Liberty Mortgage Corporation, a Georgia corporation; BB&T Corporation, a North Carolina corporation; and Branch Banking and Trust Company, a North Carolina corporation; Petitioners
Raymond L. Fiscus, a/k/a Ray Fiscus, Respondent
Certiorari to the Colorado Court of Appeals Court of Appeals Case No. 13CA420
Attorneys for Petitioner Branch Banking and Trust Company: Dufford, Waldeck, Milburn & Krohn, LLP Christopher G. McAnany Grand Junction, Colorado
Attorneys for Respondent: Hoskin Farina & Kampf, P.C. David M. Dodero Nicholas H. Gower Grand Junction, Colorado
JUSTICE GABRIEL does not participate.
¶1 Petitioner Branch Banking and Trust Company asks us to decide whether a deed of trust securing a promissory note is a negotiable instrument under Article 3 of Colorado's Uniform Commercial Code ("UCC"). The court of appeals held that deeds of trust are not negotiable instruments within the meaning of Article 3, and therefore the bank was not a holder in due course with respect to the deed at issue here. Fiscus v. Liberty Mortg. Corp., 2014 COA 79, ¶¶ 47–49, ___P.3d ___.
¶2 We affirm the judgment of the court of appeals, but on different grounds. In this case, the deed and other documents were forged. We hold that, even assuming a deed of trust qualifies as a negotiable instrument, holder-in-due-course status does not preclude a purported maker from asserting a forgery defense. Here, the purported maker possesses a valid forgery defense, his negligence did not contribute to the forgery, and he did not ratify the forged documents. As such, we need not and do not reach the issue of the negotiability of deeds of trust under Article 3.
¶3 Respondent Ray Fiscus ("Husband") married Vickie Casper-Fiscus ("Wife") in 1985. In 1987, he purchased property in Grand Junction, Colorado, and titled it solely in his name. He financed the purchase with a mortgage loan, and the couple used the property as their marital home. Throughout their marriage, Wife managed their finances, which included the payment of household bills as well as mortgage and credit card debts. Husband neither confirmed these payments nor reviewed the couple's bank statements or tax returns, and so he had little knowledge of their precise finances.
¶4 In June 2008, without his knowledge or authorization, Wife signed Husband's name on a General Power of Attorney, a Limited Power of Attorney, and a Power of Attorney (Real Estate) (collectively, the "forged POAs"), which together purported to appoint her as Husband's lawful attorney. Her daughter from a previous marriage notarized the documents. Using the forged POAs, Wife closed on a promissory note for approximately $220, 000 with Liberty Mortgage Corporation and secured it with a deed of trust (the "2008 deed") purporting to encumber the property. She signed the 2008 deed as "Raymond Fiscus by Vickie L. Casper-Fiscus as Attorney in Fact." The couple's 2008 tax return, signed by both spouses, included a mortgage interest deduction in the amount of $1, 722. This was consistent with the amount Husband would have expected to have paid on the original 1987 mortgage loan. At no time in 2008 did Husband become aware of the note Wife executed.
¶5 In early 2009, Wife began making inquiries about refinancing the 2008 note. While doing so, she sent an email to a mortgage broker informing him that Husband "is out of town a lot so I have power of attorney" and asking if proceeding with the refinancing by power of attorney would be a problem. In February and March, she signed Husband's name to several loan application documents, and, on March 30, she executed another note in the amount of $220, 000 with Liberty Mortgage, once again using the forged POAs, securing the note with a deed of trust purporting to encumber the property (the "2009 deed"), and signing both documents as "Raymond Fiscus by Vickie L. Casper-Fiscus as Attorney in Fact." Husband never authorized her to execute the 2009 note or deed in his name and had no knowledge of them at the time. Wife paid off the 2008 note with the proceeds from the 2009 note, and the 2008 note was released. Liberty Mortgage subsequently assigned the 2009 note and deed to BB&T Corporation, which, in turn, assigned them to petitioner Branch Banking and Trust.
¶6 The mortgage interest deduction on the couple's 2009 tax return was $12, 323, an amount much higher than Husband would have expected to claim on the original mortgage loan from 1987. Wife signed his name on the tax return without his knowledge, and, when he asked about it, she told him he did not need to sign it because he had authorized electronic filing. Husband never saw the tax return.
¶7 Wife hid all the documents evidencing the 2008 and 2009 transactions in the crawl space of their home. Husband did not learn of the transactions until 2011 when his broker contacted him to authorize an attempted withdrawal from his IRA account in the amount of $5, 000. During that conversation, Husband learned that Wife had made an unauthorized withdrawal from his account earlier for $10, 000 with the help of her son-in-law, who had impersonated Husband on the phone. Husband then performed a credit check and discovered the 2009 note. After discovering the note, he checked the county property records and uncovered the 2008 and 2009 deeds as well as the forged POAs. He filed an identity theft report with the sheriff's office and an identity theft statement with Branch Banking and Trust. He also sued Liberty Mortgage, BB&T, and Branch Banking and Trust under the spurious lien statute, §§ 38-35-201 to -204, C.R.S. (2015), seeking to have the 2009 deed invalidated.
¶8 The district court held a show cause hearing in August 2012 at which Husband, Wife, Wife's daughter, and a BB&T representative, among others, testified. In a detailed order, the district court held that the 2009 deed was spurious because it was not created, suffered, assumed, or agreed to by Husband, the property's sole owner, and contained a material misstatement, that is, Husband's signature.
¶9 The court also rejected Branch Banking and Trust's defenses. As relevant here, the bank argued that, under Article 3 of the UCC, it qualified as a holder in due course and took the 2009 deed free from any forgery defense. In the alternative, it contended that Husband's negligence contributed to the making of the forged deed and that he ratified the deed. The trial court, however, held that the 2009 deed was not a "negotiable instrument" but a "security instrument, " and therefore the bank could not assert a holder-in-due-course or negligent-contribution defense under Article 3. It also rejected Branch Banking and Trust's ratification argument, concluding instead that Husband lacked knowledge of the facts relating to the documents' creation until December 2011 and took no action at that time to approve them. Consequently, the court invalidated the 2009 deed and ordered its release.
¶10 The court of appeals affirmed. Fiscus, ¶ 1. It agreed with the trial court that a deed of trust is a security instrument, not a negotiable instrument, and therefore held that the Article 3 defenses did not apply. Id. at ¶ 47. It further concluded that there was record support for the trial court's finding that Husband lacked knowledge of the material facts relating to the 2009 deed until December 2011. Id. at ¶ 41. Correspondingly, it affirmed the lower court's holding that Husband did not ratify the note. Id. at ¶¶ 41, 43.
¶11 Branch Banking and Trust petitioned this court to review the court of appeals' holding, and we granted certiorari to determine whether a lender in possession of a promissory note secured by a deed of trust on real property may assert a holder-in-due-course defense under section 4-3-305, C.R.S. (2015), to a claim that the deed of trust was forged. We conclude, however, that Husband has a valid forgery defense, not barred by negligence or ratification, ...