Home Foreclosures: 2.2.4.2 Negotiable Notes Can Be Payable to the Order of a Specific Person or Simply to the “Bearer”
Negotiable instruments may be payable in two forms. They can be payable “to order” or “to bearer.”
Negotiable instruments may be payable in two forms. They can be payable “to order” or “to bearer.”
A negotiable instrument payable to the order of an identified person is “order paper.”64 Such a note is sometimes referred to as “specially” indorsed. For effective negotiation of order paper, there must be a proper indorsement to a transferee plus delivery of the instrument to the designated transferee.65 If there were defects in either indorsement or delivery, the party seeking to enforce the note is not a “holder” of the instrument.66
Many courts have faced the question of how to treat lawsuits filed by parties who did not have authority to foreclose on the date the complaint was filed, but claimed to have obtained this authority at a later date, typically before the entry of judgment. Plaintiffs often point to post-filing assignments, transfers of notes, or substitution of parties as evidence that they corrected standing defects that existed when they filed the complaint. Because most courts view standing as a jurisdictional requirement, they focus on the plaintiff’s status as of the date the complaint was filed.
Where negotiable notes are concerned, U.C.C. Article 3 will mostly be controlling on authentication issues. While most first mortgage notes on the Fannie/Freddie Uniform Instrument form are negotiable, other forms of notes such as those evidencing home equity lines of credit (HELOCs) and reverse mortgages, and notes on specialized note forms, are not negotiable and therefore different rules of evidentiary proof may apply.103
Appellate courts in judicial foreclosure jurisdictions that have addressed the issue have consistently held that the plaintiff seeking to foreclose must be the party with authority to enforce the promissory note.48 There is little reason to expect that appellate courts in other judicial foreclosure states that have not yet addressed this question will decide any differently. There may be questions as to whether the foreclosing party must be the “owner” of the note as opposed to a party with the right to enforce the note under U.C.C.
In its Ibanez decision, the Massachusetts Supreme Judicial Court rejected two foreclosing trusts’ claims that they had proven the existence of mortgage assignments to them through the terms of various documents related to the formation of the trusts.336 The court noted that the trusts failed to include in the record any documents that clearly identified the mortgages in question as having been assigned to them.
Not infrequently, issues about judicial notice will arise in foreclosure cases.
Mortgages, deeds of trust, and assignments of them are typically self-authenticating.122 However, mortgages, deeds of trust, and assignments, if offered as self-authenticating under Federal Rule of Evidence 902(8) must be “accompanied by a certificate of acknowledgment executed in the manner provided by law by a notary public or other officer authorized by law to take acknowledgments.”123 Generally, howev
Servicers’ lawyers, and often trial judges, tend to ignore the authentication requirements for electronically stored and electronically created loan records such as loan history documents and payoff calculations, and instead focus solely upon the business records exception to the hearsay rule in Fed. R. Evid. 803(6). It is a great mistake for homeowners’ lawyers to allow the authentication rules to be ignored as these rules provide some of the most viable opportunities for successful defenses of foreclosure cases.
Foreclosure notices, when offered as proof of compliance with requirements of the mortgage or related statutes and not to prove the truth of the statements in the notices, are not hearsay235 and do not require proof under Fed. R. Evid. 803(6) in order to be admissible.236 While a party offering such operative documents may not need to comply with the proof requirements of Fed. R. Evid.
A “personal knowledge” requirement applies to in-court testimony as well as to affidavits submitted in support of a written motion for judicial relief.147 “Affidavits asserting personal knowledge must include enough factual support to show that the declarant possesses that knowledge.”148 Virtually no servicer witness will have personal knowledge of the details of any loan, because that witness was not present at the loan closing and will have had no day-to-day involveme
The evidentiary rules relating to the authentication of documents arise out of the requirement that evidence offered must be relevant to the matter in issue.97 A document offered to prove a fact can be relevant only if the document is actually what it purports to be.98 Some forms of documents are deemed to be sufficiently trustworthy on their face so as to be self-authenticating,99 while the authentication of other forms of documents requires additional
A “personal knowledge” requirement applies to in-court testimony as well as to affidavits submitted in support of a written motion for judicial relief.149 “Affidavits asserting personal knowledge must include enough factual support to show that the declarant possesses that knowledge.”150 Virtually no servicer witness will have personal knowledge of the details of any loan, because that witness was not present at the loan closing and will have had no day-to-day involvement with the servicing of t
As noted in NCLC’s Home Foreclosures,177 operative documents such as promissory notes178, mortgages and deeds of trust, and assignments of mortgages and deeds of trust are not considered to be hearsay, and therefore their admissibility would not require proof of the elements of the business records exception.
Not infrequently, issues about judicial notice will arise in foreclosure cases.
Lenders that foreclose through judicial proceedings typically move for summary judgment after the homeowner has filed an answer or otherwise appeared in the case.
The following techniques may help the homeowner to defeat summary judgment in a judicial foreclosure on grounds that appear routinely in the lender’s evidence:
Inflating appraisals and property flipping are two deceptive activities that often go hand-in-hand but can also occur independently.59 Inflated appraisals can be used by mortgage brokers and loan officers to earn extra fees and commissions or to otherwise increase lending volume. Where a property has a higher loan-to-value ratio than permitted by the lender’s underwriting guidelines, inflating the appraised value of the house may get the transaction approved.
This subsection focuses on liability for statutory damages of an originator (e.g., loan broker), servicer, assignee, or settlement agent where that entity violates the TILA requirement. This subsection also reviews an assignee’s TILA liability for the actions of its agent, the servicer.
When a servicer fails to meet its responsibilities under TILA, consumers may pursue the holder of the debt for the servicer’s misconduct. Holding the creditor or assignee liable likely results in an offset against any debt owed by the homeowner and may save the home from foreclosure. It can also simplify litigation by reducing the number of parties.
The most critical player in foreclosure defense cases is the mortgage loan owner. The owner is the party that has the right to enforce the note and foreclose on the mortgage or deed of trust.264 In some cases, the owner may be the entity that originated the loan.
If the loan has been assigned, the homeowner will generally want to raise against the current mortgage owner the defenses that could have been raised against the originating lender.267 If an assignee has the rights of a holder in due course, however, it may be shielded from some liability for the actions of the loan originator.
Whether the mortgage owner can be held liable for servicing abuses will turn on whether the servicer is considered an agent of the mortgage owner. Where an agency relationship exists, the mortgage owner generally is liable.
A subagent is an entity appointed by the agent of the principal.