August 21, 2019

Tenth Circuit: Person Entitled to Enforce an Instrument May Be a Holder, and Need Not Be an Owner, of the Instrument

The Tenth Circuit Court of Appeals published its opinion in McDonald v. OneWest Bank on Monday, June 11, 2012.

The Tenth Circuit affirmed the district court’s decision. Petitioner took out a secured by a deed of trust on Colorado real property in favor of the lender, IndyMac Bank. Petitioner “made payments on the loan from its 2003 inception until April 2009, including while IndyMac was operated in receivership by the Federal Deposit Insurance Corporation (“FDIC”).” The FDIC sold IndyMac to a holding company that operated it as Respondent OneWest which, as the new loan servicer, notified Petitioner of the sale. Petitioner stopped making payments because, claiming that OneWest “did not provide [him] with the instrument or reasonable evidence of authority to make such a presentment” in accordance with his demands for the original Note. However, OneWest did provide him with a copy of the Note and deed of trust. “Ultimately, OneWest foreclosed on the property and obtained a Rule 120 Order authorizing the sale of the property, after it produced the original Note, the deed of trust, and a pooling and servicing agreement governing the Note.”

Petitioner claims on appeal that “OneWest was not entitled to foreclose because it was not ‘a holder in due course,’ and did not own the underlying Note.” The Court found that this “attempt to graft ‘holder in due course’ requirements onto this process, though obvious in its purpose, is meritless and clearly distorts the law. In Colorado, non-judicial foreclosure based upon a violation of a deed of trust provision can be accomplished by ‘a holder of an evidence of debt.’ The ‘holder of an evidence of debt’ includes a ‘person entitled to enforce an evidence of debt’ and presumptively includes ‘[t]he person in possession of a negotiable instrument evidencing a debt, which has been duly negotiated to such person or to bearer or indorsed in blank.’ As the commercial code makes clear, a person entitled to enforce an instrument may be a holder, and need not be an owner, of the instrument. Contrary to [Petitioner]’s position, nothing in the law states that ‘holder in due course’ status is required.”

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