To Collect On Blank Indorsements, Make Sure There Are No Gaps

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The Court of Appeals recently held that as long as there are no gaps in the indorsements, a bank, or other person or entity in possession of a negotiable promissory note indorsed in blank, is the holder of that note entitled to enforce it. Deutsche Bank Nat. Trust Co. v. Brock (“Brock”), 55 SEPT.TERM 2012, 2013 WL 1164508 (Md. Mar. 22, 2013).  To enforce the note, the holder need not prove how he, she or it came to possess it. 

The disputed holder of the note (“Note”) in Brock was BAC Home Loans Servicing LP (“BAC”) (now known as Bank of America, N.A.), the sub-servicer for the loan, which had the power of attorney from Deutsche Bank, trustee for the owner of the Note. 

The Court of Special Appeals characterized BAC as a nonholder in possession because the Note was not specifically indorsed to BAC.  Such a nonholder does not “enjoy the statutorily provided assumption of the right to enforce the instrument that accompanies a negotiated instrument.”  This meant that BAC could only enforce the Note if it could account for its possession of the unindorsed instrument by proving the transaction in which it was acquired.  Thus, BAC had the burden to prove how BAC obtained the note, and the court found that Deutsche Bank and BAC failed to meet this burden. 

The Court of Appeals reversed.  The Court distinguished this case from Anderson v Burson, 424 Md. 232, 35 A.3d 452 (2011), which the Court of Special Appeals had relied on.  Brock was distinguishable because there were no gaps in the indorsements.  In sum, the Court held that according to Maryland Commercial Law, § 3-301, BAC was in possession of a note that was indorsed in blank and was therefore the holder of the Note entitled to enforce it.

Read full opinion here: http://mdcourts.gov/opinions/coa/2013/55a12.pdf