In re Foreclosure of Bass, ___ N.C. ___, S.E.2d ___, No. 554PA11 (Filed March 8, 2013) was heard by the North Carolina Supreme Court upon discretionary review of the North Carolina Court of Appeals unanimous decision of In re Foreclosure of Bass, ___ N.C. App. ___, 720 S.E.2d 18, (2011). In what might be characterized as a philosophical comment, Justice Martin states that this "foreclosure case presents the question of whether a mortgagor's bare assertion that "you have to have more than a mere stamp" to transfer a mortgage instrument excuses her from her debt obligation. We hold that it does not." The opinion evidences little tolerance for hypertechnical objections to a lender's substantial compliance with the requirements for proper transfer of security instruments in order to forestall the foreclosure process.
In 2005 the respondent borrowed money, executed a note secured by a deed of trust and in March 2009 U.S. Bank1 filed this foreclosure action after she defaulted on her obligation by failing to make timely payment. She executed a note (the Note) with Mortgage Lenders Network USA, Inc. (Mortgage Lenders) and the Note was then transferred several times: from Mortgage Lenders to Emax Financial Group, LLC (Emax), from Emax to Residential Funding Corporation (Residential Funding), and finally from Residential Funding to U.S. Bank. The Note evidenced these transfers by stamped imprints or alonges. The first indorsement from Mortgage Lenders Network USA, Inc. to Emax Financial Group, LLC was the one challenged by the respondent, and it had what appeared to be the handwritten initials of a Chad Jones, but did not specifically identify the individual making the transfer.
The Clerk of Superior Court entered an order of foreclosure which was appealed to the Superior Court. The respondent alleged that the stamp transferring the Note from Mortgage Lenders to Emax was invalid because it lacked a signature and also asserted that U.S. Bank was required to produce the original Note instead of a photocopy otherwise the foreclosure action should be dismissed.
U.S. Bank produced the original Note at the hearing and the debtor challenged the submission asserting; "'[Y]ou have to have more than a mere stamp in order to pass ownership of commercial paper from one lender to another lender.' She also asserted, 'We don't know who had authority a[t] Mortgage Lenders Network to authorize the sale of (unintelligible) to E-Max.'" The Superior Court concluded that because the Note "was not properly [i]ndorsed and conveyed to Emax Financial Group, LLC or Residential Funding Corporation," U.S. Bank was not the rightful holder of the Note and "lack[ed] the authority to pursue a foreclosure action against Respondent Tonya R. Bass under the subject Deed of Trust.", dismissed the foreclosure action and the of Appeals affirmed, "relying on precedent from this Court that predated the adoption of the Uniform Commercial Code (UCC). The court held that "the facial invalidity of th[e] [first] stamp is competent evidence from which the trial court could conclude the stamp is unsigned and fails to establish negotiation from Mortgage Lenders to Emax."
Under N.C.G.S. § 45-21.16(d), five elements must be established before the Clerk of Superior Court may allow a foreclosure by power of sale:
(1) A valid debt of which the party seeking to foreclose is the holder,
(2) A default,
(3) A right to foreclose and power of sale under the instrument,
(4) Notice to all entitled parties . ..." N.C.G.S. § 45-21.16(d) (2011).2
(5) After October 31, 2010, the Clerk must find that the underlying loan was not a subprime loan under N.C.G.S. § 45-101(4), and that if it was a subprime loan, that notice was given under N.C.G.S. § 45-102.
Only the first requirement, whether U.S. Bank was the holder of the Note was at issue in this appeal. Citing Econo-Travel Motor Hotel Corp. v. Taylor , 301 N.C. 200, 271 S.E.2d 54, (1980); and In re Foreclosure by David A. Simpson, P.C. , ___ N.C. App. ___, 711 S.E.2d 165, (2011). the Supreme Court determined that the issue is a question of law and as such is controlled by North Carolina's version of the UCC as adopted in Chapter 25 of the North Carolina General Statutes.
The Court's analysis is succinct and follows intact:
The UCC defines the holder of a negotiable instrument to include "[t]he person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession." N.C.G.S. § 25-1-201(b)(21)(a)(2011). When the party in possession is not the original holder, if the instrument is payable to an identified person, transfer requires indorsement by each previous holder. Id. § 25-3-201(b) (2011).
An indorsement is "a signature . . . that alone or accompanied by other words is made on an instrument for the purpose of ... negotiating the instrument." Id. § 25-3-204(a) (2011). "[A] signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement." Id. (emphasis added). Without unambiguous evidence to the contrary, a signature that "is not qualified in any way and appears in the place normally used for indorsements ... may be an indorsement" even if the signer intended the signature to be something else. N.C.G.S. § 25-3-204 cmt. 1 (2011). The UCC drafters' strong presumption in favor of the legitimacy of indorsements protects the transfer of negotiable instruments by giving force to the information presented on the face of the instrument. See 6B Lary Lawrence, Anderson on the Uniform Commercial Code § 3-204:8R (3d ed. 2003) [hereinafter 6B Anderson]; see also 6 William D. Hawkland & Lary Lawrence, U.C.C. Serv. (West) § 3-204:2 (Rev. Art. 3) [hereinafter Hawkland].
The UCC defines "signature" broadly, as "any symbol executed or adopted with present intention to adopt or accept writing." N.C.G.S. § 25-1-201(b)(37)(2011). The official comment explains that as the term "signed" is used in the Uniform Commercial Code, a complete signature is not necessary. The symbol may be printed, stamped or written; it may be by initials or by thumbprint. It may be on any part of the document and in appropriate cases may be found in a billhead or letterhead. No catalog of possible situations can be complete and the court must use common sense and commercial experience in passing upon these matters.
The question always is whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing. Id. § 25-1-201 cmt. 37 (2011) (emphasis added). Thus, the UCC does not limit a signature to a long-form writing of an individual person's name. See 1B Lary Lawrence, Lawrence's Anderson on the Uniform Commercial Code § 1-201:385 (3d ed. 2012) [hereinafter 1B Anderson]. Under this broad definition, "[t]he authenticating intent is sufficiently shown by the fact that the name of a party is written on the line which calls for the name of that party." Id. § 1-201:390. Even if there might be some irregularities in the signature, the necessary intent can still be found based on the signature itself and other attendant circumstances. Id. § 1-201:405.
To the extent cases such as Mayers v. McRimmon , 140 N.C. 640, 53 S.E. 447 (1906), are superseded by the UCC in this context, they are overruled.
Thus, this case stands for the principle that if certain elements are evident an indorsement stamp by a transferor constitutes a sufficient and legal signature constituting a valid indorsement that effectively transfers a note. Those elements may be summarized as:
1.) The stamp indicates on its face an intent to transfer the debt
2.) The stamp identifies the parties to and from whom the transfer is made
3.) The stamp appears where other indorsements are normally placed
4.) The note is actually transferred in accordance with the stamp's clear intent.
5.) "unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement."
The respondent also argued that U.S. Bank had the evidentiary burden of proving that the indorsement had been duly authorized and was valid. Again, relying on the express provisions of the UCC as adopted in North Carolina, the Supreme Court stated such was not the law. "[T]he authenticity of, and authority to make, each signature on the instrument is admitted unless specifically denied in the pleadings." ... The official UCC comment to section 25-3-308 explains that "the signature is presumed to be authentic and authorized ... until some evidence is introduced which would support a finding that the signature is forged or unauthorized." ... . Until the defendant produces such evidence, "the plaintiff is not required to prove that [the signature] is valid." ... "The defendant is therefore required to make some sufficient showing of the grounds for the denial before the plaintiff is required to introduce evidence." (citations omitted)
The Court cites the official comment to the UCC where it explains the rationale behind the presumption in favor of the signature being authentic and authorized seeing rooted in the fact that ordinarily forged or unauthorized signatures are rare, and normally proof to the contrary will more likely lie with party objecting. The court noted that N.C.G.S. Section 25-1-206 was controlling with respect to the burden of proof where it provides that: "Whenever this Chapter creates a 'presumption' with respect to a fact, or provides that a fact is 'presumed', the trier of fact must find the existence of the fact unless and until evidence is introduced that supports a finding of its nonexistence."
The opinion goes on to say the respondent simply "made the bare assertion, "We don't know who had authority a[t] Mortgage Lenders Network to authorize the sale of (unintelligible) to E-max." She asserted, "[Y]ou have to have something more than a mere stamp..." without offering any evidence of forgery or error. "Her bare assertions, with no supporting evidence, did not amount to a 'sufficient showing of the grounds for the denial.' N.C.G.S. § 25-3-308 cmt. 1; see also Dobson v. Substitute Tr. Servs., Inc. , ___ N.C. App ___, ___, 711 S.E.2d 728, 731 (concluding the mortgagor's statement, 'I cannot confirm the authenticity of the copy of the [n]ote produced by the Defendants,"' was insufficient to cast doubt upon the bank's status as holder of the promissory note), aff'd per curiam, 365 N.C. 304,716 S.E.2d 849 (2011)."
Without a an adequate evidentiary showing by the respondent on the issue of forgery or lack of authority, the statutory presumption obviate any need for the lender to prove that the signature was valid...or even to offer evidence on the issue. Thus, the trial court and Court of Appeals erred in concluding the Note was not properly indorsed and transferred in this matter.