Horvath v. Bank of New York, N.A.
2011 U.S. App. LEXIS 10152
| 4th Cir. | 2011Background
- In Oct. 2006, AWL loaned Horvath $650,000 secured by a deed of trust on his home; note allowed transfer by the Lender and described the Note Holder with full rights.
- The deed of trust likewise allowed sale or transfer without notice, and named MERS as beneficiary for Lender and successors; Countrywide served as servicer.
- Over time the loan note changed hands, ending up with BNY by 2009, while the deed of trust remained in the Virginia land records with Countrywide servicing Horvath’s loan.
- Horvath defaulted; Equity Trustees substituted as trustee and foreclosed in August 2009; Horvath sued in state court alleging FDCPA, due process, and quiet title theories.
- District court dismissed most claims; Horvath dismissed Samuel I. White; this appeal focuses on whether BNY had authority to foreclose by virtue of transfer and Virginia law on negotiable instruments and security interests.
- Virginia law favors transferability of negotiable instruments endorsed in blank; possession of bearer paper gives enforceable rights and power to foreclose if validly transferred.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether BNY had authority to foreclose on Horvath's property | Horvath contends note and deed unlinked; only AWL could foreclose. | BNY possessed the note, which, as bearer paper, authorized foreclosure through proper transfers. | BNY had authority to foreclose. |
| Whether note and deed of trust can be transferred to enable enforcement | Note/deed are separate; transfering note may not carry foreclosure rights in the deed. | Note endorsed in blank and transferred; deed follows the note; both instruments contemplate transfer. | Notes endorsed in blank are freely transferable with security instrument accompanying them. |
| Whether recordation of the assignment is necessary to transfer benefit of the security | Recordation in land records is required to perfect assignment and foreclose. | Recordation is optional; Virginia law permits transfer without recording to convey the security interest. | Recordation is not required to transfer the benefit of the security. |
| Whether the deed of trust should be read to restrict enforcement to AWL alone | Only AWL may enforce the deed of trust. | Lender includes successors and assigns; the deed contemplates transfer and enforcement by assignees. | Lender includes successors and assigns; subsequent holders may enforce. |
Key Cases Cited
- Whitworth v. Adams, 26 Va. (5 Rand.) 333 (Va. 1827) (endorsement in blank permits bearer to enforce)
- Williams v. Gifford, 139 Va. 779 (Va. 1924) (deeds of trust accompany the promissory notes they secure)
- Stimpson v. Bishop, 82 Va. 190 (Va. 1886) (transfer of secured debt carries security with it)
- Empire Management & Development Co., Inc. v. Greenville Associates, 255 Va. 49 (1998) (merger doctrine limitations; notes and deeds of trust in context)
- Beck v. Smith, 260 Va. 452 (Va. 2000) (higher-dignity doctrine in deeds of trust; contemporaneous documents)
- Jim Carpenter Co. v. Potts, 255 Va. 147 (Va. 1998) (notes and contemporaneous agreements construed together)
- Richmond Postal Credit Union v. Booker, 170 Va. 129 (Va. 1938) (notes and security instruments treated in harmony)
- Chicago, Rock Island & Pacific Railway Co. v. Merchants' Bank, 136 U.S. 268 (U.S. 1890) (contract construction harmonizes related provisions)
- Ward's Equipment, Inc. v. New Holland N. Am., Inc., 254 Va. 379 (Va. 1997) (contract construed as written with harmonized parts)
- Paramount Termite Control Co., Inc. v. Rector, 238 Va. 171 (Va. 1989) (contractual interpretation and enforceability of security instruments)
- Nizan v. Wells Fargo Bank Minn. nat'l Ass'n, 274 Va. 481 (Va. 2007) (limited double-recovery defense to foreclosure not applicable here)