Court Opinion

ID: 217575
Source: CourtListenerOpinion
Date Created: 2011-05-26 20:58:37+00
Date Added: 2024-06-11T13:00:10.251751
License: Public Domain

UNPUBLISHED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.

-------------------------------------

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Affirmed by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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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