An Attorney Answers … Who is holder of a note

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One of our readers – who  appears to be an Ohio attorney  well versed in foreclosure defense – offered a comment to which I replied and to which he again replied giving a more detailed explanation of  who is considered to be the holder of a promissory note therefore having the Standing to foreclose.

I feel this information is important enough to reprint these comments.  The information is important to all those who are facing and/or currently fighting foreclosure.

As this attorney states, it is always recommended that you seek the counsel of a qualified  – I stress qualified – foreclosure defense attorney.  While I understand that many of you facing foreclosure believe you cannot afford an attorney, I assure you that there are some out there whose fees are reasonable and affordable.

You will not often hear me say this, but if you are in foreclosure then you are not making mortgage payments or paying rent.  If you are evicted from your current home you will have to pay rent somewhere so use your diverted funds to fight for your rights and defend your foreclosure.

And to the many who have been so wiped out that eviction would mean absolute homelessness I encourage you to also look for an attorney who can help.  There are some out there that are willing to work Pro Bono (without fees). At the very least  represent yourself  Pro Se.  Learn what you can from blogs like this and the several others that are credible and offer sound advice and information.  Just answering your summons (in a judicial state) will buy you more time and time is what everyone needs.

Here now the comment conversation from the post Financial Turmoil Evokes Comparison to 2008 Crisis – NYTimes.com as posted on August 11, 2011:

On August 17, 2011 at 10:34 AM Ohio lawyer said: 

I disagree about ownership of the note being the only issue. Under the UCC, to be entitled to enforce the note, a person MUST be in possession of it (except when they can claim the note was lost, destroyed, etc.). In fact, a person in possession of a note endorsed in blank, even if they stole it, may enforce the note. Ownership is not necessary. Likewise, a person who “owns” the note may not enforce it unless they are also in possession of it. I was not sold on the “show-me-the-note” defense for a long time. But after briefing the issue several times in Ohio, I accepted its importance. Without actual possession of the note, a lender cannot prevail. I agree that standing is a major issue, but “ownership” is not the proper way of thinking about it.

  • On August 21, 2011 at 3:31 PM Larry Rubinoff said: |Edit This

    Thank you for your take on this very important subject. Since standing is a major issue and “”ownership” is not the proper way of thinking about it”, then what is the way to think about it.

    Possessing the note, as you say, endorsed in blank, gives the holder the right to foreclose. I was always under the impression that a mortgage note endorsed in blank is not like a bearer bond where anyone in possession of it can execute it. In other words, mortgage notes are not bearer bonds. What is your take on this?

    Of course, if a mortgage note is held by someone but has never been endorsed in blank then it is your argument that now the bearer does not have standing. If this is what you are saying, I must agree.

    On the issue of lost, stolen or destroyed, banks often use this as an argument and basically are using a “trust me your honor, I did have it at one time but it was lost, stolen or destroyed, therefore I should have the right to proceed with the foreclosure action”.

    Too many judges simply accept this from a bank because they are “the bank” and of course, banks don’t lie. Only one judge questioned this in the past asking the plaintiff which occurred.

    Was the note lost, stolen or destroyed? It could not have been all three and if you don’t know which it was then you probably did not have it. I believe it was now Supreme Court Judge Schack in New York who questioned and disallowed this argument.

    DISCLAIMER: i am not an attorney and my comments do not reflect legal advice in any way. My comments come purley from my research and experience in these matters.

    I do, very much, welcome comments from attorneys like the one I am responding to for their legal opinions. More dialogue like this can be of great assistance to our readers and the millions facing foreclosure.

    If you are an attorney and would like to publish your views and opinions here at TheForeclosureDetonator please contact me at lrubinoff@theforeclosuredetonator.org.

    • On August 21, 2011 at 10:50 PM Ohio Lawyer said: |Edit This

      The question is whether someone is a “person entitled to enforce” the note. This status is defined by the Uniform Commercial Code. Below are the relevant provisions of the U.C.C. as adopted in Ohio:
      UCC 3-301
      (A) “Person entitled to enforce” an instrument means any of the following persons:
      (1) The holder of the instrument;
      (2) A nonholder in possession of the instrument who has the rights of a holder;
      (3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 1303.38 or division (D) of section 1303.58 of the Revised Code.
      (B) A person may be a “person entitled to enforce” the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.
      A “holder” is defined in U.C.C. 3-301
      (T)(1) “Holder” with respect to a negotiable instrument means either of the following:
      (a) If the instrument is payable to bearer, a person who is in possession of the instrument;
      (b) If the instrument is payable to an identified person, the identified person when in possession of the instrument.

      These two provisions have to be read together to get the complete picture. Let’s go through each type of person listed in U.C.C. 3-301.

      1. Holder – is someone in possession of an instrument which is either payable to that person (i.e. initially made payable to that person, or payable to that person via a special endorsement) or payable to bearer (e.g. endorsed in blank). This person need not be be the “owner” of the instrument, and may be in wrongful possession of it. Under this provision a thief could be a person entitled to enforce the note. All he needs is possession of a note endorsed in blank.

      2. Non-holder with rights of a holder – To qualify under this provision a person must: (1) be in possession of the note, but it need not be order or bearer paper; and (2) the person must have been given the rights of a holder. How does someone get the rights of a holder without being a holder? A holder transfers possession to the person and also grants to that person rights through a separate document, but doesn’t get around to negotiating the note. For example, Bank A sells a group of notes to Bank B. The notes are physically transferred to Bank B, but are not endorsed. Bank A also executes a bill of sale acknowledging that it sold the notes to Bank B. Think of it as possession plus ownership without endorsement.

      3. Someone not in possession under certain circumstances: There are two possibilities here. The first in the “lost, stolen, or destroyed” note. We see that often in foreclosure cases. The bank has to submit evidence to the Court to prove it can enforce the lost note. The other circumstance is almost never seen so I won’t go into it.

      That’s it. Only three classes of people can sue on a promissory note. Aside from “lost note” cases, possession is required. After that you need either negotiation (payable to order or an endorsement in blank) or some other evidence that you are intended by the last holder to be the person to enforce the note.

      This framework addresses commercial paper in general. That said, there may be other restrictions on transfers of certain types of mortgage notes. For instance, an FHA note cannot be sold to just anybody. They can only be transferred to other FHA-approved lenders. Some have suggested that such FHA or VA regulations renders notes issued under their programs to be something other than negotiable instruments. I do not know much about those arguments, but want to caution people that generalities are just that – general. Every situation is different and must be evaluated on its own facts.

      I can’t emphasize that last point enough. It’s all well and good for people to know the law, but too many borrowers try to go it alone. Law is not viewed in a vacuum; it is applied to fact. Most of the time the fact is harder to come by than the law. I urge borrowers to find counsel to help them. Doing it yourself almost never turns out well.

      I agree, Judge Schack drew attention to these issues by asking the simple questions and demanding some proof. Now, judges everywhere are more likely to listen to a borrower who challenges broad assertions of standing. Currently, this issue is pending before the Ohio Supreme Court and will likely be decided late this year. You can see the briefing on the issues on the Court’s website. The case name is U.S. Bank v. Antoine Duvall, Case No. 2011-0218.

Thank you Ohio Lawyer for taking your valuable time to offer these comments and help educate our readers.

To all attorneys:  Feel free to send your information for publication to me at lurubinoff@TheForeclosureDetonator.org.  You can remain Anonymous, use a screen name or if you wish have your name, address and phone number published.  If you choose to use only your name or screen name, please let us know what state you are in or what state(s) you practice in.

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Comments

  • lies  On August 22, 2011 at 6:25 PM

    ok fine “the note” defense but what ya’ll (from floridah ok) forgot is that most mortgages 2006 foward were securitized . You can fool some sone sometimes but not all the time people. Why did this lawyer not cover securitization and what happens to the note then? We are schmoozed here. when the INVESTORS funded these mortgages the notes were destroyed (robosigning) the info went to a trustee. The mortgages were combined in trusts and our money kept them going. the note is not owned by the banks. the investors did not all of the sudden say here bank here is the note foreclose and keep the credit default swap insurance for your self. Lets go lawyers and people this incredible scam has to stop i am getting tires

  • Larry Rubinoff  On August 23, 2011 at 12:33 AM

    Yes, I agree with you on the securitization. Most notes were put into pools and sold to investors. This issue does bring up some other issues and problems, but first let me try to explain what I believe Ohio Lawyer is saying.

    If I understand him correctly, according to the UCC codes, it matters not who “owns” the note but who “holds” the note. If the note is endorsed in blank – which many were – then he is saying that the “bearer” of the note – the one “holding the note” has the right to foreclose.

    But to do so, “they” must have the original note. since you are referring to Florida, the statutes here require that the plaintiff “produce the original note” or have the court acknowledge that the note was lost, stolen or destroyed thereby giving the bank/plaintiff the right to foreclose.

    I believe Ohio Lawyer addresses the lost, stolen or destroyed issues as well.

    Please re read his explanation and it might answer some of your concerns.

    Not being an attorney myself, I question where the precedence would be, Statute or UCC code. I would think UCC is federal so that would take precedence. Not sure. Anyone out there know?

    As to your comments about the scam. YES, this all has been a scam by Wall Street and the banks in cooperation with the Federal Government and some of its very own agencies like the SEC.

    The banks are triple dipping on profits here.
    First, they made the loan and earned fees.
    Second, they sold the loan to Wall Street at a profit
    Third, they wrongly take the property back at the court house steps paying no money (and they no longer have an investment in it) saying that they own the note (which we all know they don’t since it was securitized). THEN, they sell the property and keep the money as pure profit.

    And oh, maybe they are quadruple dipping. The government pays them about 80% of what they claim their losses are. So, if they foreclosure n a $200,000 mortgage and sell it for $100,000, the government pays them $80,000 on top of the $100,000 they made selling the property. Total profit to the bank – $180,000 for a property they had no investment in and made money on twice before.,

    This is the scam that no one is talking about.

    • Michelle  On January 4, 2012 at 10:58 PM

      Am I understanding correctly that a servicer can be a holder of a note if they stamp the blank allong to themselves??

      My note was held in a Trust nearly a year after the sheriff sale. The investor Reports show that the Trust liquidated it.

      The servicer foreclosed as owner and holder naming only themselves. They never mentioned the Trust, I only found this out after recieving a 1099-C from the servicer showing the the debt was acquired a year after the sheriff sale to a third party. The exact amount of the liquidation listed in the Investor Reports matches the loss noted in the 1099-C. After alot of digging I find my loan in the collateral files and investor reports.

      thoughts??

      The allonge they submitted to prove ownership is a faxed copy of a copy with the phone number from the trust memorialized along the top margin dated a month after the filing.

      In this case…who owned and held the note?

  • Anonymous  On March 31, 2012 at 7:55 AM

    IT’S THE TRUTH, THEY ARE DOUBLE DIPPING , AND PIAD SOMTIMES 3 TIMES FOR THE SAME PROPITES, IT;S A SCAM THAT THE GOVERMENT ALOWS TO HAPPEN OVER AND OVER. I KNOEW FOR A FACT THAT MY HOUSE WAS PAYED FOR 2 TIME OR MAYBE 3 TIME AT THE PRICE OF $329.000 X3 = over plus , go after these bastards , dont give uo your home without a good down and dirty street fight, meaning use a good ATTORNERY, AND DO YOUR OWN RESEARH BELIVE IT WORKS , THESE BANKS ARE NOW CAUGHT UP IN SO MUCH FRAUD , AND ARE TOTALY CONFUSED IF YOU OR SOME ONE FOR YOU JUST STEP’S TO THE TABLE TO CHANGLE THEM, INCLUDING THE HOA” I WISH YOU ALL THE LUCK ON THIS SIMPLE BUT YET TIME CONSUMING JURNIOY

  • the504vet  On February 11, 2014 at 9:24 AM

    Reblogged this on the504vetblog.

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