Foreclosure Defenses: Who REALLY owns the NOTE?
The law says when a NOTE payable to ORDER is sold to another BANK it must be signed on the back by the first bank to transfer (negotiate), just like a check. No signature; no transfer.
Palm Coast, FL – November 15, 2010 – Some attorneys concentrate on the Debtors’ alleged default to win a case. There is a whole new way to win. Last year I wrote an article here about a Foreclosure defense based on MERS. Today I am widening the scope a little to focus on another problem (there are many) which could help those in foreclosure trouble. It will take a little patience and technical information to understand so bear with me.
When a mortgage loan is closed there are 2 critical documents signed by the borrower. One is the NOTE and the other is a MORTGAGE. It is hard to believe but the NOTE is really just a simple IOU form which unconditionally promises to pay a certain amount of money to the ORDER of the lender. Over the centuries this IOU became to be known as a Negotiable Instrument. Most people know about common every day negotiable instruments called "Checks." Checks and promissory notes are the two best known and used negotiable instruments around.
Well, the law says when a NOTE payable to ORDER is sold to another BANK it must be signed on the back by the first bank to transfer (negotiate), just like a check. No signature; no transfer. These laws are part of a law code called the UCC, which stands for the UNIFORM COMMERCIAL CODE. All 50 states have the UCC, and some have quirky little rules like New York. Under New York’s version, when the backside of the original NOTE is so full of endorsements that here is no more room for another endorsement, then an ALLONGE can be permanently affixed to it so there is more space to sign an endorsement. Not all states require the allonge to be permanently attached. Anyway the signature transferring ownership is called an endorsement. If there is no endorsement, the new Bank can demand the selling bank indorse it, but cannot sue the original maker. if there are some endorsements, but none naming the current Bank, then it can’t sue. Even if the note is not lost, it must be correctly indorsed to name the current Plaintiff or the Plaintiff’s principal.
VOILA! There in a nutshell is an explanation to the defense to 99.99% of all foreclosures. When the Real Estate Boom was flying high, the banks "electronically" signed the back of the NOTES but did not actually sign the original note. That was a BIG MISTAKE. The tall-building lawyers must have been so giddy with all the fees they were making that they forgot about the need for an actual endorsement. The bank bringing the suit does not have the necessary endorsements from those prior banks on the back of the NOTE. An electronic endorsement is no good on a NOTE. Add to this the admission by the Florida Bankers Association that they decided to destroy promissory NOTES right after they were digitally scanned because they were afraid having paper NOTES laying around, they could get LOST. DUH!
So this new defense is popping up around the USA and is based on a simple fact: the paperwork is so messed up that the banks cannot tell who the rightful owners of these NOTES really are, and without that, there is no right to foreclose.
So, before you throw in the towel, pass this tidbit of info along to your foreclosure lawyer and make him read it! Good LUCK.
Phil Chanfrau is a personal injury attorney in Palm Coast, FL
Short Sales
All this does is delay the enviableness. If you don’t pay your mortgage eventually you will be forced to move; the lender will (at some point) file, find or produce the appropriate paperwork to complete the foreclosure. Lawyer’s that use this tactic in my opinion hurt the owner/seller’s ability to find better alternatives; i.e. short sale, loan modification, etc. Short and simple: "You pay you stay – you don’t you won’t."
Not sure if I buy this…
I read an article the other day from Rolling Stone that addressed this:
https://www.rollingstone.com/politics/news/17390/232611
Essentially it says that the lawyers can delay the foreclosure process but not stop it. The banks have a right to seek foreclosure as many times as they want and they will just keep coming back with the right documents to pursue the foreclosure. Sure the banks made a mistake, but it doesn’t negate the fact the homeowner hasn’t paid on the mortgage. What are they going to do, sign the house over to you for free if they can’t provide the original note? I don’t think so.
M.H.
Does anyone value character anymore?
This article seems to suggest that one possible way to remain in a house that you are not paying for is to get a lawyer to raise questions about whether or not there is a signature on the back of the note which has been legally transferred. I hope we have not reached a point in America where the average citizen cares nothing about character or integrity but rather, simply looks for a technical loophole of some sort to divert attention away from the real issue and delay justice for their own financial gain. Sure, it is easy to blame the big bad banks, or the government, or anyone else. Is anyone ever responsible for their own actions anymore? I for one think it is important to teach our children to "do the right thing" simply because it’s the "right thing" to do. Learning to take responsibility for ones actions is vital to everyone who seeks true success in life. This writer is clearly biased. His article simply states that some of the notes involved in foreclosures may not be signed on the back, as he says the law requires. Then toward the end of the article he says that "the banks paperwork is so messed up that no one knows who really owns the house". Wow, that’s quite a jump. Are you sure about that? How about this scenario. Suppose you sold a used car to someone. The title was properly signed by you and you both signed a bill of sale and you accepted a personal check for payment. Then, on your way home you notice that the purchaser forgot to sign the check he gave you. You immediately call him and point out this oversight. There is no question that any decent, honest person would apologize and promptly sign the check. You both know exactly what you agreed to. That has not changed. There was a simple oversight. Only a crook would attempt to keep that car and not pay you. In fact, if that happened to the writer of this article he would no doubt be outraged that someone would even attempt such a thing. Lawyers and deadbeats can raise such questions as this all day long and who knows, some of them may be able to stall the foreclosure process for many months. Yet when it’s all said and done taking or keeping anything that you are not paying for is immoral and unjust. Spin it any way you want to. If someone broke into your house and stole your $500 TV set that would be a crime. But if someone stays in a house they are not paying for and hires a lawyer to exploit the system and seek out technicalities such as this in order to stay for free for months or even years that is proper conduct? Is that the right thing to do? Is this now the American way?
Good Faith
Richard and Malcom, I agree with your comments. HOWEVER, until the banks begin to negotiate in good faith, they will steam roll over all consumers. I believe that this mortgage crisis was brought on by the banks. The mortgage crisis created this bubble to be so bad and deep that it will be 20 years before we get back to normal. I know that the Feds are guaranteeing the banks losses on this one. Most importantly, I KNOW who is going to give the money to the Fed to guarantee those losses. The same people who are unable to get any resolution from the banks. In the end, these tactics are just that…tactics…to make the banks negotiate in good faith which I can vouche is not happening.