On March 13, 2023, the Washington Court of Appeals (“Court”) found, among other things, that “there is no authority” to support “that a holder of a note must possess the note on (or affix supporting documents to the note by) the date of the filing of a complaint for judicial foreclosure in order to enforce the note.” 21st Mortgage Corp. v. Nicholls et al., No. 83347-2-I, 2023 WL 2473116, ¶¶ 1, 48 (Ct. App. Wa. Mar. 13, 2023). More details on this important ruling are below.
In 21st Mortgage Corporation, a borrower defaulted on a loan and the lender accordingly filed a foreclosure complaint against the borrower and the owner of the secured property. The owner argued that the lender lacked standing to enforce the note because the lender allegedly didn’t possess the note, and certain allonges weren’t affixed to the note, at the time the lender filed its foreclosure lawsuit. These issues were ultimately tried to a jury following a lengthy procedural history, the jury ruled in favor of the owner, and the trial court denied the lender’s motion to set aside the jury’s verdict.
The Court reversed the trial court’s ruling on appeal. In short, the Court rejected the owner’s various standing theories and found that Washington law did not support them. Among other rulings, the Court found that:
- There was no authority to support that “a fact finder must determine when allonges were possessed or affixed to a note to establish standing to enforce the note.” Id. at ¶ 40.
- “Affixation is not required for standing,” and a holder therefore does not need to show that allonges are “permanently” affixed to a note at the time the note was indorsed in blank. Id. at ¶ 41.
- “[T]here is no authority in support” of the theory that a holder “must possess the note and allonges . . . at the time” of filing a lawsuit to establish standing. Id. at ¶ 48. Instead, the operative time for a holder to prove its possession is “the date the court considers the merits of the proposed decree of foreclosure.” Id. at ¶ 46.