Deutsche Bank National Trust Co. v. Carmichael (In Re Carmichael)
443 B.R. 698
| Bankr. E.D. Pa. | 2011Background
- Deutsche Bank filed a mortgage foreclosure against Debtors in state court; summary judgment was sought in the bankruptcy proceeding after removal.
- Debtors admitted default and nonpayment, and Deutsche supported its claim with an affidavit showing the loan was held under a Pooling and Servicing Agreement dated June 1, 2005.
- The note and mortgage were originated by Ameriquest Mortgage Company to Debtors; PSA transferred the loan to Ameriquest Mortgage Services and then to Deutsche Bank prior to filing the foreclosure complaint.
- The PSA provided for Deutsche to hold an original assignment in blank and to have a complete chain of assignment; the mortgage recording occurred after Deutsche filed the foreclosure action.
- Debtors contest Deutsche’s standing and argue various defenses (fraud in the inducement, UTPCPL, breach of contract), but the court views the argument as against Deutsche’s holder-in-due-course status.
- Court grants summary judgment, holding Deutsche is holder in due course of a negotiable note secured by a mortgage, and defenses raised against original lender do not bar enforcement against Deutsche.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the note is a negotiable instrument and Deutsche holds it as holder in due course | Deutsche acquired the note in due course under the PSA and acts as holder in due course. | Defendants challenge Deutsche’s status and question the note’s negotiability or chain of title. | Yes; the note is negotiable and Deutsche is holder in due course. |
| Whether defenses to the original loan can be asserted against a holder in due course | As holder in due course, Deutsche is protected from most defenses, including fraud in the inducement and UTPCPL, not arising from the execution of the instrument. | Defendants contend fraud and consumer protection defenses should bar enforcement against Deutsche. | Defenses based on fraud in the inducement and UTPCPL do not bar HDC enforcement; fraud claims relate to the original lender and may not be asserted against Deutsche. |
| Whether the FTC Holder Rule applies to this mortgage foreclosure | Holder Rule does not apply to real estate mortgage loans. | Defendants invoke Holder Rule to offset defenses against Deutsche. | Not applicable; real estate mortgage transactions are excluded from the Holder Rule; state law governs defenses against Deutsche. |
| Whether the breach of contract and other new matter defenses defeat Deutsche's summary judgment | Those defenses fall under defenses not available to a holder in due course under 13 Pa.C.S.A. § 3305. | Defendants claim an oral modification or promised waivers by AMC affect Deutsche. | Defenses under § 3305(a)(2) (breach of contract and related defenses) do not apply to Deutsche; HDC is immune. |
Key Cases Cited
- Cunningham v. McWilliams, 714 A.2d 1054 (Pa. Super. 1998) (summary judgment in mortgage foreclosure when default admitted)
- Landau v. Western Pennsylvania National Bank, 445 Pa. 217, 282 A.2d 335 (Pa. 1971) (foreclosure standards for judgment on admitted facts)
- Cercone v. Cercone, 254 Pa. Super. 381, 386 A.2d 1 (Pa. Super. 1978) (require denial of allegations to avoid admission in mortgage actions)
- Mellon Bank, N.A. v. Ternisky, 999 F.2d 791 (4th Cir. 1993) (promissory note with mortgage may be negotiable instrument)
- New York Guardian Mort. Corp. v. Dietzel, 362 Pa. Super. 426, 524 A.2d 951 (Pa. Super. 1978) (fraud defenses against holder in due course; distinguish fraud in factum)