1. If U.S. Bank was not the note holder, what would happen to the foreclosure/power of sale processes on the properties of those who are in default?

2. What was required for negotiation of the Emmons note?

3. What role does the deed of trust have with respect to the promissory note?

On September 22, 2006, Richard and Sabrina Emmons signed an adjustable rate promissory note and deed of trust with Chevy Chase Bank (now known as Capital One) for a property located in Vancleave, Mississippi. The note indicates that “[t]he Lender or anyone who takes this Note by Transfer and who is entitled to receive payments under this Note is called the ‘Note Holder.’” According to the terms of the deed of trust, “MERS (Mortgage Electronic Recording System) is the beneficiary under this Security Instrument.” Based on the assignment of deed of trust, executed on April 9, 2010, MERS then assigned the Emmons’ deed of trust to U.S. Bank as trustee.

The deed of trust listed MERS and MERS’ successors and assigns as beneficiary and nominee. On April 9, 2010, MERS assigned the deed of trust to U.S. Bank. The Emmons defaulted on their payments. The deed of trust provides for a power of sale in the event of the borrowers’ default—a right which U.S. Bank then exercised through a nonjudicial foreclosure (power of sale). The Emmons then filed suit alleging, among other things, wrongful foreclosure because they claimed U.S. Bank was not a holder of the promissory note.

JUDICIAL OPINION

WALKER, Judge … Plaintiffs’ primary contention is that U.S. Bank did not have standing to conduct a non-judicial foreclosure based on ambiguities regarding U.S. Bank’s status as holder of the note. Plaintiffs assert that only the holder of the note can conduct a foreclosure and that a note indorsed in-blank, such as occurred in this case, is not sufficient to demonstrate that U.S. Bank was the holder of Plaintiffs’ note. Consequently, U.S. Bank did not have standing to conduct the judicial foreclosure.

The Mississippi Code distinguishes between a special indorsement and a blank indorsement. If an indorsement is made by the holder of an instrument, whether payable to an identified person or payable to bearer, and the indorsement identifies a person to whom it makes the instrument payable, it is a “special indorsement.” When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person. If an indorsement is made by the holder of an instrument and it is not a special indorsement, it is a “blank indorsement.” When indorsed in blank, an instrument becomes payable to bearer and may be negotiated by transfer of possession alone until specially indorsed.

Plaintiffs apparently concede that the note is indorsed in-blank, but argue that an in-blank indorsement does not prove U.S. Bank’s holder status of the note and does not confer legal standing on U.S. Bank to conduct a nonjudicial foreclosure.

Contrary to Plaintiffs’ assertion, U.S. Bank’s status as holder of the note indorsed in-blank is sufficient for U.S. Bank to enforce the provisions of the note. The holder of a negotiable paper is presumed prima facie to be a holder in due course. Likewise, the holder of a note indorsed in-blank is presumed prima facie to be the bona fide owner of it. Title to such a note passes by a delivery of the note. The law of Mississippi “does not require that a holder must present an original wetink contract in order to be the holder in due course” for purposes of initiating a non-judicial foreclosure. A negotiable instrument indorsed in-blank does not prevent the bearer of the instrument from enforcing its provisions. The burden to prove that the holder is not entitled to recover upon the note is cast on the party seeking to escape its provisions.

Plaintiffs contend that Defendants needed to show more than mere assignment of the deed of trust to prove U.S. Bank’s status as holder. To the extent that Plaintiffs argue that U.S. Bank lacked standing to conduct a nonjudicial foreclosure based on a failure to provide conclusive proof that they were holders of the note, courts have routinely rejected this type of “show me the note” theory. …………………..