## Facts

- Damion and Kiya Carmichael refinanced their home mortgage with Ameriquest Mortgage Company (Ameriquest), executing a promissory note and granting a mortgage on the property.
- Shortly after origination, Ameriquest conveyed the note and mortgage to Deutsche Bank National Trust Company (Deutsche Bank).
- The assignment was not recorded immediately, although Deutsche Bank asserted it possessed the original note and had the right to enforce it.
- The Carmichaels defaulted on their payment obligations, and Deutsche Bank filed a mortgage-foreclosure action in Pennsylvania state court.
- Deutsche Bank moved for summary judgment in the foreclosure action.
- Before the state court ruled on the summary-judgment motion, the Carmichaels filed a Chapter 13 bankruptcy petition and removed the foreclosure action to the bankruptcy court as an adversary proceeding.
- In opposing summary judgment, the Carmichaels alleged Ameriquest fraudulently induced them to refinance and sign the note through misrepresentations about the loan and that Ameriquest’s conduct violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL).
- The Carmichaels argued these origination-based defenses should prevent Deutsche Bank, as assignee, from obtaining foreclosure relief.

## Issues

1. Whether Deutsche Bank was entitled to summary judgment in foreclosure after showing it held and could enforce the note and mortgage and that the Carmichaels were in default.
2. Whether Deutsche Bank qualified as a holder in due course under Pennsylvania’s UCC with respect to the promissory note.
3. If Deutsche Bank was a holder in due course, whether the Carmichaels’ defenses based on fraud in the inducement and UTPCPL violations by Ameriquest could be asserted to defeat foreclosure.

## Decision

- The bankruptcy court granted Deutsche Bank’s motion for summary judgment in the removed mortgage-foreclosure action.
- The court concluded Deutsche Bank established the elements necessary to enforce the note and mortgage and showed no genuine dispute of material fact as to default.
- The court determined Deutsche Bank qualified as a holder in due course because it took the negotiable note for value, in good faith, and without notice of the Carmichaels’ asserted defenses at the time it acquired the instrument.
- Because Deutsche Bank was a holder in due course, the Carmichaels’ defenses and theories based on Ameriquest’s alleged fraud in the inducement and UTPCPL violations were not effective against Deutsche Bank in the foreclosure action.
- The court rejected arguments that Deutsche Bank’s reliance on holder-in-due-course status was unfairly raised or developed too late to be considered on summary judgment, given the record and the opportunity to respond.

## Legal Principles

- Summary judgment is appropriate when, under the governing procedural standard, there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law; the nonmovant must point to evidence, not rely only on pleadings.
- Under Pennsylvania’s UCC, a holder in due course is a holder who takes a negotiable instrument for value, in good faith, and without notice of claims or defenses.
- A holder in due course takes the instrument free of most “personal defenses,” including fraud in the inducement and similar origination-based misconduct claims.
- Only limited “real defenses” (such as fraud that goes to the nature of the instrument itself, not merely the decision to sign it) may be asserted against a holder in due course.
- In a removed state-law foreclosure action, the assignee’s right to foreclose turns on enforceability of the note and mortgage and the borrower’s default; origination disputes with a prior holder generally do not bar enforcement by a holder in due course.

## Conclusion

The bankruptcy court entered summary judgment for Deutsche Bank in the removed Pennsylvania mortgage-foreclosure action, holding that Deutsche Bank was a holder in due course of the Carmichaels’ note and therefore was not subject to the Carmichaels’ fraud-in-the-inducement and UTPCPL defenses aimed at the originating lender, leaving no triable issue preventing foreclosure.


Deutsche Bank National Trust Co. v. Carmichael (In re Carmichael), 443 B.R. 699 (2011)