of the Note. Despite oral arguments at trial that it was either the holder of the Note or alternatively the non-holder in possession of the instrument, U.S. Bank never amended its Complaint to assert this theory. As such, the Court of Appeals did not need to address this question. Commentary: For a discussion of where foreclosure was allowed as  U.S Bank had possession of a mortgage note that had been indorsed in blank,  see  Greene v. Trustee Services of Carolina, below. For a copy of the opinion, please see: U.S. Bank v. Pinkney- Chain of Indorsements of Note Greene v. Trustee Services of Carolina- Holder of Note Indorsed in Blank