anderson v burson[1]

8/3/2019 Anderson v Burson[1]

1/11

9 A.3d 870 Page 1196 Md.App. 457, 9 A.3d 870, 73 UCC Rep.Serv.2d 207(Cite as: 196 Md.App. 457, 9 A.3d 870)

2011 Thomson Reuters. No Claim to Orig. US Gov. Works.

Court of Special Appeals of Maryland.Hosea ANDERSON, et ux.

v.John S. BURSON, et al.

No. 00434, Sept. Term, 2009.Dec. 22, 2010.

Background: Party appointed by bank to enforcecollection rights on mortgage note brought foreclosureaction. Property owners moved for an injunction to

prevent foreclosure sale. The Circuit Court, HowardCounty,Louis A. Becker, J., denied motion. Propertyowners appealed.

Holdings: The Court of Special Appeals, James P.Salmon(Retired, Specially Assigned), J., held that:(1)doctrine of res judicata did not preclude owner'smotion, and(2) bank was a successor to the holder of mortgagenote and had the same rights as original holder toname party to enforce its collection rights.

Affirmed.

West Headnotes

[1]Judgment 228 829(3)

228Judgment228XVIIForeign Judgments

228k829Effect of Judgments of United StatesCourts in State Courts

228k829(3) k. Operation and effect. MostCited Cases

Doctrine of res judicata did not preclude husbandand wife who owned home from challenging owner-ship of mortgage note; although bankruptcy trustee inhusband's bankruptcy proceeding had brought actionchallenging alleged mortgage note holder's status withrespect to the property, the bankruptcy trustee did notrepresent wife and was not in privity with wife, so theparties in the present litigation were not the same as in

the litigation brought by bankruptcy trustee.

[2]Bills and Notes 56 362

56Bills and Notes56VIII Rights and Liabilities on Indorsement or

Transfer56VIII(D)Holders in Due Course

56k362k. Transferees from holders in duecourse.Most Cited Cases

Mortgages 266 235

266Mortgages266VAssignment of Mortgage or Debt

266k234 Transfer of Debt or Obligation Se-cured

266k235k. In general.Most Cited Cases

Mortgages 266 241


266k241 k. Operation and effect in gener-al.Most Cited Cases

Mortgages 266 246


266k246k. Rights of assignee in general.MostCited Cases

Bank was a successor to the holder of mortgagenote and had the same rights as original holder toname party to enforce its collection rights; under theshelter principle, bank acquired all the rights of pre-vious holder in due course when mortgage note was

transferred to it, even though note was not properlyindorsed, in the absence of evidence that anyone in thechain of title had engaged in fraud or illegality.West'sAnn.Md.Code, Commercial Law, 3-203(a),3-301(ii).

[3]Appeal and Error 30 762
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30Appeal and Error30XIIBriefs

30k762k. Reply briefs.Most Cited Cases

Appellate court would not address argumentsraised by appellants for the first time in their replybrief.

**870Randall L. Hagen, Columbia, MD, for appel-lant.

Bizhan Beiramee (Rathbun & Goldberg, PC, on thebrief), Fairfax, VA, for appellee.

Panel: EYLER, DEBORAH S., WOODWARDand JAMES P. SALMON (Retired, Specially As-signed) JJ.

JAMES P. SALMON(Retired, Specially Assigned), J.*458 Hosea Anderson and his wife, Bernice

Anderson, live at 6534 Frietchie Row, Columbia,Maryland (the Residence). In 2006, the Andersonsdecided to refinance their home. Accordingly, onOctober 13, **871 2006, Mr. Anderson signed anAdjustable Rate Balloon Note promising to pay thelender, Wilmington Finance, Inc. (Wilmington), theamount he had borrowed ($227,250.00), plus interest,in monthly installments of $1,541.87. Payments wereto continue for 30 years. Among its many provisionswas the following: [Borrower] understands that theLender may transfer this Note. The Lender or anyonewho takes this Note by transfer and who is entitled toreceive payment under this Note is called the NoteHolder.

To secure payment of the amounts due under theNote, Bernice Anderson and Hosea Anderson signed aDeed of Trust on October 13, 2006. The Deed of Trustreferenced Wilmington as the Lender, definedBorrower as the Andersons, and listed the Trusteeas Dominican First Title, LLC (Dominican).

*459 The Deed of Trust spelled out the involve-ment of Mortgage Electronic Registration Systems,Inc. (MERS),FN1viz:

FN1. In 1993, members of the real estatemortgage industry created MERS, an elec-tronic registration system for mortgages. Itspurpose is to streamline the mortgage process

by eliminating the need to prepare and recordpaper assignments of mortgage, as had beendone for hundreds of years. To accomplishthis goal, MERS acts as nominee and as

mortgagee, for its members' successors andassigns, thereby remaining nominal mortga-gee of record no matter how many times loanservicing, or the mortgage itself, may betransferred. MERS hopes to register everyresidential and commercial home loan na-tionwide on its electronic system.

MERSCORP, Inc. v. Romaine, 8 N.Y.3d90, 861 N.E.2d 81, 86, 828 N.Y.S.2d 266(N.Y.2006)

(Kaye, C.J., dissenting in part).

MERS is a separate corporation that is acting

solely as a nominee for Lender and Lender's suc-cessors and assigns. MERS is the beneficiary underthis [Deed of Trust].

Another section of the Deed of Trust states:

The beneficiary of this [Deed of Trust] is MERS(solely as nominee for Lender and Lender's suc-cessors and assigns) and the successors and as-signs of MERS. This [Deed of Trust] secures toLender: (i) the repayment of the Loan, and allrenewals, extensions and modifications of theNote; and (ii) the performance of Borrower's co-

venants and agreements under this [Deed ofTrust] and the Note. For this purpose, Borrowerirrevocably grants and conveys to Trustee, intrust, with power of sale, the [Residence].

* * *

Borrower understands and agrees that MERSholds only legal title to interests granted by Bor-rower in this [Deed of Trust], but, if necessary tocomply with law or custom, MERS (as nomineefor Lender and Lender's successors and assigns)has the right: to exercise any or all of those in-

terests, including, but not limited to, the right toforeclose and sell the [Residence]: and to take anyaction required of Lender including, but not li-mited to, releasing and canceling this [Deed ofTrust].

*460 Several important events took place about
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four months after the Note and Deed of Trust wereexecuted. On February 12, 2007, MERS, as benefi-ciary and as nominee of Wilmington, transferred itsbeneficial rights under the Note and Deed of Trust to

Morgan Stanley Capital Holdings, Inc. Two days later,on February 14, 2007, MERS, as beneficiary and asnominee of Wilimington, transferred its servicingrights under the Note and Deed of Trust to SaxonMortgage Services, Inc. (Saxon). The Andersonsbegan making **872 their mortgage payments toSaxon as a result of this assignment of servicingrights.

Sometime after February 12, 2007, but beforeMarch 1, 2007 (the precise date is unknown), MorganStanley Mortgage Capital Holding, Inc. transferred itsownership of the Note to Morgan Stanley ABS Capital

I Inc. On March 1, 2007, Morgan Stanley ABS CapitalI Inc. sold, transferred, assigned, set-over and con-veyed to Deutsche Bank Trust Company Americas, asTrustee and Custodian for Morgan Stanley HomeEquity Loan Trust, MSHEL 2007-2 (hereinafterDeutsche) all right, title, and interest in and to theNote....

Starting in the spring of 2007, Mr. Anderson fellbehind on the payments due under the Note.

On February 21, 2008, Erik W. Yoder of Shapiro& Burson LLP, as attorney for Substitute Trustees

John S. Burson, William M. Savage, Gregory N.Britto, Jason Murphy, Kristine D. Brown and Erik W.Yoder (collectively, Substitute Trustees), filed aLine to Docket Foreclosure with respect to the An-dersons and their Residence in the Circuit Court forHoward County. The Line was accompanied by (i) Acertified copy of the Deed of Trust, (ii) Appointmentof Substitute Trustees, (iii) Statement of Indebtedness,(iv) Affidavit of Non-Military Status, (v) Attorney'sCertification Under Rule 1-313, and (vi) Motion forAcceptance of Lost Note Affidavit with Exhibit A(Affidavit of Lost Note) and proposed Order. Thesedocuments identified the Lender under the Note and

Deed of Trust as:

*461 Deutsche Bank Trust Company Americasformerly known as Banker's Trust Company, asTrustee and Custodian for Morgan Stanley HomeEquity Loan Trust, MSHEL 2007-2 by: SaxonMortgage Services, Inc. f/k/a Meritech MortgageServices, Inc. as its attorney-in-fac[t].

The Motion for Acceptance of Lost Note Affida-vit asked the court to accept a lost note affidavit inlieu of the original note in this case on the grounds that

the original note is lost and cannot be found by thePlaintiff or the Noteholder. The Lost Note Affidavit,attached to the motion as Exhibit A, stated, in relevantpart: ... Lender was the note holder under [the Deedof Trust] ... and that said note ... has been lost or de-stroyed and cannot be produced.

On February 26, 2008, the court signed an Orderstating that a lost note affidavit evidencing the in-debtedness secured by the deed of trust which is thesubject of this foreclosure action be accepted in lieu ofthe original.

To prevent foreclosure on his Residence, HoseaAnderson, on March 13, 2008, filed for relief in theUnited States Bankruptcy Court for the District ofMaryland. Thereafter, Mrs. Anderson filed for bank-ruptcy as well-in the same court. Their filings stayedthe foreclosure proceeding then pending in the circuitcourt.

The Andersons reached an agreement with Saxon,the servicer of the Deed of Trust, in the bankruptcycases. On June 2, 2008, the bankruptcy court entered aConsent Order reflecting an agreement reached be-tween the Andersons and Saxon. The Consent Order

provided, inter alia, that the automatic stay was ter-minated so as to permit Saxon to commence forec-losure proceedings in accordance with State Law andpursuant to the terms of the [Deed of Trust]. In ex-change for the lifting of the stay, Saxon agreed toforbear from foreclosing on the Residence if the An-dersons cured their arrearages in six equal monthlypayments of $804.44. The Order further provided thatif the **873 Andersons failed to make these paymentswhen due, then they would have two cure opportuni-ties, after which any additional failure would cause*462 the Consent Order to automatically terminateand allow Saxon to proceed with foreclosure.

Due to a decline in Mr. Anderson's income, theAndersons were unable to make the payments calledfor in the Consent Order and as a consequence theforeclosure proceedings initiated by the SubstituteTrustees recommenced.

A foreclosure sale of the Residence was sche-


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duled for November 18, 2008. On November 12,2008, the Andersons filed a motion for injunction tostay foreclosure proceedings in the Circuit Court forHoward County. Movants alleged that the Substitute

Trustees and Deutsche had no legal standing to fo-reclose on the Residence because they had failed toestablish that Deutsche was the lawful owner or holderof the Note and Deed of Trust.

The circuit court, on November 17, 2008, pur-suant to a motion by the Andersons, filed a temporaryrestraining order (TRO) enjoining the sale sche-duled for November 18th. A hearing on the TRO wasset for November 26, 2008. After the November 26,2008 hearing, the circuit court enjoined the foreclo-sure proceedings until an evidentiary hearing could beheld to address the issue of whether the Substitute

Trustees had a right to foreclose on the Residence.

The evidentiary hearing was held on March 31,2009. At the hearing it was revealed that the Notesigned by the Andersons did not contain an indorse-ment. Instead, the Substitute Trustees produced aseparate undated document entitled Allonge toNote.FN2The Allonge to Note read:

FN2. Blacks Law Dictionary, 83 (8thEd.2004) defines the word Allonge asfollows:

A slip of paper sometimes attached to anegotiable instrument for the purpose ofreceiving further indorsement when theoriginal paper is filled with indorsements.Former UCC 3-204(a) eliminates thatrequirement and provides that a paper af-fixed to the instrument is part of the in-strument. The UCC comment makes itclear that the Allonge is valid even if spaceis available on the instrument.

(Citations omitted.)

PAY TO THE ORDER OF

*463 Deutsche Bank National Trust Company, asTrustee for Morgan Stanley Home Equity LoanTrust, 2007-2

WITHOUT RECOURSE

WILMINGTON FINANCE, INC.

(signed by Christopher Kelly, Vice President)

At the hearing, the Substitute Trustees called, astheir sole witness, Dennis Sugrue, Esquire, an asso-ciate attorney at the law firm of Shapiro & Burson,which is the law firm at which all the SubstituteTrustees are employed. The testimony of Mr. Sugrue,coupled with the exhibits that were admitted by court,proved that: 1) the Allonge was signed by Wilming-ton-at the earliest-sometime in March 2007, and 2) byFebruary 14, 2007, Wilmington had divested itself ofall its rights in the Note. Based on that proof, theAndersons argued that the Allonge was worthlessbecause it was signed at a point when Wilmington had

no rights or interest to convey.

The Andersons' main contention at the eviden-tiary hearing was that in order for Deutsche to have aright to name the Substitute Trustees it (Deutsche)would have to demonstrate that it was a holder of theNote. According to the Andersons, if Deutsche wasnot a holder then it had no right to appoint anyone toforeclose on the property. The Andersons supportedtheir not a holder argument by pointing out, **874correctly, that the Note was not indorsed by anyone inDeutsche's chain of title except Wilmington, and thatwhen Wilmington indorsed it, by signing the Allonge,

it had given up all its rights, title and interest in theNote.

The Substitute Trustees stressed that the Ander-sons had never controverted the fact that the loan wasin default and that Hosea Anderson had not paid themoney due under the Note for a long period of time.They also pointed out that during the lengthy periodthe Note had been in default, no one else had claimedownership of the Note. This proved, circumstantially,that it would be impossible to suppose that some thirdparty owned the Note. The Substitute Trustees alsopointed out that the Andersons, in the bankruptcy

court, had *464 both listed the creditor who held a firstlien on their Residence as Saxon Mortgage, theservicers of the Andersons' loan.

The motions judge, after hearing argument fromcounsel, delivered an oral opinion in which he said,inter alia:
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There's been acknowledgment of the debt in thebankruptcy case, originally under a [Chapter]Thirteen and I understand we're in a [Chapter]

Seven now at this point. I have a Schedule D, youknow, in there, and I understand we have this verycomplicated track of servicers, holders, assign-ments, Allonges; you know, some of the largerbanking institutions in the world-Deutsche Bank,Morgan Stanley-and we've got meters out theretracking this stuff. This is not the fourteenth cen-tury; this is the beginning of the twenty-first cen-tury, where we have electronic databases and thisstuff is moving very quickly, you know, et cetera.

I've cited those other cases which I've looked at. Idon't see fraud in here. I understand the Allonge is

not dated; I understand your argument. I'm satisfied,though, that it has an indicia of reliability under thecircumstances, and that there's not fraud, et cetera,involved. You know, I would adopt the authoritiesthat I quoted there. Again, even assuming that theDefendant has a valid claim against the mortgage,such claims wouldn't defeat the mortgagee's interestin a Deed of Trust because it's a bona fide assigneefor value. It also is a holder of the Note secured bythe Deed of Trust; Commercial Law 3-302(a), etcetera. There is authority underHeider vs. Bladen,83 Maryland, that the filing of the Note does notestablish the invalidity [sic] of a foreclosure action.

The law doesn't require the production of the orig-inal note for the enforcement, as a matter of con-tract. Again, it's a matter of payment, proof ofpayment, et cetera, you know, we've got commer-cial law perhaps conflicting with real property law,et cetera. But again, the basic action I have beforeme is an in rem action, so I'm going on the real es-tate side, et cetera.

The Deed of Trust ... The contract between theparties, security interest, Chapman vs. Ford, 246Maryland 42 [227 A.2d 26 (1967) ], where thelanguage in the Deed of Trust is *465 clear, it will

be enforced.Leisure Campground vs. Leisure Es-tates, 280 Maryland 220 [372 A.2d 595 (1977) ],

and, you know, I understand the situation here. Butunder the circumstances, the injunction is lifted; thecase is going forward. Thank you.

On April 3, 2009, three days after the circuit courtlifted the injunction, Michael G. Rinn, Esquire, Trus-

tee for the Bankruptcy Estate of Hosea Anderson, fileda complaint in the bankruptcy action titled Complaintto Avoid and Recover Lien, for Declaratory Judgmentand for other relief.**875 Included in the allegations

set forth in Mr. Rinn's complaint were the following:

Prior to the commencement of these proceedings,the Debtor or [sic] about October 13, 2006, ex-ecuted and delivered to Wilmington Finance, Inc. adeed of trust (the Deed of Trust) upon the RealProperty in connection with a note dated October13, 2006. (The Note).

That said Deed of Trust was recorded among theLand Records of Howard County, Maryland on orabout June November [sic] 13, 2006 in Lib 10349folio 429.

Defendant Deutsche Bank is asserted to be thecurrent holder of the Note, related to the Deed ofTrust described herein

Defendants John S. Burson, William M. Savage,Gregory N. Britto, Jason Murphy, Kristine D.Brown, Erik W. Yoder are the substitute trusteesunder the Deed of Trust.

The Deed of Trust to Defendants is defective andinvalid as to the Plaintiff[s] Trustee pursuant to REP4-106(a) in that the Deed of Trust fails to contain a[sic] identifiable affiant to the the [sic] requisiteAffidavit of Consideration and Disbursement.

That the Trustee pursuant to the provisions of11U.S.C. 544(a)(1)has the status of a judgment liencreditor.

That the Trustee pursuant to the provisions of11U.S.C. 544(a)(3) has the status of a bonafidepurchaser who takes without knowledge and holdsthe power to avoid Defendants lien/Deed of Trust.

*466 The Defendants failed to perfect the recor-dation of its Deed of Trust pursuant to the provi-sions of the Annotated Code of Maryland RealProperty Article, 4-106, et seq. in that in the ab-sence of a [sic] legally sufficient acknowledgmentsand affidavits, the Deed of Trust upon the RealProperty is void and invalid as to the Trustee.
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That said Deed of Trust is void and as to thePlaintiff/ Trustee pursuant to the provisions of 11U.S.C. 544.

Among other relief, the Trustee asked the court todeclare that the interest of the Trustee in and to the ...[Residence] or the proceeds thereof be declared supe-rior to the unperfected interest of [Deutsche and theSubstitute Trustees].

On April 30, 2009, the Andersons filed the subject interlocutory appeal from the decision of theCircuit Court for Howard County lifting the injunc-tion.

On November 30, 2009, the Trustee who had filedthe complaint in the bankruptcy court on behalf of

Hosea Anderson filed a pleading entitled VoluntaryStipulation of Dismissal with Prejudice that dis-missed the complaint filed in the bankruptcy court onbehalf of Hosea Anderson.

In the subject appeal, the Andersons raise twoquestions:

1. Did the trial court abuse its discretion in findingthat appellees' principal, Deutsche, is the holderof the Note and Deed of Trust, and, therefore, couldappoint and authorize appellees to bring this forec-losure action?

2. Did the trial court abuse its discretion in rulingthat appellants waived the right to challenge stand-ing because appellant Hosea Anderson listed theservicing agent, Saxon Mortgage, as a securedcreditor in his bankruptcy Schedule D?

There is no need to answer the second questionpresented. And, as to the first question, we shall holdthat although Deutsche was not a holder as that termis defined in the Uniform Commercial Code, asenacted in Maryland, Deutsche **876 neverthelesshad a right to enforce the Note and to appoint *467 theSubstitute Trustees. Therefore, the motions judge didnot err in lifting the injunction.

I.Substitute Trustee's Motion to Dismiss Appeal

As part of their brief, the appellees filed a motionto dismiss this appeal because the case is moot due to

the application of the doctrine of res judicata .... Insupport of their motion, the Substitute Trustees argue:

In his bankruptcy case, following the disposition

of the foreclosure proceeding, the bankruptcy trus-tee [Mr. Rinn] filed an adversary proceeding chal-lenging the validity of the deed of trust.

Both Deutsche Bank and the substitute trusteeswere named as defendants, and the trustee sought adeclaration that the interests of the defendants in thereal estate or the proceeds thereof be declared voidas to the Trustee and the Bankruptcy Estate.

Ultimately, the bankruptcy trustee dismissed hiscomplaint with prejudice.

* * *

Because the issue as to Deutsche Bank's and thesubstitute trustees' status with respect to the prop-erty was at issue, and because the prejudicial dis-missal constitutes a final judgment on the merits,cf.Parker v. Housing Authority of Baltimore City,129 Md.App. 482, 488 [742 A.2d 522] (1999) (Theeffect of the designation without prejudice issimply that there is no adjudication on the meritsand that, therefore a suit on the same cause of actionis not barred by principles of res judicata.), Ap-pellant is not barred from challenging their right inthe subject property under the doctrine of res judi-cata. See Davidson v. Seneca Crossing Section II Homeowner's Ass'n, Inc., 187 Md.App. 601, 633[979 A.2d 260] (2009)

.

Moreover, [i]njunctive relief is a preventative andprotective remedy, aimed at future acts, and is notintended *468 to redress past wrongs.Davidson,187 Md.App. at 614 [979 A.2d 260] (quotingEl Beyv. Moorish Science Temple of America, 362 Md.339, 353 [765 A.2d 132] (2001)). Given that therecan now be no dispute about Deutsche Bank and thesubstitute trustees rights in the subject property, the

injunctive relief requested by Appellant in the trialcourt is moot. SeeMd. Rule 8-602(10)(On motionor its own initiative, the Court may dismiss an ap-peal for any of the following reasons: .... (10) thecase has become moot.).

* * *
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We shall deny the Substitute Trustees' motion.

InR & D 2001 LLC v. Rice, 402 Md. 648, 663,938 A.2d 839 (2008)

, the Court said:

The doctrine of claim preclusion, or res judicata,bars the relitigation of a claim if there is a finaljudgment in a previous litigation where the par-ties, the subject matter and causes of action areidentical or substantially identical as to issuesactually litigated and as to those which could haveor should have been raised in the previous litiga-tion. The doctrine embodies three elements: (1)the parties in the present litigation are the same orin privity with the parties to the earlier litigation;(2) the claim presented in the **877 current ac-

tion is identical to that determined or that whichcould have been raised and determined in theprior litigation; and (3) there was a final judgmenton the merits in the prior litigation.

Id.(citations omitted).

In short, res judicata restrains a party from liti-gating the same claim repeatedly and ensures thatcourts do not waste time adjudicating matters whichhave been decided or could have been decided fullyand fairly.Anne Arundel County Bd. Of Educ. v.Norville, 390 Md. 93, 107 [887 A.2d 1029] (2005)

(emphasis in original).

Appellee claims that although the issue the An-dersons present in this appeal was not raised in thebankruptcy case *469 filed by Mr. Anderson's trustee,the issue could have been decided in the complaint thetrustee filed.

[1]The doctrine ofres judicata is here inapplic-able. For starters, Michael G. Rinn was the trustee forthe bankruptcy estate of Hosea Anderson. The Trusteedid not represent Bernice Anderson. Moreover, inso-far as is shown in the record, he was not in privitywith Mrs. Anderson. Thus, the parties in the presentlitigation were not the same or in privity with theparties to the earlier litigation.

Second, contrary to the Substitute Trustee's posi-tion, Mr. Rinn, the bankruptcy trustee for Mr. An-derson, could not have successfully raised in the

bankruptcy court the same issue that is raised by theAndersons in this appeal. If the bankruptcy trustee hadattempted to raise that same issue, the bankruptcytrustee could not have overcome the bar of the res

judicata doctrine because the bankruptcy trustee filedhis complaint for declaratory relief after the CircuitCourt for Howard County had rejected the Andersons'argument that the appellees had no right to foreclose.For res judicata, purposes it does not matter that theAndersons appealed that adverse ruling. SeeCampbellv. Lake Hallowell Homeowners Ass'n, 157 Md.App.504, 525, 852 A.2d 1029 (2004)

(the pendency of anappeal does not affect the finality of a judgment for resjudicata purposes).

II.In their brief, the Substitute Trustees expend a

great deal of effort discussing whether they had theburden of proving their standing to institute the fo-reclosure proceedings. They contend that because thiscase was anIn rem proceeding, they had no burden ofproving that they had standing. The appellants, on theother hand, assert that the Substitute Trustees wererequired to prove standing even though appellantswere the ones who sought an injunction.

It is unnecessary for us to decide which party hadthe burden of proof, because here the facts were un-disputed. Assuming, arguendo, that the appellees didhave the burden of*470 proving that they had stand-

ing, as explained below, they proved it. And the ap-pellants agree, at least tacitly, that if the SubstituteTrustees had the power to foreclose, the Andersonswere not entitled to an injunction.FN3 See**878Restatement (Third) of Property, Mortgages 5-4(c) (a mortgage may be enforced only by, or onbehalf of, a person who is entitled to enforce the ob-ligation the mortgage secures.). See alsoBalance Ltd., Inc. v. Short, 35 Md.App. 10, 14, 368 A.2d 1116(1977)

. The decisive issue is a legal one, viz: whetherDeutsche had a right to enforce the Note.

FN3.In support of their position, appellant's

citeWells Fargo Home Mortg., Inc., v. Neal,398 Md. 705, 922 A.2d 538 (2007)

:

The Wells Fargo court further noted that[t]he foreclosure procedure in Marylandis equitable in nature[,] and that an in-junction to enjoin a foreclosure of a deed oftrust entreats a trial court to exercise its
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equitable powers.Id. at 728-29 [922 A.2d538] (citations omitted). Although onlyone with clean hands' can obtain equitablerelief such as an injunction, the Court of

Appeals held that the mortgagor's tech-nical payment default should be treated asthe legal fiction that no default exists ...until such time as Wells Fargo complieswith the statutory and regulatory impera-tive to pursue loss mitigation prior to fo-reclosure. Id. at 730 [922 A.2d 538].

Consequently, the mortgagor in technical payment defaultwas entitled to seek aninjunction withouthaving to admit the debtor default, which would have required thathe pay all debt due into the court.

Like the mortgagor in Wells Fargo, Ap-pellants invoked equitable principles forinjunctive relief in order to challenge thevalidity and authority of Appellees to bringthe foreclosure action. Mr. Anderson'sdenial of the debt and default in his Affi-davit allowed the trial court to grant aninjunction to stop the foreclosure until itwas satisfied that Appellees' principal es-tablished ownership of the Note and Deedof Trust. The trial court ultimately didconclude the principal had establishedsuch ownership, which Appellants now

challenge as reversible error.

Although for reasons set forth infra we donot agree with the Andersons' position thatthe trial court committed reversible error,we do agree with their position that theywere entitled to an injunction if the evi-dence showed that the Substitute Trustees'principal, Deutsche, had no right to directthe appellees to enforce the note.

III.Maryland Code (2002 Repl.Vol.), Commercial

Law Article, section 3-301provides:

*471 Persons entitled to enforce an instrumentmeans (i) the holder of the instrument, (ii) a non-holder in possession of the instrument who has therights of a holder, or (iii) a person not in possessionof the instrument who is entitled to enforce the in-strument pursuant to 3-309 or 3-418(d). A per-

son may be a person entitled to enforce the instru-ment even though the person is not the owner of theinstrument or is in wrongful possession of the in-strument.

The Substitute Trustees say in their brief, onseveral occasions, that Deutsche was the holder ofthe Note, but they do not demonstrate why this is so.

The term holder is defined insection 1-201(20)of the Commercial Law Article, (CL) to mean, inrelevant part:

(a) The person in possession of a negotiable in-strument that is payable either to bearer or to anidentified person that is the person in possession.

The Note signed by Mr. Anderson was not paya-ble to bearer. Moreover, Deutsche does not qualify asan identified person that is the person in possession.The only identified person mentioned in the Note isWilmington.

While it is true that the Allonge does specificallyname Deutsche, this is of no consequence because theevidence at trial established that Wilmington, afterFebruary 14, 2007, had nothing to transfer toDeutsche. By February 14th, Wilmington had trans-ferred the Note to Morgan Stanley Mortgage CapitalHolding, Inc., and had transferred its servicing rightsto Saxon. This all happened before Deutsche was evenappointed trustee of the Home Equity Loan Trust.

[2]The Substitute Trustees argue, in the alterna-tive, that even if Deutsche was not a holder,Deutsche qualified as a non-holder in possession ofthe instrument who has the rights of a holder.... Theyrely on **879section 3-301(ii), of the CommercialLaw Article, which provides that a non-holder inpossession of the instrument who has the rights of aholder can enforce the instrument.

The evidence at trial proved, without contradic-tion, that Deutsche was in possession of the Notesigned by Hosea *472 Anderson. The Official Com-ment to the Uniform Commercial Code, concern-ing section 3-301 reads, in material part, as follows:A non-holder in possession of an instrument includesa person that acquired rights of a holder by subroga-tion or under section 3-203(a). It also includes any
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other person who under applicable law is a successor

to the holder or otherwise acquires the holder's rights. (Emphasis added).

The question then becomes: Does Deutsche fitwithin the definition of a non-holder in possession ofa note because, under applicable law, it was a suc-cessor to the holder or otherwise acquires the holdersrights? We shall answer that question in the affirma-tive.

The documents introduced into evidence by theSubstitute Trustees showed that the only entity thatqualified as a holder in Deutsche's chain of title wasWilmington, because no other entity had a valid in-dorsement. But, the evidence also showed, withoutdispute, that Deutsche was one of the successors to

the holder. Therefore, the evidence produced showedthat Deutsche met the definition of a Note holder inpossession of an instrument. As such, undersection3-301 of the Commercial Law Article, Deutsche was aperson entitled to enforce the Note.

Of course, the validity of the above analysis de-pends upon whether, under applicable law,Deutsche was a successor to the holder or otherwiseacquires the holder's rights.

Section 3-203(a) of the Commercial Law Articlereads:

(a) An instrument is transferred when it is deliveredby a person other than its issuer for the purpose ofgiving to the person receiving delivery the right toenforce the instrument.

In this case all Deutsche's predecessors in thechain of title received delivery of the Note with thepurpose of giving them the right to enforce the Note.Without a right of enforcement, the Note would havebeen worthless.FN4Wal Mart Stores, Inc. v. Holmes,416 Md. 346, 375, 7 A.3d 13 (2010)

(An obligationcan only be legal, however, when it is susceptible of

legal *473 enforcement. A duty without a means forenforcing it is not a legal duty at all.).

FN4.The official comment tosection 3-203reads, in pertinent part:

An instrument is a reified right to payment.

The right is represented by the instrumentitself. The right to payment is transferredby delivery of possession of the instrumentby a person other than its issuer for the

purpose of giving to the person receivingdelivery the right to enforce the instru-ment. The quoted phrase excludes issueof an instrument, defined in Section 3-105,and cases in which a delivery of possessionis for some purpose other than the transferof the right to enforce. For example, if acheck is presented for payment by deli-vering the check to the drawee, no transferof the check to the drawee occurs becausethere is no intent to give the drawee theright to enforce the check.

Section 3-203(b) of the Commercial Law Articleprovides that transfer of an instrument whether or nottransfer is a negotiation [i.e., indorsed], vests in thetransferee any right to the transferor to enforce theinstrument, including any rights as a holder in duecourse, but the transferee cannot acquire rights of aholder in due course by a transfer, directly or indi-rectly, from a holder in due course if the transfe-ree**880 engaged in fraud or illegality affecting theinstrument. SeeTackett v. First Sav. of Arkansas, 306Ark. 15, 810 S.W.2d 927, 930 (1991) (transferee ob-tains right of transfer despite lack of indorsement andthus has right to enforce instrument). This provision

embodies what has come to be known as the shelteror umbrella principle.Adams v. Madison Realty & Dev., Inc., 853 F.2d 163, 169 (3d Cir.N.J.1988).TheAdamsCourt said:

This section extends the accepted rule in commer-cial law that a transferor assigns to his transferee allthe rights he had in the transferred note.U.C.C. 3-201 Official Code Comment (1). The shelterprinciple permits a transferee, who cannot satisfy

the formal prerequisites of negotiation to step into

the shoes of his transferor, succeeding to the same

rights and liabilities as his predecessor. 2 [F] Hart& [W] Willier, ... [Commercial Paper under theUniform Commercial Code] 12.02[2].

If the transferor was a holder in due course, thetransferee succeeds to the rights of a holder in duecourse, although-because *474 the purported nego-tiation failed-he does not enjoy the status of holderin due course. SeeSecurity Pac. Nat'l Bank v. Chess,
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58 Cal.App.3d 555, 129 Cal.Rptr. 852 (1976) (pro-vision assures transferee rights ofror); Crossland Savings Bank FSB [v. Constant ],737 S.W.2d [19] at 21 [ (Tex.App.1987) ] (if

transferor is holder in due course, transferee canassert rights of holder in due course);Estrada [v.River Oaks Bank & Trust Co.], 550 S.W.2d [719] at728 [ (Tex.Civ.App.1977) ] (same). See alsoGreatWestern Bank & Trust Co. v. Pima Savings & Loan

Ass'n, 149 Ariz. 364, 718 P.2d 1017, 1020 (1986)(assignment to owner transferred rights of holderthrough shelter principle);Weast v. Arnold, 299 Md.540, 474 A.2d 904, 909 (1984)

(same).

To attain its purpose of guaranteeing the transferor aready market for his negotiable instrument, theshelter principle operates cumulatively. As some

commentators explain, a transferee of a holder indue course takes through, rather than from, histransferor. Thus, if the transferor's predecessor wasa holder but the transferor was not, the ultimate

transferee may succeed to the rights of the original

holder: the holder's rights pass through each as-

signee. See 5Anderson 3-201:22; 1[R] Alderman... [a Transaction Guide to the Uniform CommercialCode] at 630.FN5

FN5.The excerpt just quoted concernssec-tion 3-201(1) of the Commercial Law Artic-le, which was in effect in Maryland between

1975 and 1992.Section 3-201(1) reads:

Transfer of an instrument vests in thetransferee such rights as the transferor hastherein, except that a transferee who hashimself been a party to any fraud or ille-gality affecting the instrument or who as aprior holder had notice of a defense orclaim against it cannot improve his posi-tion by taking from a later holder in duecourse.

In 1992, section 3-201 was recodified.

Insofar as is here relevant, what wasonce section 3-201(1) is now foundinsection 3-203(b) of the Commercial LawArticle.

(Emphasis added.)

Wilmington was a holder in due course. Wil-

mington transferred the Note to Morgan StanleyMortgage Capital Holding, Inc., which thereby ac-quired all of Wilmington's rights to enforce the in-strument including any right as a holder in due *475

course. The second transferee, Morgan Stanley ABSCapital I Inc., in turn, acquired all the rights held by itstransferor, Morgan Stanley Mortgage Capital Hold-ing, Inc. And, when Morgan Stanley ABS Capital IInc. sold, transferred, assigned, and conveyed toDeutsche all its rights, title, and interest it had in theNote, **881 Deutsche acquired all the rights that hadvested in its transferor because the shelter principleoperates cumulatively.Id.Thus, under applicable law,because it was not alleged that anyone in the chain oftitle had engaged in fraud or illegality,FN6DEUTSCHE WAS A successor to the holder of thenote and had the same rights as Wilmington had to

name the Substitute Trustees to enforce its collectionrights.

FN6.The absence of fraud or illegality is animportant part of our analysis. In the officialcomments tosection 3-203, several examplesare given showing how the existence of fraudor illegality can be outcome determinative,viz:

The operation of Section 3-203 is illu-strated by the following cases. In each casePayee, by fraud, induced Maker to issue a

note to Payee. The fraud is a defense to theobligation of Maker to pay the note underSection 3-305(a)(2).

* * *

Case # 4. Payee sold the note to Purchaserwho took for value, in good faith andwithout notice of the defense of the Maker.Purchaser received possession of the notebut payee neglected to indorse it. Pur-chaser became a person entitled to enforcethe instrument but did not become theholder because of the missing indorsement.

If purchaser received notice of the defenseof Maker before obtaining the indorsementof Payee, Purchaser cannot become aholder in due course because at the timenotice was received the note had not beennegotiated to Purchaser. If indorsement byPayee was made after Purchaser receivednotice, Purchaser had notice of the defense
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when it became the holder.

Accordingly, under the facts proven at the evi-dentiary hearing, the Andersons did not have a right to

an injunction because Deutsche was a non-holder inpossession of the Note who had the rights of a holder.

IV.[3]In support of their claim that they had a right

to have the court keep the injunction in force, theAndersons raise *476 several issues not raised in theiropening brief and not raised in the trial court. Forinstance, they stress that in the deed of appointment, inwhich the appellees were named as Substitute Trus-tees, the holder of the Note was said to be DeutscheBank Trust Company Americas. Appellants point out,however, that the Allonge and the pooling agreement

that were introduced

anderson v burson[1]

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