UCC Hierarchy of Rights to Enforce Note and Mortgage

HAPPY NEW YEAR to readers who celebrate Rosh Hashanah! To all others, have a HAPPY DAY. This is a prescheduled article.

ABOUT LIVINGLIES AND LENDINGLIES

I have assembled a partial list of various possible claimants on the note and various possible claimants on the mortgage. Which one of these scenarios fits with your case? Once you review them you can see why most law students fall asleep when taking a class on bills and notes. Some of these students became practicing attorneys. Some even became judges. All of them think they know, through common sense, who can enforce a note and under what circumstances you can enforce a mortgage.

But common sense does not get you all the way home. It works, once you understand the premises behind the laws that set forth the rights of parties seeking to enforce a note or the parties seeking to enforce a mortgage. The only place to start is (1) knowing the fact pattern alleged as to the note (2) knowing the fact pattern alleged as to the mortgage and (2) looking at the laws of the state in which the foreclosure is pending to see exactly how that state adopted the Uniform Commercial Code as the law of that state.

I don’t pretend that I have covered every base. And it is wise to consider the requirements of law, as applied to the note, and the requirements of equity as applied to the mortgage.

In general, the UCC as adopted by all 50 states makes it fairly easy to enforce a note if you have possession (Article 3).

And in general, the UCC as adopted by all 50 states, increases the hurdles if you wish to enforce a mortgage through foreclosure. (Article 9).

The big one on mortgages is that the foreclosing party must have paid value for the mortgage which means the foreclosing party must have purchased the debt. But that is not the case with notes — except in the case of someone claiming to be a holder of the note in due course. A holder in due course does not step into the lender’s shoes — but all other claimants listed below do step into the lender’s shoes.

The other major issue is that foreclosing on a mortgage invokes the equitable powers of the court whereas suing on the note is simply an action at law. In equity the court takes into consideration whether the outcome of foreclosure is correct in the circumstances. In suits on notes the court disregards such concerns.

Knowing the differences means either winning or losing.

Let us help you plan for trial and draft your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

I provide advice and consent to many people and lawyers so they can spot the key required elements of a scam — in and out of court. If you have a deal you want skimmed for red flags order the Consult and fill out the REGISTRATION FORM. A few hundred dollars well spent is worth a lifetime of financial ruin.

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORMWITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TERA (Title & Encumbrances Analysis and & Report) 202-838-6345 or 954-451-1230. The TERA replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

UCC Hierarchy 18-step Program – Notes and Mortgages

The following is a list of attributes wherein a party can seek to enforce the note and mortgage if they plead and prove their status:

  1. Payee with possession of original note and mortgage.
  2. Payee with lost or destroyed original note but has original mortgage.
  3. Payee with lost or destroyed original note and lost or destroyed original mortgage.
  4. Holder in Due Course with original note endorsed by payee and original mortgage and assignment of mortgage by mortgagee.
  5. Holder in due course with lost or destroyed note but has original mortgage.
  6. Holder in due course with lost or destroyed original note and lost or destroyed original mortgage.
  7. Holder with rights to enforce with possession of original note and original mortgage.
  8. Holder with rights to enforce with lost or destroyed original note but has original mortgage.
  9. Holder with rights to enforce with lost or destroyed original note but does not have original mortgage.
  10. Possessor with rights to enforce original note and original mortgage
  11. Former Possessor with rights to enforce lost or destroyed note and original mortgage
  12. Former Possessor with rights to enforce lost or destroyed note but does not have original mortgage.
  13. Non-possessor with rights to enforce original note and original mortgage (3rd party agency)
  14. Non-possessor with rights to enforce lost or destroyed note (3rd party agency) and rights to enforce original mortgage
  15. Non-Possessor with rights to enforce lost or destroyed note (3rd party agency) but does not have the original mortgage.
  16. Assignee of purchased original mortgage with possession of original mortgage but no rights to enforce note.
  17. Assignee of purchased original mortgage without possession of original mortgage and no rights to enforce note.
  18. Purchaser of debt but lacking assignment of mortgage, endorsement on the note, and now has learned that the loan was purchased in the name of a third party and lacking privity with said third party. [This category is not directly addressed in the UCC. It is new, in the world of claims of securitization]

Facts matter. It is only by careful examination of the fact pattern and comparing the facts with the attributes listed in the UCC that you can determine the strategy for a successful foreclosure defense strategy. For example if the XYZ Trust is named as the foreclosing party and 123 Servicing is holding the original note and perhaps even the original mortgage, who has the right to foreclose and under what lawful scenario — and why?

Head spinning? GET HELP!

Click Here to Donate to LivingLies Blog

TONIGHT! How to distinguish between legal presumptions of facts and the facts themselves

A client of our internet services store asked a simple question. He had asked the opposing side if they were a holder in due course. What he received was evasive and misleading and essentially never answered the question. Now what? Below is my answer to his question and what we will be discussing tonight on the The Neil Garfield Show

How the banks confuse judges, foreclosure defense lawyers and homeowners by wrongfully inoking legal presumptions.

Thursdays LIVE! Click in to the The Neil Garfield Show

Or call in at (347) 850-1260, 6pm Eastern Thursdays

 

You have already achieved the intermediate goal. At this point you can argue that you asked for the identity of the holder in due course and they were unable or unwilling to provide the information. The confusion emanates from the fact that a holder can sue on the note if it has the right to enforce the note, which right must come from the creditor.
+
But the apparent rebuttable legal presumptions run against you. In every case the success of the foreclosure is entirely dependent upon the success of the foreclosure mill attorneys in invoking legal presumptions of fact because the actual facts differ from what is presumed by the Judge.
+
But the one legal presumption that would wipe out virtually all borrower defenses is NEVER invoked — the status of holder in due course. Because that would mean proving that a purchase of the debt, note and mortgage occurred in which the foreclosing party is or was the purchaser in good faith and without knowledge of the borrower’s defenses. Instead the crafty lawyers get judges to presume that the foreclosing party should be treated as a holder in due course, thereby evading their true burden of proof.
+
It’s no mystery why they don’t use the holder in due course allegation. But the absence of such an allegation simply and logically leads to a conclusion. One or more of the elements is missing. Which part? Is it the purchase, the good faith or knowledge?

Terms of Art: Assignment or Endorsement?

Lawyers, judges and homeowners are using different terms interchangeably thus muddying up the argument or ruling. An assignment refers to a mortgage whereas an   endorsement (“indorsement” in legalese) refers to a note. The rules regarding enforcement of a mortgage are different than the enforcement of a note.

Let us help you plan your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult

PLEASE FILL OUT AND SUBMIT OUR FREE REGISTRATION FORMWITHOUT ANY OBLIGATION. OUR PRIVACY POLICY IS THAT WE DON’T USE THE FORM EXCEPT TO SPEAK WITH YOU OR PERFORM WORK FOR YOU. THE INFORMATION ON THE FORMS ARE NOT SOLD NOR LICENSED IN ANY MANNER, SHAPE OR FORM. NO EXCEPTIONS.

Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

I want to point out the difference between assignment and endorsement. Because judges often defer to bank lawyers to explain the law, there is some confusion there. Often the point is that there was no valid purported assignment of the mortgage and there was no valid endorsement of the note. The argument has great significance particularly in view of the use of sham conduints at the initial “closing,” where the disclosed “ledner” is a misrepresentation, thus preventing the doctrine of merger in which the debt is merged with the note.
*
By law, notes are not assigned. They are endorsed if a transfer occurs. Like a check the endorsement must be on the face of the instrument (like the back of the check), or if there is no room because of prior endorsements then an allonge must be permanently affixed to the note containing the endorsement. A separate paper is not an allonge, by definition.
*
Keep in mind that the note is not the debt and the debt is not the note. The note can be (a) evidence of the debt or (b) merged with the debt (to prevent double liability only if the payee on the note is the same as the lender. The only exception to this is if the payee was acting as a disclosed agent for the lender. The debt exists regardless of whether there is paperwork. The note might exist but it might be invalid depending upon whether it memorializes a real transaction between the parties on the note.
*
In practice in the typical “closing” the borrower signs the note and mortgage before he receives the alleged loan. Neither one should be released, much less recorded, by the closing agent unless and until the borrower receives the funds or money is actually paid on the borrower’s behalf by the Payee on the note. When it comes to purported transfer of these residential “loans,” low level employees are not given powers over tens of millions of dollars worth of loans in banking custom and practice.
*
The biggest point I wish to make here is that the assignor and assignee of a mortgage must exist legally and actually. Similarly the endorser and endorsee of a note must exist. An apparently valid assignment or endorsement to a party who did not purchase the debt can result in two things: (a) the assignment of mortgage is not valid because it failed to transfer the debt and/or (b) the failure of the assignment to transfer the debt may be fairly construed as failing to place the subject loan in trust. Without the trust owning the debt (as evidenced by a real transaction in which the debt was purchased from a party who owned the debt), the trust does not exist as to the subject loan nor does it exist at all if that was the practice with respect to all alleged loans for which there was a transfer on paper that did not memorialize real life events.
*
Three endorsements:
Dated special endorsement to a particular party. This will be treated a presumptively valid. But the presumption can be rebutted — if the endorser (“indorser” in legalese) did not own the note or otherwise have the right to act as agent for a party who did own the note. This is the point of our TERA — to expose the fact that the paper is self generated and self serving and fabricated by revealing the one simple fact that the party who executed the endorsement was an actual or fictitious individual who was probably a robo-signor on behalf of an entity that did not own the note nor have the power to assign.
*
Undated special endorsement to a particular party. If it is undated, it is probably fabricated because custom and practice in the industry does not treat mortgage loans the same as they treat checks. When dealing with high ticket items a special endorsement that is dated would (a) ordinarily accompany an assignment of mortgage (often abandoned by the foreclosing party) and (b) MUST be accompanied by acquisition for value — i.e., purchase of the debt. Ordinarily there would also be correspondence and written agreements concerning the sale of the note and mortgage. Those are issues for discovery.
*
Dated or undated blank endorsement — bearer paper. As stated above, big ticket items usually are not generally transferred by blank endorsements, assuming the paper is actually “negotiable.” Hence if it is bearer paper (no person identified as the endorsee) this is likely a fabricated, backdated document, if it is dated, or just a blanket self serving document that consists of a misrepresentation to the court. Note that most provisions in a PSA (Pooling and Servicing Agreement, also referred to as the “trust instrument”) state specifically that (a) the “trust” is organized to be a REMIC vehicle which means there is a 90 day window in which they can acquire loans (the cutoff period) and (b) the assignments must be in recordable form and (c) the endorsements must be valid. Otherwise, the apparent transfer cannot be accepted by the Trust under REMIC rules (see Internal Revenue Code 26 U.S. Code § 860D – REMIC defined), under the powers of the Trustee (virtually nonexistent in most REMIC Trusts), and under New York Law which almost always invoked as the  State in which the Trust is organized. New York Law states that any act that contravenes the powers expressed in the Trust instrument are void, not voidable. So a transfer after the cutoff date is void, as it would ruin the REMIC status under the IRC and violate the specific provisions of the Trust designed to invoke the REMIC rules.

Is a Neg-AM Note a Negotiable Instrument?

The UCC is not ambivalent about protecting both the maker of a negotiable instrument and the party seeking to enforce it. The maker does not assume the risk of double liability except for instances where the note is purchased for value in good faith and without knowledge of the borrower’s defenses. In all other circumstances the object is to prevent the maker from being exposed to double liability.

The fact that a note is not a negotiable instrument does not mean that it cannot be enforced, or that it is void or whatever else people are saying on the internet. If the note does not meet the definition of a negotiable instrument then it is simply not entitled to the legal presumptions that are given to a negotiable instrument to ease its trading and enforcement. Any other approach would be equivalent to propelling parties who seek to enforce a note being vaulted into the elevated class of holder in due course.

In other words, if the note is not a negotiable instrument then enforcement can only be achieved by pleading and proving the facts needed to enforce without the benefit of legal presumptions that each State adopted as a a statute when the Uniform Commercial Code was made law.

In cases where a negative amortization is involved, the courts have blurred the issues. Such a loan has many extrinsic factors that should disqualify the note from being treated as a negotiable instrument.

Let us help you plan your foreclosure defense strategy, discovery requests and defense narrative: 202-838-6345. Ask for a Consult.

Purchase now Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar including 3.5 hours of lecture, questions and answers, plus course materials that include PowerPoint Presentations. Presenters: Attorney and Expert Neil Garfield, Forensic Auditor Dan Edstrom, Attorney Charles Marshall and and Private Investigator Bill Paatalo. The webinar and materials are all downloadable.

Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps).

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling!

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

===========================

We must always remember that the purpose of the UCC is not to provide a vehicle for tricking anyone. The purpose is to allow for free flow of commerce and enabling the passing of paper instruments is essential to that function. Like many statutes creating legal presumptions, perhaps all of them, the point is simply to take what is almost always true in fact and simply create a legal presumption that the matter asserted is in fact true, until proven otherwise. Lest the use of such presumptions tip the due process scales, the definitions and rules regarding the use of legal presumptions must be strictly construed.

The issue of negative amortization is highly relevant on many levels including the one frequently mentioned — negotiability. The courts are probably confusing the ability to negotiate an instrument with BEING a negotiable instrument. The words of art are important. A marketable instrument is not the same as a negotiable one. The fact that someone is willing to buy a note does not make the note negotiable. A note featuring negative amortization should not be considered a negotiable instrument even though it might be marketable.

One of the problems with consumer loans is that they are subject to TILA Rescission. That means that they are potentially enforceable if no notice of rescission has been mailed. Certainty is gone from that scenario. You cannot determine whether the note is an asset or a liability. It is practically the opposite of a negotiable instrument since it might well be worthless, and the even the purchaser of the note might suffer a total loss unless the purchaser had paid value for the debt in a transaction in which the seller owned the debt.

Most Neg-AM loans allow the borrower (or can’t stop the borrower) from switching from one payment plan to another, e.g. paying full amortization none of which changes are reflected on the face of the note. This creates relevant events that occur off the face of the note, making the actual amount of principal due (and interest on the changing principal) at any time subject to calculation, not just from the face of the note but from the face of extrinsic or parole records.

An interesting characteristic of most Neg-AM notes is that they contain provisions that require conversion or reset when the accrued interest is added to principal in such amount as to require the reset — i.e., usually at 115% of the original loan amount. But none of these features necessarily extrinsically change the terms on the face of the note. Modifications do that, but not Neg-AM loans. It is in the calculation of the principal and interest thereon that one must go to “business records.”

If Neg-AM notes can be negotiable instruments then buyers of the notes are expected to rely upon the legal presumptions that the note is what it appears to be. Such buyers, much like the borrowers, are in for a surprise when the loan resets, based upon an extrinsic calculation of when 115% of principal has been exceeded, and if exceeded, by how much. Certainty is gone. If certainty is gone then facts are necessary. No legal presumptions should apply.

There are very simple elements required in order to gain the legal presumptions that would apply to a negotiable instrument.

The main one is that the instrument must be payable in an amount that can be computed based upon the information on the face of the note. On the face of a Neg-AM note, there are terms and conditions that can easily be used to compute the total indebtedness, assuming that extrinsic factors have not come into play. All notes change every day in terms of the amount of interest due and, in the case of Neg-AM notes, the amount of principal, which goes up automatically by underpayment of interest.

It is generally agreed that a note on which there is a known or declared default is NOT a negotiable instrument for purposes of Article 3. You can’t know with certainty the amount due because you don’t know when the borrower defaulted. A DOT or Mortgage is not a negotiable instrument, and to enforce a DOT/Mortgage you must have paid value for the mortgage (Article 9), regardless of whether the note that is secured is a negotiable instrument or not. These are protections to be sure, but they are also insurance that the legal presumptions lead correctly to the truth of the matter.

A second element is that the payment must be due as of a date certain. A mortgage/DOT can’t be a negotiable instrument and cannot invoke the presumptions that a “holder” of a note can invoke, based upon possession and endorsement.

With Neg-AM notes the problem comes into high relief — when the “lender” knows that the reset will be in excess of the entire household income thus creating a virtual guarantee that the alleged loan contract will terminate in 3 years rather than 30 years. Hence the supposed indorsee of such a note is buying into a foreclosure situation, if he/she/it has done due diligence. If not, then here is a second situation where the note might be worthless and the buyer loses, unless the buyer bought the debt from a seller who owned the debt.

A third element is that the original note must either be made out to bearer or to a defined party. But it is possible for a note made payable to a non-lender or a fictitious party might be construed as bearer paper — if there was an actual transaction in which someone gave the borrower money, even if the identity of the funding source was concealed. The obviously violations of disclosure requirements are separate matters.

In all the elements the point is that in order for an instrument to be called “Negotiable” under Article 3 you must not need to inquire into parol or extrinsic evidence. All presumptions arise when the note is facially valid and there are no circumstances that the indorsee knows about that would undermine enforcement. With a DOT/mortgage, by definition on the face of the instrument, you must go to extrinsic evidence as to the presumed default on another instrument (the note) and you can only enforce upon proof of value paid for the mortgage/DOT.

A note might be facially valid and enforceable, which means that a party who pleads and proves they are entitled to enforce is entitled to a money judgment but not foreclosure unless they plead and prove they are a holder in due course, which by definition means that value was paid and hence the mortgage or DOT is also enforceable by them.

Other than an HDC, all the other categories of potential enforcement by a party should enable them only to enforce the note. Of course if the owner of the debt shows up, there would be no problems with enforcement of either the note or the mortgage because the owner of the debt is entitled to enforce the obligation to pay the debt.

Under securitization schemes in practice it is possible to own the mortgage but not be able to enforce it without having paid value. Courts that decide cases based upon the “mortgage follows the note” are missing the point of LAW that resides in their State’s adoption of the UCC, to wit: under no circumstances may a party force the sale of homestead property without being the owner of the debt. That is not a proposal. It is the law in all 50 states.

While the encumbrance may not be enforced, this does not invalidate the mortgage or deed of trust. When it comes time to sell or refi the property you will learn that you still must deal with the holder of the mortgage. An action in equity might be decided in your favor or you might have to pay a sum of money to the owner of the mortgage encumbrance even though they paid nothing for it.

People forget that there are three items here, not two. In addition to the note and mortgage, which serve only as evidence as the debt, there is the actual debt. Back before claims of securitization, all three were used interchangeably. Now it is different. If the funding source is not the payee on the note, then the doctrine of merger does not apply, to wit: the note becomes separate from the debt that arises to the person or party who advanced the money. If the Payee is in privity with the funding source then merger does apply. But most Payees were not in privity with the source of funds. The banks boast of how they created remote vehicles and relationships.

The very fact that there are terms allowing the payment to be less than PI for the month suggests that the borrower might very well have made some payments more than the minimum due. In other words, inquiry must be made to determine the debt balance with certainty. There is certainly an argument here that reference is to the payment history rather than just the note. If that is true then the face of the note is inadequate to determine the “certain sum” currently due. This can become an issue in any installment note.

A finding that all these questions are irrelevant would have dire consequences in the marketplace where certain types of predefined paper can be received in the free flow of commerce without uncertainty as to whether the paper can be enforced. This is a two edged sword. Opening the door beyond the strict definitions of the UCC is opening the door for more mischief involving fabrication of documents, forgery and robosigning.

The UCC is not ambivalent about protecting both the maker of a negotiable instrument and the party seeking to enforce it. The maker does not assume the risk of double liability except for instances where the note is purchased for value in good faith and without knowledge of the borrower’s defenses. And the purchaser should not bear the risk of a total loss immediately upon paying for the note — unless the purchaser knew there were problems and was willing to take his chances.

The final point I would make is that the question should be asked: Given the fact that so-called REMIC Trusts are supposedly buying the loan pools aggregated by the likes of Countrywide and its progeny, why do lawyers firmly announce that their clients are “holders” and not “holders in due course”.

The latter designation (HDC) would allow the possessor of the note to enforce both note and mortgage despite lending violations when the alleged loan was “originated.” Being an HDC might also avoid defenses that current abound — that there are breaks in the chain of title. If the would-be enforcers simply included the allegation (and proof) that they were the owners of the debt or a holder in due course it would be game over for borrowers. That they don’t assert that position is a tacit admission that the reason why they don’t is that they can’t.

Thus we continue to be mired in litigation with phantoms, ghosts,  smoke and mirrors.

Fla 2d DCA: HELOC Instrument Not Self-Authenticating Article 3 Note

Just because an instrument is not self-authenticating doesn’t mean it can’t be authenticated. Here the Plaintiff could not authenticate the note without the legal presumption of self-authentication and all the legal presumptions that follow.  And that is the point here. They came to court without evidence and in this case the court turned them away.

Florida courts, along with courts around the country, are gradually inching their way to the application of existing law, thus eroding the dominant premise that if the Plaintiff is a bank, they should win, regardless of law.

GET A CONSULT

FREE RESEARCH: Go to our home page and enter subject in search bar.

GO TO LENDINGLIES to order forms and services. Our forensic report is called “TERA“— “Title and Encumbrance Report and Analysis.” I personally review each of them for edits and comments before they are released.

Let us help you plan and draft your answers, affirmative defenses, discovery requests and defense narrative:

954-451-1230 or 202-838-6345. Ask for a Consult.

REGISTRATION FORM: You will make things a lot easier on us and yourself if you fill out the registration form. It’s free without any obligation. No advertisements, no restrictions. The consult is important to determine how we may be of assistance in the drafting and filing of documents in court or complaints directed to law enforcement.

Purchase audio seminar now — Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense including 3.5 hours of lecture, questions and answers, plus course materials that include PowerPoint Presentations.

THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

=====================

see HELOC Not Negotiable Instrument and Therefore Not Self Authenticating

This decision is neither novel nor complicated. A note can be admitted into evidence as self-authenticating without extrinsic evidence (parol evidence) IF it is a negotiable instrument under the State adoption of the UCC as State Law.

The inquiry as to whether a promissory note is a negotiable instrument is simple:

  • Does the body of the note claim to memorialize an unconditional promise
  • to pay a fixed amount
  • (editor’s addition) to an identified Payee? [This part is assumed since the status of the “lender” depends upon how and why it came into possession of the note.]

A note memorializing a line of credit is. by definition, not a fixed amount. Case closed, the “lender” lost and it was affirmed in this decision. There was no other choice.

The only reason why this became an issue was because counsel for the homeowner timely raised a clearly worded objection to the note as not being a negotiable instrument and therefore not being self-authenticating. And without the note, the mortgage, which is not a negotiable instrument, is meaningless anyway.

This left the foreclosing party with the requirement that they prove their case with real evidence and not be allowed to avoid that burden of proof using legal presumptions arising from the facial validity of  a negotiable instrument.

The typical response from the foreclosing party essentially boils down to this: “Come on Judge we all know the note was signed, we all know the payments stopped, we all know that the loan is in default. Why should we clog up the court system using legal technicalities.”

What is important about this case is the court’s position on that “argument” (to ignore the law and just get on with it). “This distinction is not esoteric legalese. Florida law is clear that a “negotiable instrument” is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.”§ 673.1041(1), Fla. Stat. (2012) (emphasis added).”

So THAT means that if the trial court is acting properly it will apply the laws of the state and THAT requires the court to rule based upon the UCC and cases involving
negotiable instruments.

But none of that invalidated the note or mortgage, nor should it. THAT is where it gets interesting. By denying the note as a self authenticating instrument the court was merely requiring the foreclosing party to proffer actual evidence regarding the terms of the note, including the manner in which it was acquired and how the foreclosing party is an injured party — a presumption that is no longer present when the note is denied admission into evidence as a self authenticating negotiable instrument.

The foreclosing party was unable to produce any testimony or exhibits demonstrating the prima facie case. Why? Because they are not and never were a creditor nor are they agent or representative of the actual party to whom the subject underlying DEBT was owed.

 

Florida law requires the authentication of a document prior to its admission into evidence. See § 90.901, Fla. Stat. (2012) (“Authentication or identification of evidence is required as a condition precedent to its admissibility.”); Mills v. Baker, 664 So. 2d 1054, 1057 (Fla. 2d DCA 1995); see, e.g., DiSalvo v. SunTrust Mortg., Inc., 115 So. 3d 438, 439-40 (Fla. 2d DCA 2013) (holding that unauthenticated default letters from lender could not be considered in mortgage foreclosure summary judgment). Proffered evidence is authenticated when its proponent introduces sufficient evidence “to support a finding that the matter in question is what its proponent claims.” § 90.901; Coday v. State, 946 So. 2d 988, 1000 (Fla. 2006) (“While section 90.901 requires the authentication or identification of a document prior to its admission into evidence, the requirements of this section are satisfied by evidence sufficient to support a finding that the document in question is what its proponent claims.”).

There are a number of recognized exceptions to the authentication requirement. One, as relevant here, relates to commercial paper under the Uniform Commercial Code, codified in chapters 678 to 680 of the Florida Statutes. “Commercial papers and signatures thereon and documents relating to them [are self-authenticating], to the extent provided in the Uniform Commercial Code.” § 90.902(8); see, e.g., U.S. Bank Nat’l Ass’n for BAFC 2007-4 v. Roseman, 214 So. 3d 728, 733 (Fla 4th DCA 2017) (reversing the trial court’s denial of the admission of the original note in part because the note was self-authenticating); Hidden Ridge Condo. Homeowners Ass’n v. Onewest Bank, N.A., 183 So. 3d 1266, 1269 n.3 (Fla. 5th DCA 2016) (stating that because the endorsed note was self-authenticating as a commercial paper, extrinsic evidence of authenticity was not required as a condition precedent…

We cannot bicker with the proposition that “for over a century . . . the Florida Supreme Court has held [promissory notes secured by a mortgage] are negotiable instruments. And every District Court of Appeal in Florida has affirmed this principle.” HSBC Bank USA, Nat’l Ass’n v. Buset, 43 Fla. L. Weekly D305, 306 (Fla. 3d DCA Feb. 7, 2018) (citation omitted). That is as far as we can travel with Third Federal.

The HELOC note is not a self-authenticating negotiable instrument. By its own terms, the note established a “credit limit” of up to $40,000 from which the Koulouvarises could “request an advance . . . at any time.” Further, the note provided that “[a]ll advances and other obligations . . . will reduce your available credit.” The HELOC note was not an unconditional promise to pay a fixed amount of money. Rather, it established “[t]he maximum amount of borrowing power extended to a borrower by a given lender, to be drawn upon by the borrower as needed.” See Line of Credit, Black’s Law Dictionary, 949 (8th ed. 1999).

This distinction is not esoteric legalese. Florida law is clear that a “negotiable instrument” is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order.”§ 673.1041(1), Fla. Stat. (2012) (emphasis added).

FREE HOUSE?

Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the bank’s option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States — Douglas Whaley

Listen to the Last Neil Garfield Show at http://tobtr.com/s/9673161

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

The article below demonstrates (with edits from me) just how “hairy” these issues get. Things that laymen presume to be axiomatic don’t even exist in the legal world. I just sent my son a mug that says “Don’t confuse your Google search with my medical degree.” The same could be said for law. You might have discovered something that appears right to you but only a lawyer with actual experience can tell you if it will fly — remember that the bumblebee, according to the known laws of aerodynamics — is incapable of flying. Yet it flies seemingly unconcerned about our laws of aerodynamics. Similar to the lack of concern judges have, as if they were bumblebees, for the laws of contract and negotiation of instruments.

“Be careful what you wish for.” We must not give the banks a condition that they can satisfy with a fake. If the statute says that they must come up with the original promissory note, or the encumbrance is automatically lifted by a Clerk’s signature, then that means that (a) the debt still exists (b) the note could still be enforced with a lost note affidavit (which lies about the origination of the “loan” and subsequent nonexistent transactions), and (c) the debt can still be enforced.

A suit on the note or the debt that is successful will yield a Final Judgment, which in turn can be recorded in the county records. A further action for execution against the property owner will cause execution to issue — namely the judgment becomes a judgment lien that can now be foreclosed with no note whatsoever. The elements of a judgment lien foreclosure are basically (I have the Judgment, the statute says I can record it and foreclose on it).

There are homestead exemptions in many states. Whereas Florida provides a total homestead exemption except in bankruptcy court (up to $125,000 value), Georgia provides very little protection to the property owner which means that Georgia property owners are vulnerable to losing their homes if they don’t pay a debt that has been reduced to a Final Judgment and filed as a Judgment lien.

So the upshot is this: if you ask for the original note they might simply change their routines so that they produce the fabricated original earlier rather than later. Proving that it is a fake is not easy to do, but it can be done. The problem is that even if you prove the note is fabricated, the debt still remains. And in the current climate that means that any “credible” entity can step into the void created by the Wall Street banks and claim ownership of the debt for the purpose of the lawsuit.

What you want to do and in my opinion what you must do is focus on the identity of the creditor in addition to the the demand for the “original” note. When you couple that with tender of the amount demanded (under any one of the scenarios we use in our AMGAR programs) on the industry practice of demanding the identity of the creditor before anyone receives payment, then you really have something going.

But the risk element for tender MUST be present or it will likely be brushed aside who sees it as merely a gimmick — using the state law regarding tender as an offensive tool to get rid of the encumbrance and thus prevent foreclosure.

*

So the commitment is to pay off or refinance the alleged debt conforming to the industry standard of giving estoppel information — with the name of the creditor, where the payment should be sent, and the amount demanded by the creditor, and per diem, escrow and other information.

*

The inability and unwillingness of anyone to name a creditor has been credited with eliminating both the foreclosure and the mortgages in several dozen cases.

*

Judges may be biased in favor of “national security” (i.e., protecting the banks), but they have a surprisingly low threshold of tolerance when they are confronted by the bank’s argument that they don’t have to accept the money and that it is the banks option as to whether to accept the money or proceed with the foreclosure. To my knowledge that argument has lost 100% of the time. And THAT means the homeowner was able to get the proverbial free house or otherwise settle under seal of confidentiality (which might include the “free house.”)

Here is the UCC article by Douglas Whaley. [Words in brackets are from the Livinglies editor and not from Mr. Whaley]

the Golden Rule of Mortgage Foreclosure: the Uniform Commercial Code forbids foreclosure of the mortgage unless the creditor possesses the properly-negotiated original promissory note. If this can’t be done the foreclosure must
stop.
 *
all too often the Golden Rule of Mortgage Foreclosure is simply ignored and the foreclosure goes ahead as if the rule were not the statutory law of every jurisdiction in the United States.1
 *
Why is that? The answer is almost too sad to explain. The problem is that the Uniform Commercial Code is generally unpopular in general, and particularly when it comes to the law of negotiable instruments (checks and promissory notes) contained in Article Three of the Code. Most lawyers were not trained in this law when in law school (The course on the subject, whether called “Commercial Paper” or “Payment Law,” is frequently dubbed a “real snoozer” and skipped in favor or more exotic subjects), and so the only exposure to the topic attorneys have occurs, if at all, in bar prep studies (where coverage is spotty at best). Thus many foreclosures occur without it occurring to anyone that the UCC has any bearing on the issue.
 *
If the defendant’s attorney announces that the Uniform Commercial Code requires the production of the original promissory note, the judge may react by saying something like, “You mean to tell me that some technicality of negotiable instruments law lets someone who’s failed to pay the mortgage get away with it if the promissory note can’t be found, and that I have to slow down my overly crowded docket in the hundreds of foreclosure cases I’ve got pending to hear about this nonsense?” It’s a wonder the judge doesn’t add, “If you say one more word about Article Three of the UCC you’ll be in contempt of court!”
 *
The debt is created by the signing of a promissory note (which is governed by Article Three of the Uniform Commercial Code); the home owner will be the maker/issuer of the promissory note and the lending institution will be payee on the note. There is a common law maxim that “security follows the debt.” This means that it is presumed that whoever is the current holder of the promissory note (the “debt”) is entitled to enforce the mortgage lien (the “security”). The mortgage is reified as a mortgage deed which the lender should file in the local real property records so that the mortgage properly binds the property not only against the mortgagor but also the rest of the world (this process is called “perfection” of the lien).1
 *
{EDITOR’S NOTE: Technically the author is correct when he states that a debt is created by the signing of a promissory note governed by Article 3 of the Uniform Commercial Code. But it is also true that the note is merely a written instrument that memorializes the “loan contract” and which in and unto itself constitutes evidence of the debt.
 *
This means that some sort of transaction with a monetary value to both sides must have taken place between the two parties on the note — the maker (borrower) and the payee (the lender). If no such transaction has in fact occurred then, ordinarily the note is worthless and unenforceable. But in the event that a third party purchases the note for value in good faith and without knowledge of the borrowers defenses, the note essentially and irrevocably becomes the debt and not merely an evidence of the debt. In that case the note is treated as the debt itself for all practical purposes.
 *
Such a purchaser would be entitled to the exalted status of holder in due course. Yet if the borrower raises defenses that equate to an assertion that the note should be treated as void because there was no debt (the maker didn’t sign it or the maker signed it under false pretenses — i.e. fraud in the execution) then in most cases the HDC status won’t prevail over the real facts of the case..The corollary is that if there was no debt there must have been no loan.
 *
This would be fraud in the inducement which moves the case into a gray area where public policy is to protect the innocent third party buyer of the note. All other defenses raised by borrowers are affirmative defenses (violations of lending statutes, for example) raising additional issues that were not presented nor implied in the complaint  enforce the note or the nonjudicial procedure in which the note is being enforced by nonjudicial foreclosure.}
 *
The bankers all knew the importance of the mortgage, and supposedly kept records as to the identity of the entities to whom the mortgage was assigned. But they were damn careless about the promissory notes, some of which were properly transferred whenever the mortgage was, some of which were kept at the originating bank, some of which were deliberately destroyed (a really stupid thing to do), and some of which disappeared into the black hole of the financial collapse, never to be seen again.
 *
Filing fees in real property record offices average $35 every time a new document is filed. The solution was the creation of a straw-man holding company called Mortgage Electronic Registration Systems [MERS]. MERS makes no loans, collects no payments, though it does sometimes foreclose on properties (through local counsel). Instead it is simply a record-keeper that allows its name to be used as the assignee of the mortgage deed from the original lender, so that MERS holds the lien interest on the real property. While MERS has legal title to the property [EDITOR’S NOTE: this assertion of title is now back in a grey area as MERS does not fulfill the definition of a beneficiary under a deed of trust nor a mortgagor under a mortgage deed.], it does not pretend to have an equitable interest. At its headquarters in Reston, Va., MERS (where it has only 50 full time employees, but deputizes thousands of temporary local agents whenever needed) supposedly keeps track of who is the true current assignee of the mortgage as the securitization process moves the ownership from one entity to another.3
 *
Meanwhile the homeowner, who has never heard of MERS, is making payment to the [self proclaimed] mortgage servicer (who forwards them to whomever MERS says is the current assignee of the mortgage) [or as is more likely, forwards the proceeds of payments to the underwriter who sold bogus mortgage bonds, on which every few months another bank takes the hit on a multibillion dollar fine]..

Article 3 of the Uniform Commercial Code could not be clearer when it comes to the issue of mortgage note foreclosure. When someone signs a promissory note as its maker (“issuer”), he/she automatically incurs the obligation in UCC §3-412 that the instrument will be paid to a “person entitled to enforce” the note.5″Person entitled to enforce”—hereinafter abbreviated to “PETE”—is in turn defined in §3-301:

“Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person

not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d) . . . .

[Editors’ note: the caveat here is that while the execution of a note creates a liability, it does not create a liability for a DEBT. The note creates a statutory liability while the debt creates a liability to repay a loan. Until the modern era of fake securitization, the two were the same and under the merger doctrine the liability for the debt was merged into the execution of the note because the note was payable to the party who loaned the money.

And under the merger doctrine, the debt is NOT merged into the note if the parties are different — i.e., ABC makes the loan but DEF gets the paperwork. Now you have two (2) liabilities — one for the debt that arose when the “borrower” received payment or received the benefits of payments made on his/her behalf and one for the note which is payable to an entirely different party. Thus far, the banks have succeeded in making the circular argument that since they are withholding the information, there is not way for the “borrower” to allege the identity of the creditor and thus no way for the “borrower” to claim that there are two liabilities.]

Three primary entities are involved in this definition that have to do with missing promissory notes: (1) a “holder” of the note, (3) a “non-holder in possession who has the rights of a holder, and (3) someone who recreates a lost note under §3-309.6

A. “Holder”

Essentially a “holder” is someone who possesses a negotiable instrument payable to his/her order or properly negotiated to the later taker by a proper chain of indorsements. This result is reached by the definition of “holder” in §1-201(b)(21):

(21) “Holder” means:

(A) the person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession . . . .

and by §3-203:

(a) “Negotiation” means a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.

(b) Except for negotiation by a remitter, if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone.

The rules of negotiation follow next.

B. “Negotiation”

A proper negotiation of the note creates “holder” status in the transferee, and makes the transferee a PETE. The two terms complement each other: a “holder” takes through a valid “negotiation,” and a valid “negotiation” leads to “holder” status. How is this done? There are two ways: ablankindorsement or aspecialindorsement by the original payee of the note.

 *
With a blank indorsement (one that doesn’t name a new payee) the payee simply signs its name on the back of the instrument. If an instrument has been thus indorsed by the payee, anyone (and I mean anyone) acquiring the note thereafter is a PETE, and all the arguments explored below will not carry the day. Once a blank indorsement has been placed on the note by the payee, all later parties in possession of the note qualify as “holders,” and therefore are PETEs.7
 *
Only if there is a valid chain of such indorsements has a negotiation taken place, thus creating “holder” status in the current possessor of the note and making that person a PETE. With the exception mentioned next, the indorsements have to be written on the instrument itself (traditionally on the back).
 *
the allonge must be “affixed to the instrument” per §3-204(a)’s last sentence. It is not enough that there is a separate piece of paper which documents the unless that piece of paper is “affixed” to the note.10What does “affixed” mean? The common law required gluing. Would a paper clip do the trick? A staple?11
 *
a contractual agreement by which the payee on the note transfers an interest in the note, but never signs it, cannot qualify as an allonge (it is not affixed to the note), and no proper negotiation of the note has occurred. If the indorsement by the original mortgagee/payee on the note is not written on the note itself, there must be an allonge or the note has not been properly negotiated, and the current holder of that note is not a PETE (since there is no proper negotiation chain). THE LACK OF SIGNATURE BECOMES A SERIOUS ISSUE IN THE CURRENT ERA BECAUSE OF WHAT HAS BEEN DUBBED “ROBO-SIGNING” THE EXACT DEFINITION OF WHICH HAS NOT YET BEEN DETERMINED BUT IT REFERS TO THE STAMPED OR EXECUTED SIGNATURE BY ONE POSSESSES NO KNOWLEDGE OR INTEREST IN THE CONTENTS OF THE INSTRUMENT AND ESPECIALLY WHEN THE PERSON HAS NO EMPLOYMENT OR OTHER LEGALR RELATIONSHIP WITHT EH ENTITY ON WHOSE BEHALF THE INDORSEMENT WAS EXECUTED. As stated in one case the base of robo-signing is that it is a forgery and therefore amounts to no signature at all which means the note has not really be negotiated, all appearances to the contrary. ]
 *
The Code never requires the person making an indorsement to have an ownership interest in the note13 (though of course the payee normally does have such an interest), but simply that he/she is the named payee, and the Code clearly allows for correction of a missing indorsement. [EDITOR’S NOTE: Here is where the enforcement tot he note and the ability to enforce the mortgage diverge, See Article 9. The possessor of a note that is properly signed by a party to whom the note was payable or indorsed commits no offense by executing an indorsemtn in blank (bearer) or to another named indorse. The author is correct when he states that ownership of the note is not required to enforce the note; but the implication that the right to foreclose a mortgage works the same way is just plain wrong, to wit: foreclosure is ALL about ownership of the mortgage and Article 9 provisions specifically state the ownership means that the purported holder has paid value for it]. 
 *
  1. 13   Thieves can qualify as a “holder” of a negotiable instrument and thereafter validly negotiate same to another; see Official Comment 1 to 3-201, giving an example involving a thief.
  2. 1.  Subsections (a) and (b) are based in part on subsection (1) of the former section 3-202.  A person can become holder of an instrument when the instrument is issued to that person, or the status of holder can arise as the result of an event that occurs after issuance.  “Negotiation” is the term used in article 3 to describe this post-issuance event.  Normally, negotiation occurs as the result of a voluntary transfer of possession of an instrument by a holder to another person who becomes the holder as a result of the transfer. Negotiation always requires a change in possession of the instrument because nobody can be a holder without possessing the instrument, either directly or  through an agent.  But in some cases the transfer of possession is involuntary and in some cases the person transferring possession is not a holder.  In defining “negotiation” former section 3-202(1) used the word “transfer,” an undefined term, and “delivery,” defined in section 1-201(14) to mean voluntary change of possession. Instead, subsections (a) and (b) used the term “transfer of possession” and subsection (a) states that negotiation can occur by an involuntary transfer of possession.  For example, if an instrument is payable to bearer and it is stolen by Thief or is found by Finder, Thief or Finder becomes the holder of the instrument when possession is obtained.  In this case there is an involuntary transfer of possession that results in negotiation to Thief or Finder. 
  3. [EDITOR’S NOTE: The heading for UCC 3-201 indicates it relates to “negotiation” of a note, not necessarily enforcement. The thief might be able to negotiate the note but enforcement can only be by a party with rights to enforce it. While a holder is presumed to have that right, it is a rebuttable presumption. Hence either a borrower or the party from whom the note was stolen can defeat the thief in court. But if the negotiation of the note includes payment of value in good faith without knowledge of the borrower’s defenses or complicity in the theft, then the successor to the thief is a holder in due course allowing enforcement against the maker. The borrower or victim of theft is then left with actions at law against the thief.]
 

Educating the Judge

The assumption that the Judge already knows the facts and the law is what drives lawyers into defeat. The Judge is not required to know anything, and is actually prohibited from taking an active role in favor of one party or the other.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
—————-

I recently had the occasion to assist as consultant on a case in a non judicial state. The Judge was clearly struggling with giving the homeowner due process but still not able to connect the dots. So I proposed that a preliminary statement be submitted in answer to the demurrer that was filed.

Plaintiff concedes the obvious — that when money was received by him or on behalf of him, a liability arose (the debt). But as stated in Yvanova, that debt arose by operation of law from the receipt of funds from a particular identified source. And the debt is not owed to the world at large but only to the party who advanced the funds.

The debt exists without anything in writing. In fact, there was nothing in writing creating a loan contract between the funding source and the Plaintiff, as alleged in the complaint. Further there is a complete absence of any allegation or evidence, despite years of requesting same in formal requests and informal requests, in which any of the parties in the chain ever paid one cent for the origination or acquisition of the alleged loan that they alleged was sold successively.

Ordinarily the debt would merge into a promissory note in which Plaintiff was the maker and the payee was the aforesaid funding source. But the funding source was never mentioned in the note or mortgage, which now contains the signature of Plaintiff obtained by fraud in the execution, to wit: Plaintiff signed said documents based upon the representation that the payee on the note (and the beneficiary under the deed of trust) was the funding source.

The debt owed to the funding source was thus not merged into the note because the funding source and the payee on the note were two completely separate and distinct entities. Hence the transfer of the note was the transfer of paper that was worthless and which ceased status of negotiable instrument when the Defendants asserted a default in performance under the note that had been fraudulently obtained. Hence no entity can assert the status of “holder” or “holder in due course” inasmuch as such terms arise solely from the state adoption of statutes from the Uniform Commercial Code, Article 3, governing negotiable instruments.

JPMC was the underwriter, Master servicer and agent for trusts that appear to be legally nonexistent and in any event completely controlled by JPMC Nonetheless control over all the events related to the debt, note and mortgage lies in the hands of JPMC.

JPMC is referred to as lender in Plaintiff’s complaint, although the funding actually came from institutional investors and passed through JPMC as an intermediary conduit. JPMC initiated the transfer of funds from accounts in which commingled funds from institutional investors from multiple trusts had been deposited.

The assumption that any Trust or other special purpose vehicle ever funded the origination of a loan, or even purchased it for value is a fiction. The only valid purchase would have been from those institutional investors. There being no such purchase asserted nor in existence, the paper instruments upon which the Defendants rely are merely obfuscations of the truth. And the reason they seek foreclosure is that the forced sale of the property would be the first legally valid document in their entire chain.

If securitization actually occurred, then one of two things would have occurred:
  1. The Trust or other special purpose vehicle would have funded the origination, thus eliminating the need for endorsements and assignments. [The Trust would have been the payee on the note and the mortgagee on the mortgage]. OR
  2. A bona fide lender would have received actual money for the sale of the debt, note and mortgage. Both the lender or the purchaser would have a record of the payment.
The reason I say that securitization is virtually nonexistent and the reason why Adam Levitin calls it “Securitization fail” is that neither of those things happened in the vast majority of so-called loans. I even object to the using the word “loan” because I find it misleading. A scheme that relies on stolen money and fraudulent documentation should not be given the title “lending.” This takes nothing away from the fact that the debt exists. But in nearly all cases, the debt is unliquidated and unsecured.
%d bloggers like this: