Author: Elinor H. Murarova

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.” 21^st 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 21^st 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.

On March 1, 2023, the Pennsylvania Superior Court reversed and remanded a trial court’s ruling that, among other things, denied the appointment of a receiver. SKW-B Acquisitions Seller C, LLC v. Stobba Residential Associates, L.P., et al., Nos. 73 EDA 2022 and 101 EDA 2022, 2023 WL 2293902 (Sup. Ct. Pa. Mar. 1, 2023).*

In relevant part, the Superior Court held that loan documents entitling the lender to request the appointment of a receiver (i.e., that “[u]pon the occurrence of any Event of Default, Borrower agrees that Lender may … apply for the appointment of a receiver, . . .”) did not automatically entitle the lender to the actual appointment of a receiver. Id. at *6. Instead, the Superior Court found that, given the particular loan document language in the case, the trial court retained the discretion to grant or deny the lender’s request for the appointment of a receiver and therefore had to consider common law factors such as whether the borrower: (i) wasted or dissipated assets; or (ii) defaulted on its loan payments. Id.

*The Stobba Residential Associates, L.P. decision is listed as a non-precedential as of this post.