## Facts

- Mary Dixon-Ford bought a home using Weichert Realtors (Weichert) as her real estate broker.
- She financed the purchase with a residential mortgage loan originated by Weichert Financial Services (WFS), a Weichert-affiliated lender.
- Dixon-Ford asserted she gave WFS documentation that accurately reflected her employment and income.
- Dixon-Ford claimed a WFS loan officer prepared or submitted a loan application overstating her income by several multiples and describing her job title at the Social Security Administration as far more senior than it was (including an application reflecting “Vice President” status and approximately $11,900 in monthly income).
- A verification-of-employment (VOE) form became a focal point of the dispute; the record contained conflicting VOE versions and related markings that Dixon-Ford argued supported her claim that employment information was altered to qualify her for a larger loan.
- The mortgage loan was later transferred into a mortgage-backed securities transaction and deposited into a securitization trust.
- U.S. Bank National Association (U.S. Bank) served as trustee for the securitization trust and received possession of the note and related loan documents as part of the transaction.
- Dixon-Ford defaulted on the mortgage and thereafter filed a Chapter 13 bankruptcy case.
- Within the bankruptcy case, Dixon-Ford brought an adversary proceeding against U.S. Bank, Weichert, and WFS asserting common-law fraud and New Jersey statutory fraud/consumer-protection theories, alleging she was deceived into executing the mortgage based on falsified income and employment information.
- U.S. Bank moved for summary judgment, contending it was a holder in due course of the promissory note under Article 3 of the Uniform Commercial Code (as adopted in New Jersey) and therefore took the note free of Dixon-Ford’s origination-related fraud defenses and claims.
- Weichert and WFS also moved for summary judgment, disputing liability and challenging whether Dixon-Ford could prove the elements required for her fraud and statutory claims.

## Issues

1. Whether U.S. Bank, as trustee that acquired the note through securitization, qualified as a holder in due course (including whether it took the note for value, in good faith, and without notice of Dixon-Ford’s defenses or claims).
2. If U.S. Bank was a holder in due course, whether Dixon-Ford’s allegations that origination documents were falsified amounted to “personal defenses” (such as fraud in the inducement) that are cut off as against a holder in due course, rather than “real defenses” (such as fraud in the factum) that remain available.
3. Whether the evidence of allegedly inflated income and altered employment verification created genuine disputes of material fact that prevented summary judgment for the originating parties (WFS and Weichert) on Dixon-Ford’s fraud and New Jersey statutory claims.

## Decision

- The court granted U.S. Bank’s summary-judgment motion to the extent Dixon-Ford sought to defeat U.S. Bank’s rights on the note based on origination-stage fraud and related statutory theories.
- The court concluded U.S. Bank met the requirements for holder-in-due-course status: it took the negotiable instrument as a holder, for value, in good faith, and without notice of Dixon-Ford’s alleged defenses at the time it acquired the note through the securitization transaction.
- The court treated Dixon-Ford’s allegations about overstated income, altered VOE information, and broker/lender misrepresentations as fraud in the inducement and similar “personal defenses,” which do not defeat enforcement by a holder in due course.
- The court rejected the argument that U.S. Bank’s role in acquiring loans in bulk (and relying on transaction representations and warranties rather than performing loan-by-loan underwriting) alone showed lack of good faith or notice sufficient to defeat holder-in-due-course status.
- As to WFS and Weichert, the court declined to dispose of the case on summary judgment where the record reflected disputes about what Dixon-Ford submitted, what WFS’s personnel prepared or changed, and whether Dixon-Ford was misled into signing loan documents inconsistent with her actual income and employment.

## Legal Principles

- Summary judgment is appropriate only when no genuine dispute of material fact exists and the movant is entitled to judgment as a matter of law; reasonable inferences are drawn for the nonmovant.
- Under UCC Article 3 (as adopted in New Jersey), a transferee is a holder in due course if it is a holder of a negotiable instrument and takes it (i) for value, (ii) in good faith, and (iii) without notice of claims, defenses, or instrument irregularities.
- “Good faith” for holder-in-due-course purposes is measured by honesty in fact and observance of reasonable commercial standards of fair dealing in the relevant business context; acquiring notes through securitization and relying on customary transaction protections does not, by itself, establish bad faith.
- A holder in due course takes the instrument free from most borrower-originator disputes and “personal defenses,” including fraud in the inducement and similar misrepresentation-based defenses.
- “Real defenses” (for example, fraud in the factum—misrepresentation about the very nature of the instrument signed) are not cut off by holder-in-due-course status, but allegations that a borrower was induced to sign by misstated underwriting information generally fall on the personal-defense side of the line.
- Borrower remedies for origination misconduct typically lie against the originating lender and intermediaries who made or participated in the alleged misrepresentations, rather than against a downstream holder in due course that lacked notice when it acquired the note.

## Conclusion

In re Dixon-Ford held that U.S. Bank, as trustee for a securitization trust that acquired Dixon-Ford’s mortgage note, could obtain summary judgment because it qualified as a holder in due course and therefore took the note free of Dixon-Ford’s origination-based fraud-in-the-inducement defenses and related statutory theories, while disputes about the alleged falsification of income and employment information prevented summary judgment for the originating broker/lender defendants.


In re Dixon-Ford, 2011 WL 6749083 (2011)