CA Judge: HELOC Notes Are Not Negotiable Instruments — Possession Is Not Enough — Pretender Lenders Must Prove the Debt and Ownership

Here we have a ruling that firmly states the obvious, with widespread ramifications. HELOC (Home Equity Line of Credit) promissory notes represent evidence of a debt depending upon how much the homeowner borrows, repays or otherwise receives advances. It is not a promise to pay a single unqualified amount of money.

While the mortgage or deed of trust on the primary mortgage carries with it obligations to pay variable sums, the promissory note does not, which is why judges treat the note as a negotiable instrument if it is valid on its face.

What you are going to see is that the HELOC is left out of foreclosure because the pretender lender cannot prove the debt or its ownership. If the HELOC and the primary mortgage involve the same pretender lender, then discovery on the HELOC is relevant both because the HELOC might convert the first mortgage from a purchase money mortgage to a hybrid and because it provides an avenue to demand proof of ownership over the DEBT.

Bottom Line: AS long as pretenders can assert possession of a facially valid note they will argue that they have nothing else to prove to enforce the note and therefore the primary mortgage. HELOCS might be different.

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see order granting in part denying in part msj

MSJ Motion

Hat Tip Allan Baroni. THANKS!

The motion for summary adjudication and the order holding that a Home Equity Line of Credit is not payable for a fix sum and is therefore not a negotiable instrument, is attached, with some sample text below.

Financial institutions securitized billions in Home Equity Lines of Credit (HELOC). These same institutions argue in courts across the country that HELOCs are negotiable instruments under the Uniform Commercial Code, and therefore, the banks do not have to prove ownership of the debt, rather merely possession; “Even if we stole the HELOC, we have the right to enforce it under the Uniform Commercial Code, because we have possession of the original instrument.” A California Court disagreed, and in considering a borrower’s motion for summary adjudication, held that HELOCs are not payable for a fixed sum and are therefore not negotiable instruments; a ruling that helps pave the way to force banks to prove ownership of billions of dollars in HELOCs under contract law.

“The HELOC Is Not a Negotiable Instrument”

Section 104.3104 of Nevada’s Uniform Commercial Code provides that, among other things, “‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money.” Nev. Rev. Stat. Ann. § 104.3104(1). Neither of the parties has cited to any Nevada authorities dealing with the issue of whether a note evidencing a line of credit qualifies as a Courts applying other states’ versions of UCC § 3-104 have held that lines of credit or revolving loans are not negotiable instruments as they fail the “fixed amount” requirement. Am First Fed. v. Gordon, 2015 WL 3798210 (Conn. Super. Ct. May 26, 2015); Heritage Bank v.Bruha, 812 N.W.2d 260 (2012); Yin v. Society Nat’l Bank Ind., 665 N.E.2d 58 (1996); Resolution Trust Corp. v. Oaks Apts. Joint Venture, 966 F.2d 995 (5th Cir. 1992); Cadle Co. v. Richardson, 597 So. 2d 1052 (1992). Under the terms of the HELOC, the obligee promises to lend Baroni money “from time to time” upon her request, up to a credit limit of $134,998.00, and Baroni promises to pay “when and as due, all loans made under this Agreement” pursuant to periodic monthly statements. The HELOC, however, does not state “a fixed amount of money” that Baroni is required to pay and the revolving nature of the agreement demonstrates Baroni would owe different amounts at different points in time depending upon her requests for loans and payments on account of those loans. Therefore, the HELOC does not qualify as a negotiable instrument within the meaning of section 104.3104.2 Because the HELOC is not a negotiable instrument, section 104.3205 does not apply to the HELOC. Nev. Rev. Stat. § 104.3205.”

9 Responses

  1. My 2007 Countrywide HELOC went “poof” recently. It was treated as impaired and unsecured in my Chapter 11 bankruptcy, which bankruptcy was occasioned by malfeasance on the part of Residential Credit Solutions (RCS) in the handling of my and everyone else’s loan mod applications. I owed so much more than the house was worth (even as valued by the inflated appraisal RCS concocted for a federal judge), that my plan only required me to 20% of the HELOC’s balance, in 60 monthly installments.

    Amalgamated had somehow begun to think of themselves as the creditor on my former HELOC, after CW, BofA, and RCS had assumed and abandoned the difficult job of depositing a check once a month. When BofA transferred the subservicing of the primary loan to RCS, they retained the HELOC. I don’t know how Amalagamated got mixed up in it.

    Amalgamated didn’t make a peep during the year it took to get my Chapter 11 repayment plan confirmed. Then, after a few months of accepting the lowered payment the judge ordered them to accept, they had the deed of trust reconveyed to me. My credit report says the loan is closed.

    I didn’t default on the HELOC during the 6 years I endured BofA’s and RCS’s criminal mis-handling of my HAMP fraud-mod applications. In retrospect, the monthly HELOC payments I made for years after I defaulted on the primary might have been the reason BofA strung me along for so many years (four), losing or expiring each of the several complete HAMP applications I stupidly faxed and re-faxed to them.

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  2. Cementboots:
    If your loan is in a HELOC Trust, then it is a HELOC. If your mortgage originator lied about everything else, then they lied about this also. The employees of your servicer are reading off a screen, they know even less, so do your research to find out what is what.

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  3. so what if your refi deal was stated as a Fannie Mae loan but when it was securitized they put it into a HELOC trust? Is that evidence that you didn’t get a conventional loan but rather a HELOC?

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  4. You can’t Stop a Foreclosure. .. But You Can Delay It!
    Every Reverse is Foreclosed.

    Till Death Do Us Part

    ITS DEADLY CLEAR !!!

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  5. That’s how the Note & Mortgage are Separated .

    If you can’t beat them..Bite Them!
    BITE HARD!

    KC didn’t sign the Promissory Note, but she signed a Mortgage.
    KC as One Half of the Estate

    KC Title Abstractor Takes A Bite our of Crime….😀

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  6. Purchase and Sale Agreements
    AKA Reverse Purchase
    Reverse AKA a HELOC

    UH OH!

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  7. Reblogged this on Deadly Clear.

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