Real Estate – Quiet Title Action – Foreclosure Avoidance

A homeowner in default on two notes executed to refinance her mortgage cannot undo foreclosure on her home with her claims that noteholders cannot enforce these instruments; the so-called “split” of the deeds of trust from the promissory notes does not render the deeds unenforceable nor does it leave the promissory notes unsecured, says an Alexandria U.S. District Court.

At their core, plaintiff’s allegations seek to challenge the authority of the various named defendants to enforce the deeds and notes executed by plaintiffs. In this case, each promissory note is secured by a deed of trust. Wells Fargo, as trustee, is now the holder of Note One. Plaintiff alleges that “given the splitting, selling, trading and insuring of the pieces of the Note on the secondary market, the Deeds of Trust are split from the Notes and are unenforceable.” Nothing in plaintiff’s allegations provides a plausible basis for relief after considering the settled law of negotiable instruments or the enforcement of deeds of trust securing notes after their negotiation.

Under Virginia law, the holder of an instrument or a nonholder in possession of the instrument with the same rights as the holder may enforce the instrument. The so-called “split” of the deeds of trust from the promissory notes alleged by plaintiffs does not render the deeds unenforceable nor does it leave the promissory notes unsecured. Under Virginia law, when a note is assigned, the deed of trust securing that debt necessarily runs with it.

Once appointed, the substitute trustee is empowered by Va. Code § 55-59(7) to foreclose and sell property provided as security for the Note.

Finally, plaintiff argues that because certain of the defendant banks had purchased “credit default swaps” on plaintiff’s loans, plaintiff is thereby discharged from the obligation under the promissory notes because of some sort of impermissible “double recovery.” However, as this district recently held in a nearly identical case, iiiHorvath v. Bank of New York,iii Jan. 29, 2010, and this court agrees, plaintiff provides no factual or legal basis and the court finds none, “to support the contention that because plaintiff’s default triggered insurance for any losses caused by that default or ‘credit enhancements,’ he is discharged from the promissory notes and the Property is released from the deeds of trust.”

Plaintiff’s real quarrel is with Virginia’s status as a non-judicial foreclosure state. It is not the province of this court to override or interfere with the scheme the Virginia General Assembly has enacted.
Suit dismissed with prejudice.

Merino v. EMC Mtge. Corp. (O’Grady, J.) No. 1:09cv1121, March 19, 2010; USDC at Alexandria, Va. VLW 010-3-132, 10 pp.