Title: Anderson v. Burson

State: maryland

Issuer: Maryland Supreme Court

Document:

Hosea Anderson, et ux. v. John S. Burson, et al., No. 8, September Term 2011
COMMERCIAL LAW–NEGOTIABLE INSTRUMENTS–DEED OF TRUST
PROMISSORY NOTES–NONHOLDER STATUS: The substitute trustees under a
residential deed of trust may enforce an unindorsed promissory note that secures the deed of
trust under Maryland Code, Commercial Law § 3-301(ii), where the mortgage originator
transferred the note to investors, who securitized it, and the mortgagors conceded the note’s
transfer history.
Circuit Court for Howard County
Case No. 13-C-08-72277 
IN THE COURT OF APPEALS
OF MARYLAND
No. 8 
September Term, 2011
                                                                             
HOSEA ANDERSON, et ux.
v.
JOHN S. BURSON, et al.
                                                                             
 
Bell, C.J.,
Harrell
Battaglia
Greene
*Murphy
Adkins
Barbera,
JJ.
                                                                             
Opinion by Harrell, J.
                                                                             
Filed:   December 20, 2011
*Murphy, J., now retired, participated in the
hearing and conference of this case while an
active member of this Court; he did not
participate in the decision and adoption of this
opinion.  
 
Petitioners, Hosea and Bernice Anderson (the Andersons), appear to be fairly typical
representatives, in many ways, of the larger class of homeowners facing foreclosure during
recent difficult economic times.  The Andersons defaulted on their refinanced home
mortgage  because of financial hardships.  Faced with foreclosure, the Andersons initiated,
1
among other maneuvers, a request to enjoin the seemingly flawed foreclosure action filed by
Respondents.  Respondents—the substitute trustees under the mortgage (Substitute Trustees),
agents of the trustee, Deutsche Bank Trust Company Americas (Deutsche)—possess and seek
to enforce an “under-indorsed”  mortgage note (the Anderson Note or Note), which, prior to
2
coming into their possession, was transferred three times intermediately, bundled with a
multitude of other mortgages, securitized, lost, and then discovered before the ultimate
  This case involves a deed of trust to secure repayment of the loan promissory note. 
1
Because the case before us turns on whether the Substitute Trustees may enforce the
Anderson promissory note based on the proof of the quality (or lack thereof) of their
possession of the note, whatever the recognized differences there are between whether the
associated security instrument is a mortgage or a deed of trust, see Simard v. White, 383 Md.
257, 269–90, 859 A.2d 168, 175–88 (2004), are of no moment in resolving the present case.
We have treated these two types of instruments interchangeably when discussing repayment
of their associated notes.  See Hand v. Mfrs. & Traders Trust Co., 405 Md. 375, 387, 952
A.2d 240, 247 (2008); Legacy Funding LLC v. Cohn, 396 Md. 511, 513 n.1,  914 A.2d 760,
761 n.1 (2007); May Dep’t Stores v. Montgomery Cnty., 118 Md. App. 441, 451, 702 A.2d
988, 994 (1997).  Therefore, we may use the term mortgage, at some points in this opinion,
to embrace both mortgages and deeds of trust, without blurring their distinction for other
purposes.  
  We describe the Note as “under-indorsed” for several reasons.  The Anderson Note
2
itself was unindorsed—despite the Substitute Trustees’s initial representation that they
possessed the Note indorsed in blank.  The Substitute Trustees represented later that they did
not have an allonge, but at a subsequent hearing, produced an undated allonge (unattached
to the original note and signed by the initial holder only), which the Court of Special Appeals
considered void.  Anderson v. Burson, 196 Md. App. 457, 471, 9 A.3d 870, 878 (2010).     
evidentiary hearing that paved the way for a foreclosure sale.  
Securitization of residential mortgages, once a very lucrative practice, is denounced
frequently now by the public and media, described as “shoveling loans into trusts like coal
into the Titanic’s boilers.”  Gretchen Morgenson, Guess What Got Lost in the Pool?, N.Y.
Times, 1 Mar. 2009, at BU1.  At best, it is a modern, fast-paced commercial practice that 
mis-aligns with some of the hoary law of negotiable instruments secured by realty.  Yet only
since the advent of the recent economic downturn have courts been called upon to consider
the claims of borrowers challenging some of these industry practices and shortcomings.  
3
This case presents an opportunity to clarify Maryland law regarding enforcement of defaults
under unindorsed mortgage notes. 
We shall affirm the Court of Special Appeals’s holding that the trial court did not
abuse its discretion in denying injunctive relief to the Andersons.  Deutsche and its agents,
the Substitute Trustees, are nonholders in possession and entitled to enforce the Anderson
Note and deed of trust, notwithstanding the pitfalls in the securitization process suggested
by the course of this case.  
  In a federal case, plaintiff-lender’s condescending remarks to the court suggest the
3
previous indifference to imprecise foreclosure practices. In re Foreclosure Cases,
1:07CV2282, 2007 U.S. Dist. LEXIS 84011 (N.D. Ohio 31 Oct. 2007).  The trial judge
ordered the plaintiff-lender to cure its insufficient foreclosure complaint, to which counsel
for the plaintiff-lender responded, “Judge, you just don’t understand how these things work”
and that “there appears to be some level of disagreement and/or misunderstanding amongst
. . . members of the judiciary.”  In re Foreclosure Cases, 2007 U.S. Dist. LEXIS 84011 at
*7 & n.3 (applying federal rules of procedure).  We do not suggest that the Substitute
Trustees’ trial or appellate counsel here acted in this manner.  
-2-
I.  FACTS
A.  Precursor Events to the Foreclosure
The Andersons refinanced their home mortgage in October 2006.   In accomplishing
4
the refinancing, only Mr. Anderson signed the promissory note and both of the Andersons
signed the deed of trust  (the Anderson Note and deed of trust may be referred to collectively
5
as the Anderson Mortgage) in favor of Wilmington Finance, Inc. (Wilmington).  Saxon
Mortgage Services, Inc. (Saxon) serviced the Anderson Mortgage and collected Mr.
Anderson’s payments, such as they were.  Due to economic hardships that ensued, Mr.
Anderson defaulted quickly on his Note obligations in 2007, and the Substitute Trustees
commenced foreclosure proceedings on 21 February 2008 in the Circuit Court for Howard
County.  The Substitute Trustees filed an order to docket, which included a motion for
  The record extract does not disclose whether both of the Andersons executed the
4
promissory note for the loan that existed before October 2006.  This is noteworthy only
because of the fact that, for reasons that are unexplained in this record extract, only Mr.
Anderson appears to have signed the promissory note for the October 2006 refinancing.  
  The deed of trust states that Mrs. Anderson mortgaged to Wilmington Finance, Inc.
5
her  interest in the Andersons’ residence: 
Borrower covenants and agrees that Borrower’s obligations and
liability shall be joint and several.  However, any Borrower who
co-sign this Security Instrument but does not execute the Note
(a “co-signer”): (a) is co-signing this Security Instrument only
to mortgage, grant and convey the co-signer’s interest in the
Property under the terms of this Security Instrument; (b) is not
personally obligated to pay the sums secured by this Security
Instrument; and (c) agrees that Lender and any other Borrower
can agree to extend, modify, forbear or make any
accommodations with regard to the terms of this Security
Instrument or the Note without the co-signer’s consent.  
-3-
acceptance of lost note affidavit.   The Circuit Court judge granted the motion. 
6
On 13 March 2008, the Andersons caused a temporary halt in the foreclosure action
by filing for Chapter 13 Bankruptcy relief, in which they listed Saxon as a secured creditor. 
As part of a consent order in the federal court resolving Saxon’s motion for relief from the
bankruptcy stay, the Andersons acknowledged the mortgage debt, and Mr. Anderson agreed
to cure the missed payments over six equal-monthly payments of $804.44.  A prompt default
ensued under this new payment plan.
Meanwhile, investors were securitizing the Anderson Note into an investment trust. 
To provide some appreciation of the securitization process, we shall divert briefly from our
recitation of the material facts in this case.
 
Securitization starts when a mortgage originator sells a mortgage and its note to a
   A foreclosure plaintiff commences an action to foreclose a deed of trust, which
6
contains a power of sale provision, by filing an order to docket.  See Md. Rule 14-207(a)(1);
Md. Code Ann., Real Prop. § 7-105.1(d) (LexisNexis Supp. 2011).  An order to docket must
include, among other documentation: a copy of the deed of trust, supported by an affidavit
that it is a true and accurate copy; a copy of the debt instrument, supported by an affidavit
certifying ownership of the debt instrument; and a deed of appointment of a substitute trustee,
supported by an affidavit that it is a true and accurate copy of the deed of appointment.  Md.
Rule 14-207(b); Real Prop. § 7–105.1(d)(1)–(2).
   The Circuit Court may not accept a lost note affidavit, in lieu of a copy of the debt
instrument, unless the affidavit: “(1) [i]dentifies the owner of the debt instrument and states
from whom and the date on which the owner acquired ownership;  (2) [s]tates why a copy
of the debt instrument cannot be produced; and (3) [d]escribes the good faith efforts made
to produce a copy of the debt instrument.”  Real Prop. § 7-105.1(d-1).  
   The Substitute Trustees filed a lost note affidavit and a motion for acceptance of lost
note affidavit.  As to why a copy of the Anderson Note could not be produced, the lost note
affidavit stated simply that the Note “has been lost or destroyed and cannot be produced.” 
-4-
buyer, who is typically a subsidiary of an investment bank.  Christopher L. Peterson,
Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System,
78 U. Cin. L. Rev. 1359, 1367 (2010).    The investment bank bundles together the multitude
of mortgages it purchased into a “special purpose vehicle,”  usually in the form of a trust, and
7
sells the income rights to other investors.  Id.  A pooling and servicing agreement establishes
two entities that maintain the trust: a trustee, who manages the loan assets, and a servicer,
who communicates with and collects monthly payments from the mortgagors.  Id. 
Mortgage-securitization investors utilize the  Mortgage Electronic Registration System
(MERS), a private land-title registration system created by mortgage banking companies to
expedite the securitization process. See Jackson v. Mortg. Elec. Registration Sys., 770
N.W.2d 487, 490 (Minn. 2009).  MERS increases the efficiency and profitability of mortgage
markets by skirting the traditional land-title recording process in localities, which can be
costly and time consuming, and replacing it with the industry’s own electronic tracking
system.  See Jackson, 770 N.W.2d at 490–91. To do so, the mortgage broker names MERS
as a nominal mortgagee  in the mortgage.  Then, subsequent transfers of the mortgage are
8
recorded electronically and entirely on MERS while the original mortgage, recorded in the
public land title records, remains unchanged.  Jackson, 770 N.W.2d at 490; Peterson, supra,
  “A special purpose vehicle is a business entity that is exclusively a repository for
7
the loans; it does not have any employees, offices, or assets other than the loans it
purchases.”  Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the
Mortgage Electronic Registration System, 78 U. Cin. L. Rev. 1359, 1367 (2010).  
  The Anderson Mortgage lists MERS as the nominee.   
8
-5-
at 1371.  MERS’s industry-appreciated virtues have made it a near ubiquitous aspect of
contemporary residential mortgages; two-thirds of all newly originated residential loans in
the United States name MERS as the nominal mortgagee.  See Jackson, 770 N.W.2d at
491–92; Peterson, supra, at 1370.   
 
While MERS enables investment banks to rush millions of mortgages through the
securitization process at a rapid rate, the volume and profitability has come at a cost.
Mortgage transferors frequently lose or misplace mortgage documents  and fail to indorse
9
mortgage notes, shortcomings that transferees are willing to overlook lest they be slowed
down by traditional negotiable instrument formalities.  We shall return now to our regularly
scheduled opinion.
B.  The Anderson Note
In route to being securitized, the Anderson Note was transferred, but not indorsed
correspondingly, three times.  First, the initial lender, Wilmington, transferred the Note to
Morgan Stanley Mortgage Capital Holding, Inc. (Morgan Stanley I), who in turn transferred
the Note to Morgan Stanley ABS Capital I Inc. (Morgan Stanley II).  Morgan Stanley II
  One Florida Legal Aid attorney estimated that 80 percent of her foreclosure
9
proceedings involve a lost note affidavit.  Bob Ivry, Banks Lose to Deadbeat Homeowners
as 
Loans 
Sold 
in 
Bonds 
Vanish, 
Bloomberg, 
Feb. 
22, 
2008,
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aejJZdqodTCM.  This begs
the question, where do the mortgage notes go?  While one bankruptcy judge guessed the
notes were being sent to a warehouse, a real estate lawyer remarked that they are being “‘sent
to the inside of a mountain in the middle of America.’” Symposium, Consumer Bankruptcy
Panel: A Brave New World (of Foreclosure), 27 Emory Bankr. Dev. J. 257, 273 (2011); Ivry,
supra.    
-6-
securitized the Anderson Note, along with a multitude of others, into the Morgan Stanley
Home Equity Loan Trust 2007-2 (Morgan Stanley Trust).  The Morgan Stanley Trust pooling
and servicing agreement (PSA) named Deutsche as trustee (and Saxon as servicer), and so
the note was transferred to Deutsche as trustee. 
C.  The Andersons Challenge the Substitute Trustees’ Right to Enforce the Note
Upon Mr. Anderson’s latest default in making payments under the bankruptcy plan,
the Substitute Trustees, after reinstating the foreclosure process in the Circuit Court,
scheduled a foreclosure sale for 18 November 2008.  On 12 November 2008, the Andersons
filed an injunction request in the foreclosure action.  The Circuit Court enjoined temporarily
the foreclosure proceeding until a hearing could be held regarding the sought-after
injunction. 
 A total of three hearings took place.  At the first hearing, on 26 November 2008, the
Substitute Trustees, despite the earlier lost note affidavit,  produced a photocopy of the
unindorsed Note and stated that the original note was indorsed in blank (which ultimately
proved to be an inaccurate statement).  The Circuit Court judge, exercising commendable
caution in the face of the curious turn of events, rescheduled the evidentiary hearing to
determine the Substitute Trustees’ right to enforce the Note.  
At the second hearing, on 7 January 2009, the Substitute Trustees produced the
original Note, unindorsed, and asserted, “We have the original Note, but we do not have an
-7-
indorsement; we do not have an assignment; we do not have an allonge . . . .”   Because the
10
Substitute Trustees failed to comply with the Andersons’ discovery request for a copy of the
Morgan Stanley Trust PSA, the parties and the Circuit Court judge agreed to continue again
the evidentiary hearing.    
At the third hearing, on 31 March 2009, the Substitute Trustees produced the
following evidence to legitimize their claim to enforce the Anderson Note: testimony from
Dennis Sugrue, Esquire, a lawyer from the Substitute Trustees’ firm;  a MERS report
11
showing that Wilmington transferred the beneficial rights to the Anderson Note to Morgan
Stanley I on 12 February 2007 and servicing rights to Saxon on 14 February 2007; the
Anderson deed of trust naming MERS as the nominee; and the Andersons’ Chapter 13
Bankruptcy Schedule D, which listed Saxon as a secured creditor.  In addition, the Substitute
Trustees (pulling yet another rabbit from their magician’s hat) produced an undated,
unattached allonge, signed by Wilmington purported transferring the Note to Deutsche, but
which did not contain indorsements from the parties that possessed intermediately the Note. 
  An allonge (not to be confused by a lay reader with a lozenge) is typically a “slip
10
of paper sometimes attached to a negotiable instrument for the purpose of receiving further
indorsements when the original paper is filled with indorsements.”  Black’s Law Dictionary
88 (9th ed. 2004). 
  Mr. Sugrue, who was assertedly familiar with his firm’s file regarding the
11
Anderson Note, testified on direct and cross-examination that the deed of trust terms
permitted the Note to be transferred to others; that Wilmington transferred the Note’s
beneficial rights to Morgan Stanley I on 12 February 2007 and servicing rights to Saxon on
14 February 2007; that the Saxon’s loan number, handwritten on the Note, matched the loan
number on the allonge, the MERS report, and the Andersons’ bankruptcy documents; and
that Deutsche’s role as trustee and holder did not arise until 1 March 2007.  
-8-
The Substitute Trustees argued that the allonge made them holders of the Note.  The allonge
contained a Saxon loan number, which matched a handwritten number on the Anderson Note
but did not match the Wilmington loan number.  
Seizing upon the absence of indorsements by the intervening transferors, the
Andersons riposted that, other problems aside, Wilmington lacked the capacity to indorse the
Note to Deutsche, via the allonge, because Wilmington had transferred previously its interest
to Morgan Stanley I on 12 February 2007.  In support of this argument, the Andersons,
during their counsel’s  cross-examination of Mr. Sugrue, introduced into evidence an excerpt
from the PSA establishing that Deutsche’s interest in the transactions regarding the Note was
not created until 1 March 2007.  The Andersons urged that, when Wilmington indorsed
purportedly the Note to Deutsche (after 1 March 2007), Wilmington had transferred already
its interest in the Note to Morgan Stanley I (on 12 February 2007), and, thus, had no interest
left to convey to Deutsche at that time.   
The Circuit Court ruled in favor of the Substitute Trustees, finding that Wilmington
indorsed successfully the Note to Deutsche via the allonge, despite acknowledging
indorsement gaps in the Note’s overall transfer history.  Thus, the trial judge determined that
the Substitute Trustees were holders of the Note under Maryland Code, Commercial Law §
3-302(a),  and denied the Andersons’ demand for an injunction.    
12
  Maryland Code, Commercial Law § 3-302(a) (2002) provides:
12
(continued...)
-9-
The Andersons noted timely an appeal to the Court of Special Appeals.  Our appellate
colleagues disregarded the allonge because Wilmington transferred its rights in the Note to
Morgan Stanley I before it purported to indorse the Note to Deutsche via the allonge.  The
Court of Special Appeals concluded, nonetheless, that Deutsche was entitled to enforce the
instrument.  Under the “shelter rule,” Deutsche was held to be a nonholder in possession with
the rights of a holder, pursuant to Maryland Code, Commercial Law § 3-301(ii) (LexisNexis
2002).   Anderson v. Burson, 196 Md. App. 457,  469–75, 9 A.3d 870, 877–80 (2010).
13
(...continued)
12
Subject to subsection (c) and § 3-106 (d), "holder in due
course" means the holder of an instrument if:  (1) The
instrument when issued or negotiated to the holder does not bear
such apparent evidence of forgery or alteration or is not
otherwise so irregular or incomplete as to call into question its
authenticity; and (2) The holder took the instrument (i) for
value, (ii) in good faith, (iii) without notice that the instrument
is overdue or has been dishonored or that there is an uncured
default with respect to payment of another instrument issued as
part of the same series, (iv) without notice that the instrument
contains an unauthorized signature or has been altered, (v)
without notice of any claim to the instrument described in §
3-306, and (vi) without notice that any party has a defense or
claim in recoupment described in § 3-305(a).
  Maryland Code, Commercial Law § 3-301 (2002) provides: 
13
"Person entitled to enforce" an instrument means (i) the
holder of the instrument, (ii) a nonholder in possession of the
instrument who has the rights of a holder, or (iii) a person not in
possession of the instrument who is entitled to enforce the
instrument pursuant to § 3-309 or § 3-418 (d). A person may be
a person entitled to enforce the instrument even though the
(continued...)
-10-
The Andersons petitioned us for a writ of certiorari, which we granted, 418 Md. 457,
9 A.3d 870 (2011), to consider the following questions:  
I.  Did the Court of Special Appeals err in determining
that the Substitute Trustee’s principal, Deutsche, was a
“nonholder in possession of the Note who has the rights of a
holder,” where Deutsche filed a Lost Note Affidavit in which
Deutsche admitted that it did not possess the Note at the time
this case was filed?
II.  Did the Court of Special Appeals err in relying on the
Uniform Commercial Code, as enacted in Maryland, to
determine that the unindorsed Note was properly transferred to
Deutsche, while disregarding contrary language in the Pooling
and Servicing Agreement which created the securitized trust?
We granted also the Substitute Trustee’s timely cross-petition in which they asked, “Did the
Court of Special Appeals err in determining ineffective an indorsement by the named payee
[the allonge] after it had transferred the note?”  
We shall affirm the Court of Special Appeals’s judgment and hold that the Circuit
Court did not abuse its discretion in denying the Andersons’ request to enjoin the foreclosure
sale of the home securing the loan.  The Substitute Trustees, as agents for Deutsche, are
nonholders in possession of the instrument and have the rights of holders.   Because the
Andersons conceded the transfer history of the Note, the Substitute Trustees may enforce the
Anderson Mortgage as nonholders in possession.  Consequently, we do not reach the
(...continued)
13
person is not the owner of the instrument or is in wrongful
possession of the instrument.
-11-
question posed in the Substitute Trustees’ cross-petition.
We shall not decide the Andersons’ second question either because they waived it. 
Ordinarily, we will consider an issue that has been raised in the petition for certiorari, but
only if has been preserved for review by this Court.  Md. Rule 8-131(b).  The Andersons
waived this argument by not raising it at trial or in their initial brief in the Court of Special
Appeals.  See Anderson, 196 Md. App. at 476, 9 A.3d at 881 (citing Strauss v. Strauss, 101
Md. App. 490, 509 n.4, 647 A.2d 818, 828 n.4 (1994)) (“A reply brief cannot be used as a
tool to inject new arguments.”).  As interesting as an unpreserved question appear to us, we
will not grant ordinarily to petitioners a new bob at a long-floating apple.
II.  STANDARD OF REVIEW
The grant or denial of injunctive relief in a property foreclosure action lies
generally within the sound discretion of the trial court.  Wincopia Farm, LP v. Goozman, 188
Md. App. 519, 528, 982 A.2d 868, 873 (2009) (citing Jones v. Rosenberg, 178 Md. 54, 65,
940 A.2d 1109, 1115 (2008)). Therefore, we review the trial court’s grant or denial of a
foreclosure injunction for an abuse of discretion.  Id. (citing Jones, 178 Md. at 65, 940 A.2d
at 1115).   Abuse of discretion means that a ruling will be reversed when that ruling “‘does
not logically follow from the findings from which it supposedly rests or has no reasonable
relationship to its announced objective.’” Eastside Vend Distrib., Inc. v. Pepsi Bottling
Group, Inc., 396 Md. 219, 240, 913 A.2d 50, 63 (2006) (quoting Dehn v. Edgecombe, 384
Md. 606, 628, 865 A.2d 603, 616 (2005)).  We review the trial and intermediate appellate
-12-
courts’ legal conclusions, however, nondeferentially.  Wincopia Farm, 188 Md. App. at 528,
982 A.2d at 873 (citing Moscarillo v. Prof’l Risk Mgmt. Servs. Inc., 169 Md. App. 137, 145,
899 A.2d 956, 961 (2006)); see also Garfink v. Cloisters at Charles, Inc., 392 Md. 374, 383,
897 A.2d 206, 211 (2006) (stating that questions of law are reviewed without deference).  
III.  DISCUSSION
The Andersons argue initially that, because the Substitute Trustees commenced the
foreclosure action by filing a lost note affidavit stating that the Anderson Note was either lost
or destroyed and cannot be produced, the Substitute Trustees could not have been in
possession of the Note at the time the suit was instituted.  The Substitute Trustees counter
that they produced the Anderson Note, albeit at the third and final evidentiary hearing before
the foreclosure occurred.  They assert also that nothing more should be made of the lost note
affidavit than that the Note was merely unavailable at the time they filed the action.
The relief requested here by the Andersons—remand to the Circuit Court for new
proceedings—is impractical and judicially inefficient on the conceded facts in this record. 
See Bankers Trust of Cal., N.A. v. Neal, 779 A.2d 813, 815 (Conn. App. Ct. 2001) (stating
that no practical relief was available to defendant where plaintiff amended its complaint to
include a lost note affidavit).   On remand, the Substitute Trustees would file a new or
amended order to docket with a copy of the Note.  In light of the Andersons’
acknowledgments of the Note’s transfer history, the affirmed existence of the debt, and Mr.
Anderson’s default (and our conclusions of law discussed below), the Substitute Trustees
-13-
would prevail most likely.
The Andersons argue alternatively that the Substitute Trustees produced no evidence
that they possess the Note currently and lawfully, and did not meet their burden of proof14
in that regard; therefore, they and their principal, Deutsche, cannot enjoy the rights of a
holder.  We agree that, when put at issue properly (as was the case here), a reputed transferee
in possession of an unindorsed mortgage note has the burden to establish its rights under that
note—especially in instances where the mortgagor requests an injunction to foreclose
enforcement by the possessor based on such a defense.  Maryland Rule 14-207(b)(3)15
requires a mortgagee to produce a copy of the note.  Thereafter, the Maryland Commercial
Law Article takes over and, as discussed below, requires a person in possession of an
unindorsed mortgage note to prove that note’s prior transfer history (as opposed to a holder,
  The Substitute Trustees retort they do not have a burden of proof because Maryland
14
is a nonjudicial foreclosure state.  Their characterization of Maryland’s foreclosure statute
as nonjudicial is slightly inaccurate.  While all nonjudicial foreclosure statutes allow holders
of mortgages with a power of sale provision to sell the property privately, 4 Richard R.
Powell, Powell on Real Property § 37.42 (Michael Allan Wolf, ed. 2011), many nonjudicial-
foreclosure statutes do not require the mortgagee to produce the mortgage note at all.  See,
e.g., Tina v. Countrywide Home Loans, Inc., No. 08 CV 1233 JM (NLS), 2008 U.S. Dist.
Lexis 88302, *21 (S.D. Cal. Oct. 30, 2008) (“[The California Civil Code] outlines the
requirements for nonjudicial foreclosures in California, and does not include providing the
original note prior to the sale.”).  Maryland Rule 14-207(b)(3) requires, in contrast, the
mortgagee to produce a copy of the mortgage note.  Thus, Maryland’s statute does not fall
squarely within concept of nonjudicial foreclosure. 
  Maryland Rule 14-207(b) (2011) provides, “Exhibits.  A complaint or order to
15
docket shall include or by accompanied by: . . . a copy of any separate note or other debt
instrument supported by an affidavit that it is a true and accurate copy and certifying
ownership of the debt instrument: . . . . 
-14-
whom the Commercial Code presumes is entitled to payment under § 3-308(a)).  
16
Additionally, given the chain-of-possession document quagmire exemplified by this case,
fairness dictates that the mortgagee produce the necessary proof, when that matter is put at
issue properly.
The Maryland Code, Commercial Law Article governs a negotiable promissory note
that is secured by a deed of trust.  Silver Spring Title Co. v. Chadwick, 213 Md. 178, 181, 131
A.2d 489, 490 (1957); Le Brun v. Prosise, 197 Md. 466, 474–75, 79 A.2d 543, 548 (1951);
Md. Code Ann., Com. Law § 9-203(g) & cmt. 9 (LexisNexis 2002).  The deed of trust cannot
be transferred like a mortgage; rather, the corresponding note may be transferred, and carries
with it the security provided by the deed of trust. Le Brun, 197 Md. at 474, 79 A.2d at 548. 
Therefore, we analyze the parties’ dispute here in light of the Commercial Law Article.     
  Maryland Code, Commercial Law § 3-308(a) (2011) provides:
16
In an action with respect to an instrument, the
authenticity of, and authority to make, each signature on the
instrument is admitted unless specifically denied in the
pleadings. If the validity of a signature is denied in the
pleadings, the burden of establishing validity is on the person
claiming validity, but the signature is presumed to be authentic
and authorized unless the action is to enforce the liability of the
purported signer and the signer is dead or incompetent at the
time of trial of the issue of validity of the signature. If an action
to enforce the instrument is brought against a person as the
undisclosed principal of a person who signed the instrument as
a party to the instrument, the plaintiff has the burden of
establishing that the defendant is liable on the instrument as a
represented person under § 3-402 (a).
-15-
Whether a negotiable instrument, such as a deed of trust note, is transferred or
negotiated dictates the enforcement rights of the note transferee.  A transfer has two
requirements: the transferor (any person that transfers the note, except the issuer) must intend
to vest in the transferee the right to enforce the instrument (thieves and accidental transferees
are excluded) and must deliver the instrument so the transferee receives actual or constructive
possession. Com. Law § 3-203(b); 6B Lary Lawrence, Anderson on the Uniform Commercial
Code § 3-203:5R (3d ed. 2003).   A transfer vests in the transferee only the rights enjoyed
by the transferor, which may include the right to enforce the instrument. Com. Law § 3-
203(a)–(b).   
17
A negotiation, by contrast, occurs when a holder—who is either the named payee of
an instrument or the transferee of a negotiated instrument—transfers possession of an
instrument, payable to bearer, to another.  Com. Law § 3-201(a)–(b) & cmt. 1.  A negotiation
of an instruments payable to an identified person, however, requires the holder to transfer
  Maryland Code, Commercial Law § 3-203(a)–(b) provides: 
17
(a) An instrument is transferred when it is delivered by a
person other than its issuer for the purpose of giving to the
person receiving delivery the right to enforce the instrument. 
(b) Transfer of an instrument, whether or not the transfer
is a negotiation, vests in the transferee any right of the transferor
to enforce the instrument, including any right as a holder in due
course, but the transferee cannot acquire rights of a holder in
due course by a transfer, directly or indirectly, from a holder in
due course if the transferee engaged in fraud or illegality
affecting the instrument.
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possession and indorse the instrument, i.e., negotiate the instrument.  Id.  Importantly, only
a holder may negotiate an instrument. Com. Law § 3-203 cmt. 1.  Thus, a recipient of a
transferred instrument is a transferee, but a recipient of a negotiated instrument is a holder.
With that distinction in mind, Commercial Law § 3-301 explains that a person entitled
to enforce a negotiable instrument may be either of three varieties: “(i) the holder of the
instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder
[i.e., a transferee] or (iii) a person not in possession of the instrument who is entitled to
enforce pursuant to § 3-309 . . . .”18
  Maryland Code, Commercial Law § 3-309 provides:
18
(a) A person not in possession of an instrument is entitled
to enforce the instrument if (i) the person was in possession of
the instrument and entitled to enforce it when loss of possession
occurred, (ii) the loss of possession was not the result of a
transfer by the person or a lawful seizure, and (iii) the person
cannot reasonably obtain possession of the instrument because
the instrument was destroyed, its whereabouts cannot be
determined, or it is in the wrongful possession of an unknown
person or a person that cannot be found or is not amenable to
service of process.
(b) A person seeking enforcement of an instrument under
subsection (a) must prove the terms of the instrument and the
person's right to enforce the instrument. If that proof is made, §
3-308 applies to the case as if the person seeking enforcement
had produced the instrument. The court may not enter judgment
in favor of the person seeking enforcement unless it finds that
the person required to pay the instrument is adequately protected
against loss that might occur by reason of a claim by another
person to enforce the instrument. Adequate protection may be
provided by any reasonable means.
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On the record before us, Deutsche is not a holder of the Anderson Note.  Deutsche
possesses the Note, which is payable to Wilmington, but Wilmington did not indorse the
Note itself.  Although the Substitute Trustees urge that the allonge indorses purportedly the
Note to Deutsche, the allonge is anachronistically impossible.  Deutsche’s role as trustee did
not arise until after Wilmington had transferred its rights to Morgan Stanley I; thus, by the
time Wilmington reputedly made the allonge to Deutsche, Wilmington had no rights in the
Note to transfer.  Therefore, Wilmington did not negotiate the Note to Deutsche.
The Commercial Law Article recognizes alternatively that an instrument may be
enforced, under Commercial Law § 3-301(ii), by a nonholder in possession of an instrument
who has the rights of a holder, i.e., a transferee in possession or nonholder in possession. 
Com. Law § 3-301 cmt. (“The definition [of person entitled to enforce instrument]
recognizes that enforcement is not limited to holders.”).  A nonholder in possession may
enforce an instrument under Commercial Law § 3-301(ii) if his/her transferor was a holder,
because a transferee obtains the rights of his transferor/holder, which includes the right to
enforce the instrument. Com. Law § 3-203, cmt. 2.  A transferee obtains also the rights that
his transferor obtained from his own transferor.  This principle is known as the “shelter rule.” 
Lawrence, supra, § 3-203:15R to 16R (3d ed. 2003).  
Deutsche, as transferee, obtained from Wilmington the rights of a holder from
Wilmington under the shelter rule.  Wilmington was a holder because Wilmington possessed
the Note, which is payable to it.  See Com. Law § 1-201(20).  Based on the record in the
present case, it is conceded that Wilmington transferred the Anderson Note, which, after
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several intervening transfers, is now possessed by Deutsche and its agents, the Substitute
Trustees.  No entity in the Note’s transfer chain is claimed to have acquired possession of the
Note by theft or accident. There can be little doubt, in this context, that each
transferor—Wilmington, Morgan Stanley I, and Morgan Stanley II—intended to vest in its
transferee the right to enforce the Note.  Therefore, the successful series of Note transfers
from Wilmington to Deutsche vested in Deutsche Wilmington’s rights as a holder.     
A nonholder in possession, however, cannot rely on possession of the instrument
alone as a basis to enforce it.  The transferee’s right to enforce the instrument derives from
the transferor (because by the terms of the instrument, it is not payable to the transferee) and
therefore those rights must be proved.  Com. Law § 3-203 cmt. 2; accord Leavings v. Mills
175 S.W.3d 301 (Tex. Ct. App. 2004 ) (“A person not identified in a note who is seeking to
enforce it as the owner or holder must prove the transfer by which he acquired the note.”) 
The transferee does not enjoy the statutorily provided assumption of the right to enforce the
instrument that accompanies a negotiated instrument, and so the transferee “must account for
possession of the unindorsed instrument by proving the transaction through which the
transferee acquired it.” Com. Law § 3-203 cmt. 2.  If there are multiple prior transfers, the
transferee must prove each prior transfer.  U.S. Bank Nat’l Assoc. v. Ibanez, 941 N.E.2d 40,
53 (Mass. 2011) (citing In re Parrish, 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005)). Once
the transferee establishes a successful transfer from a holder, he or she acquires the
enforcement rights of that holder.  See Com. Law § 3-203 cmt. 2.  A transferee’s rights,
however, can be no greater than his or her transferor’s because those rights are “purely
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derivative.”  Lawrence, supra, § 3-203:15R.  Thus, the Substitute Trustees here, who possess
an unindorsed note and wish to enforce it, had the burden of proving their status as nonholder
in possession. 
At the injunction hearing, the Substitute Trustees failed to prove every prior
transaction through which it acquired purportedly nonholder status.  Instead, the Substitute
Trustees focused on proving that the unattached, undated allonge was a legitimate and
effective indorsement from Wilmington to Deutsche and, as a result, fell short of the proof
requirements of Commercial Law § 3-203(b).   The Substitute Trustees produced no
19
evidence to prove the Morgan Stanley I to Morgan Stanley II transfer.  Even a single break
in the transaction chain can be fatal to a transferee’s claim of holder status.  
The Substitute Trustees also failed to prove the transfer from Morgan Stanley II to
Deutsche.  Although they rely on the excerpt from the PSA (actually produced by the
Andersons) to prove the transaction between Morgan Stanley II and Deutsche, the PSA
excerpt is incomplete in a material way. The excerpt contained a mere 22 pages of a
voluminous document (estimated at 950 pages), and none of the excerpt pages in the record
provide sufficient evidence that Mortgage Stanley II transferred the Note to Deutsche.
  We do not decide whether the copy of the MERS report, printed from a website,
19
and the testimony from Mr. Sugrue established the Note transaction between Wilmington and
Morgan Stanley I because the Substitute Trustees failed to prove the remaining transactions. 
Although, while mere introduction of a note or testimony alone fails to establish nonholder
status, “both and a bit more” would likely establish holdership rights.  State Sav. & Loan
Assoc. v. Liberty Trust Co., 863 F.2d 423, 426 (5th Cir. 1989) (stating that a bank established
itself as a nonholder in possession where the bank produced an unindorsed promissory note
and uncontested witness testimony regarding transfer of the promissory note).    
-20-
Assuming arguendo that the complete PSA were before us,  the PSA fails to “clearly
20
and specifically identif[y] the mortgage at issue as among those assigned” to the Morgan
Stanley Trust.  Ibanez, 941 N.E.2d 40 at 53.   According to the terms of the PSA, the
21
mortgage loan schedule, which identifies the individual mortgage loans that comprise the
Morgan Stanley Trust, are located in Schedule I of the PSA.  Schedule I states, however, that
the mortgage loan schedule has been “Delivered to the Securities Administrator and the
Trustee and not attached to the Pooling and Servicing Agreement.”  (Emphasis added.)  The
PSA failed to identify the Anderson Note as among those that comprise the Morgan Stanley
Trust.  Thus, the PSA on the SEC website failed to evince that Morgan Stanley II transferred
the Note to Deutsche.
  The Substitute Trustees imply in their brief and at oral argument that the missing
20
portions of the PSA could be retrieved, as a public document, from the Security and
Exchange Commission’s (SEC) website and judicial notice could be taken of the complete
document.  See Md. Rule 5-201.  For the sake of completeness, the Court examined, with
some difficulty, the PSA; however, the Court’s role is not to engage in a scavenger hunt in
the electronic maze that is the SEC website.    
  Although we extract from Ibanez this proposition, the case has limited persuasive
21
value regarding its ultimate conclusion that the mortgagee-lenders failed in that case to prove
holder status. Maryland law and Massachusetts law differ over the transfers of mortgages. 
Ibanez held that the mortgage must be transferred with the mortgage note.  Maryland law
holds that the mortgage transfers with the mortgage note.  Le Brun v. Prosise, 197 Md. 466,
474–75, 79 A.2d 543, 548 (1951) (“‘The note and the mortgage are inseparable; the former
as essential, the latter as an incident. An assignment of the note carries the mortgage with it,
while an assignment of the latter alone is a nullity.’” (quoting Carpenter v. Longan, 83 U.S.
271, 274, 21 L. Ed. 313, 316, 1872 U.S. LEXIS 1157, *7 (1873))); Md. Code Ann., Com.
Law § 9-203(g) & cmt. 9 (LexisNexis 2002) (“Subsection (g) codifies the common law rule
that a transfer of an obligation secured by a security interest or other lien on personal or real
property also transfers the security interest or lien.”). 
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Despite the many shortcomings of the Substitute Trustees’ evidence, the Andersons
conceded in their reply brief in the Court of Special Appeals that Deutsche holds the Note
currently.  In their reply brief in the Court of Special Appeals, the Andersons wrote:  
The evidence at trial established that the Note has changed
ownership at least three times, summarized as follows: 1.  On
October 13, 2006, [the Andersons] refinanced their home loan
with Wilmington . . . .  2.  On February 12, 2007, Wilmington
transferred the beneficial rights in the Note to [Morgan Stanley
I].  3.  Subsequent to February 12, 2007, but before March 1,
2007 . . . [Morgan Stanley I] transferred its ownership of the
Note to [Morgan Stanley II].  4.  On March 1, 2007, [Morgan
Stanley II] sold, transferred, assigned, set over and conveyed to
[Deutsche], as trustee for the [Morgan Stanley Trust], all right,
title and interest in and to the Note and other pooled mortgage
loans.
Also, at trial in cross-examination of Mr. Sugrue, the Andersons’ counsel inquired
rhetorically, “So you would agree that the [Morgan Stanley Trust] is the actual location
where the Andersons’ Note and Deed of Trust [are] located . . . ?”   
22
Our appellate colleagues noted these facts as undisputed.  Anderson, 196 Md. App.
at 469, 9 A.3d at 877.  We take into account the Andersons’ factual concessions as part of
our analysis.  See Weil v. Free State Oil Co., 200 Md. 62, 66, 87 A.2d 826, 827 (1952) (“An
appellant can, of course, abandon some of the issues raised below and stand here [in the
Court of Appeals] on narrower ground.”); Hughes v. Insley, 155 Md. App. 608, 623, 845
A.2d 1, 9 (2003) (using appellant’s concession of fact to reject his argument).
  Mr. Anderson conceded the debt also by listing Saxon as a secured creditor;
22
renegotiating his mortgage payments during his Chapter 13 Bankruptcy; and paying, without
protest, mortgage payments to Saxon (to the extent that he made payments).
-22-
On the record here, the Substitute Trustees may enforce the Anderson Note as
nonholders in possession who have the rights of holders.  Because the Note is unindorsed,
the Substitute Trustees, putting aside the potential ramifications of their cross-petition
question, had to prove the Note’s transfer history in order to establish their rights as a
nonholder in possession.  The Andersons’ concessions established the Note’s transfer history,
clearing the way for the Substitute Trustees to enforce the Anderson Mortgage through
foreclosure.  Therefore, we affirm the judgment of the Court of Special Appeals.  
JUDGMENT OF THE COURT OF SPECIAL
APPEALS AFFIRMED; PETITIONERS TO
PAY COSTS IN THIS COURT AND THE
COURT OF SPECIAL APPEALS.
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