Bernardo v. National City Real Estate Services, LLC ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1803
NICHOLAS BERNARDO,
Plaintiff - Appellant,
v.
NATIONAL CITY REAL ESTATE SERVICES, LLC, an Ohio limited
liability company, successor by merger to National City
Mortgage, Incorporated, formerly known as National City
Mortgage Company doing business as First of America Mortgage
Company; SAMUEL I. WHITE, P.C.,
Defendants – Appellees.
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VIRGINIA POVERTY LAW CENTER; NATIONAL ASSOCIATION OF
CONSUMER ADVOCATES; NATIONAL CONSUMER LAW CENTER; HOUSING
OPPORTUNITIES MADE EQUAL,
Amici Supporting Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Leonie M. Brinkema,
District Judge. (1:10-cv-00080-LMB-JFA)
Argued: March 22, 2011 Decided: May 26, 2011
Before WILKINSON, KEENAN, and DIAZ, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Christopher Edwin Brown, BROWN, BROWN & BROWN, PC,
Alexandria, Virginia, for Appellant. Daniel J. Tobin, BALLARD
SPAHR, LLP, Bethesda, Maryland, for Appellees. ON BRIEF: Ronald
J. Guillot, Jr., SAMUEL I. WHITE, P.C., Virginia Beach,
Virginia, for Appellee Samuel I. White, P.C. Thomas D.
Domonoske, Brenda Castaneda, LEGAL AID JUSTICE CENTER,
Charlottesville, Virginia, for Amici Supporting Appellant.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
After defaulting on a $330,000 home loan, Nicholas Bernardo
filed a lawsuit to quiet title over his property and to obtain a
declaratory ruling that the current holder of the promissory
note memorializing his loan cannot foreclose on the property.
Having recently rejected an identical claim in Horvath v. Bank
of New York, No. 10-1528, we affirm the district court’s
dismissal of Bernardo’s lawsuit.
I.
On October 31, 2002, Nicholas Bernardo signed a first
promissory note and deed of trust on his property at 11916 Cane
Brake Mews in Manassas, Virginia. In June 2004, Bernardo
decided to refinance his mortgage debt by securing a loan from
National City Mortgage Company (“National City”) in the amount
of $330,000. Lawyers Title Services Inc. agreed to serve as the
trustee for the loan and National City decided to service the
loan.
The terms of the note clarified that National City could
freely transfer it at any time. The note stated that the lender
“may transfer this Note” and that the “Lender or anyone who
takes this Note by transfer and who is entitled to receive
payments under this Note is called the ‘Note Holder.’” The note
holder, in turn, obtained certain rights over the loan, such as
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the right to determine whether excess payments would be counted
towards future interest or principal, the right to receive late
charges, and the right to accelerate the payment of the loan in
the event of default.
The deed of trust likewise confirmed National City’s
ability to transfer the loan. Section 20 explained that “[t]he
Note or a partial interest in the Note (together with this
Security Instrument) can be sold one or more times without prior
notice to Borrower.” The deed of trust also clarified that in
the event of such a sale, “[t]he covenants and agreements of
this Security Instrument shall bind . . . and benefit the
successors and assigns of Lender.”
In August 2004, National City sold Bernardo’s loan to
Freddie Mac. At that point, the loan was securitized:
Bernardo’s loan was pooled with others and shares in that pool
were sold to investors. Nevertheless, National City continued
to service the loan after the sale. National City retained
possession of the note, meaning that in May of 2009, National
City Real Estate Services, LLC (“NCRES”) – an entity created to
assume many of National City’s functions – had the note.
Over the next few years, Bernardo began to miss payments on
the loan. On May 5, 2009, NCRES filed a substitution of trustee
document in the Prince William County Circuit Court Clerk’s
office. That document, prepared by Samuel I. White, asserted
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that NCRES was the “present owner and holder of the note
secured” and appointed White as the substitute trustee. White
then scheduled a foreclosure sale on the property.
On December 29, 2009, Bernardo filed a four-count complaint
in the Prince William County Circuit Court against NCRES and
White. The complaint contained one claim under the federal Fair
Debt Collection Practices Act (“FDCPA”), one claim seeking a
declaratory judgment that NCRES and White could not enforce the
note, one claim of breach of fiduciary duty, and one claim to
quiet title over the property. In response, White cancelled the
foreclosure.
PNC Bank – the successor by merger to NCRES – timely
removed the case to federal court on January 27, 2010 and filed
a motion to dismiss shortly thereafter. On April 30, 2010, the
district court conducted a hearing at which PNC Bank presented
for inspection the original note signed by Bernardo. The court
concluded that PNC’s production established that it was “in
possession of the original note,” which was endorsed in blank.
As a result, the court dismissed Bernardo’s claims in a brief
memorandum opinion issued on June 14, 2010. The district court
noted its agreement with the reasoning of other judges in
similar cases, including the district court’s opinion in Horvath
v. Bank of New York. This appeal followed.
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II.
Under Virginia law, negotiable instruments (like Bernardo’s
mortgage note) are freely transferable. As a matter of common
law, Virginia has allowed the bearer of a negotiable instrument
(that is, the person to whom funds are owed) to endorse the
instrument “in blank,” meaning that “every bearer or holder, be
he agent, trustee, finder or thief, has a right to sell [the
instrument], and to transfer it, by delivery.” Whitworth v.
Adams, 26 Va. (5 Rand.) 333, 1827 WL 1200, at *45 (1827)
(Cabell, J.). This policy is reflected in the Virginia code as
well: once an instrument is endorsed in blank, it “may be
negotiated by transfer of possession alone.” Va. Code Ann.
§ 8.3A-205(b). And where a note goes, the underlying deed of
trust follows, for under Virginia law, interests in deeds of
trust accompany the promissory notes that they secure. See
Williams v. Gifford, 124 S.E. 403, 404 (Va. Special Ct. App.
1924) (“[D]eeds of trust and mortgages are regarded in equity as
mere securities for the debt, and whenever the debt is assigned
the deed of trust or mortgage is assigned or transferred with
it.”) (citing McClintic v. Wise’s Adm’rs, 66 Va. (25 Gratt.)
448, 1874 WL 5664 (1874)).
In combination, these principles defeat Bernardo’s claims.
Bernardo’s mortgage note is a negotiable instrument under Va.
Code Ann. § 8.3A-104. That note was endorsed in blank, meaning
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it was “payable to bearer,” or enforceable by whoever possessed
it. Va. Code Ann. § 8.3A-205(b). And the deed of trust
accompanied the note. See id. § 55-59(9) (“The party secured by
the deed of trust, or the holders of greater than fifty percent
of the monetary obligations secured thereby, shall have the
right and power to appoint a substitute trustee or trustees for
any reason.”). Thus, once Bernardo defaulted on the property,
Virginia law allowed the current holder of the note to
foreclose.
To be sure, parties may contract around these baseline
rules applicable to negotiable instruments, see id. § 8.1A-
302(a), but both the note and the deed of trust demonstrate that
the parties intended to allow the loan to be freely transferred.
The note, for example, established that “the Lender may transfer
this Note,” declared that “[t]he Lender or anyone who takes this
Note by transfer and who is entitled to receive payments under
this Note is . . . the ‘Note Holder,’” and granted the note
holder the right to make various decisions about the
administration of Bernardo’s obligations and about how to deal
with default. The deed of trust used similar language,
asserting that “[t]he Note or a partial interest in the Note
(together with this Security Instrument) can be sold one or more
times without prior notice to Borrower,” and clarifying that
“[t]he covenants and agreements of this Security Instrument
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shall bind . . . and benefit the successors and assigns of
Lender.” Taken together, these provisions confirm that PNC Bank
– the current holder of the note – has the authority to
foreclose on Bernardo’s property.
In other words, it is undisputed that there was no
alteration to the note or deed of trust at any time, that there
was no change in the terms of payment on the note, that Bernardo
was in default on his obligations, and that the note was
endorsed in blank and is currently in PNC Bank’s hands. To
conclude that Bernardo should receive undisputed title to his
property based on these facts would be fundamentally at odds
with longstanding Virginia law.
III.
Bernardo makes a number of arguments in response, but they
are identical to those mounted by the appellant in Horvath v.
Bank of New York, No. 10-1528. Having reviewed and rejected
these contentions in Horvath, we adopt the same approach here.
The judgment of the district court is therefore affirmed.
AFFIRMED
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