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Foreclosure Defense Florida

Mortgage Notes Are NOT NEGOTIABLE INSTRUMENTS- Foreclosing in a Hurricane

” A lie told often enough becomes the truth.”
““ Vladimir Lenin, adopted and reused by Joseph Goebbels

Repeat a lie long enough until it becomes the truth.   That’s what’s occurring in the space of negotiable instruments and the Uniform Commercial Code.   The bottom line is mortgage notes are NOT negotiable instruments.   What is the definition of a negotiable instrument?   Well, Florida Statutes gives us a very clear definition:

673.1041″ƒNegotiable instrument.

The term ” negotiable instrument” means 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, if it:

(a)”ƒIs payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(b)”ƒIs payable on demand or at a definite time; and
(c)”ƒDoes not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money.

So what is a negotiable instrument? Well, it’s real simple.   A check is a negotiable instrument.   It is simple, it is clear. It is, as they say,

“A passenger with no baggage.”

What is not?   That mortgage note that carries with it so much baggage……but convincing courts of this after so much bad decisional law and appellate decisions that point in several different directions at once is a feat that is probably too optimistic.   Now keep in mind that although there are tens of dozens of decisions relating to negotiability there are only two decisions in all of American written jurisprudence where a thorough analysis of a mortgage note’s negotiability has occurred.

So climbing that mountain is probably way too optimistic.   But a smaller piece that could be bitten off is the requirement that the rights of the party in possession be clearly demonstrated with written evidence.

673.2031″ƒTransfer of instrument; rights acquired by transfer.

(4)”ƒIf a transferor purports to transfer less than the entire instrument, negotiation of the instrument does not occur. The transferee obtains no rights under this chapter and has only the rights of a partial assignee.

When a servicer comes to court acting on behalf of any owner they have necessarily been transferred less than the entire instrument.   They take then no rights of a holder, and whatever rights they may have must be demonstrated and proven.

But this is all just too much to break off, isn’t it?   The lie has persisted too long and is becoming far too entrenched, isn’t it?

No, not yet. We all need to speak up, and continue developing these issues…..

Applying these principals to foreclosure actions, the correct party-plaintiff would therefore be the party who: (1) suffered some injury, either economic or noneconomic, by the mortgagor sufficient to stake a claim in the dispute;[1] and (2) be either the party who suffered the injury, or an entity who is maintaining the action on behalf of the aggrieved party.[2]   Simply put, if these two prongs are met, then standing has been conferred; if not, the named plaintiff lacks standing and is not a proper-party plaintiff.

Sundry problems beyond mere pleading deficiencies arise in failing to delineate exactly who may sue for foreclosure have been caused primarily by the mad rush to securitize, or package, the underlying promissory notes so that they can be sold on the secondary market.   These problems include: (1) whether the promissory note sued upon is even a negotiable instrument and therefore whether a plaintiff may claim standing pursuant to Section 673.3011; (2) if the note is in fact negotiable, how a transfer of it merely through negotiation can transfer the non-negotiable mortgage; and (3) whether the suing plaintiff is the party responsible for certain pre-suit conditions precedent, or whether this can be delegated to a non-suing party.

ForeclosinginaHurricane

 

 

15 Comments

  • triumphant says:

    Matt, now you are getting there.

    Remember In Re Veal which concluded that UCC-9 governs the foreclosures of secured promissory notes, mortgages and provides for the requirement to ” prove up” transfers and consideration, as well as ” ownership” of notes and mortgages or provable agency for revealed owner?

    I direct your attention to the ” confidential” (now all over the Internet, ” lavalle-report-small-printed.pdf”) opinion by Baker and Hostetler LLP (May 19, 2006) for Fannie Mae in response to Nye LaValle’s concerns. See this passage from Baker and Hostetler’s report on page 38:

    ” When Fannie Mae purchases mortgages,121 Fannie Mae requires the lender to endorse the promissory notes “in blank” and without recourse. 122 Promissory notes in this form are bearer instruments that can be negotiated without endorsement. 123 Promissory notes, which establish the obligation to repay the loan, are governed by Article 3 of the Uniform Commercial Code (“UCC”). The sale of promissory notes is also now covered under Revised UCC Article 9. 124 As a result of Fannie Mae’s policy of requiring lenders to endorse notes in blank, notes do not contain a series of endorsements that would permit the borrower to identify the chain of ownership. Secondary market transactions, however, do not affect a borrower’s payments or other obligations under the mortgage. They also do not necessarily affect the servicer with whom the borrower interacts.

    ” Mortgages are treated differently from promissory notes under the law. Mortgages, which establish the security interest in the home, are governed by UCC Article 9, and the obligation to record the mortgage is governed by state laws that vary from state to state. The purpose of land record laws is to give public notice of liens on real property. These laws do not require and do not provide a mechanism for recording promissory notes. 125 When a lender sells to Fannie Mae a mortgage that is not registered with MERS, the lender or the servicer must prepare a mortgage assignment. 126 If the lender is not the servicer, the lender must assign the mortgage to the servicer and record the assignment in the land records. 127″

    Footnotes:

    121 Fannie’s Selling Guide defines “Mortgage” as: “Collectively, the security instrument, the note, the title evidence,
    and all other documents and papers that evidence the debt (including the chattel mortgage, security agreement, and
    financing statement for a cooperative share loan); an individual secured loan that is sold to us for retention in our
    portfolio or for inclusion in a pool of mortgages that backs a Fannie Mae-guaranteed mortgage security. The term
    includes a participation interest where context requires.” Selling Guide, Part XIII, Glossary.
    122 Selling Guide, IV -204.
    123 U.C.C. Revised § 3-205(b). It states: “(b) When indorsed in blank, an instrument becomes payable to bearer and
    may be negotiated by transfer of possession alone until specially indorsed.” U.C.C. Revised § 3-205(a) defines a
    special indorsement as one that “identifies a person to whom it makes the instrument payable.”
    124 Revised § 9-109. It states: “this article applies to … a sale of accounts, chattel paper, payment tangibles, or
    promissory notes.” § 9-109(a)(3). Former Article 9 did not apply to the sale of promissory notes. “Subsection (a)(3)
    expands the scope ofthis Article by including the sale of … a ‘promissory note. ‘” Revised § 9- 09, Official
    Comment 4.

  • LouisBruno says:

    While the claim that mortgages may be accurate looking solely at the face of the note, most notes are securitized, and converted to negotiable instruments in the process of endorsing them in the process.

  • In the Ohio Supreme Court case of U.S. Bank vs. Duvall Case No. 2011-218, the amicus brief filed on behalf of Ohiofraudclosure argued that mortgage notes were not negotiable instruments, and cited in support of its argument the Permanent Editorial Board for The Uniform Commercial Code consideration of a ” proposal to amend the UCC to render real estate mortgage notes nonnegotiable” at its October 4, 2009 meeting.

    The argument from teh amicus brief is below:

    A promissory note secured by a residential mortgage meets many of the above requirements: it is an unconditional promise to pay, a fixed amount of money, to the order of the Lender, at definite time. R.C. 1303.03(A)(1) and R.C. 1303.03(A)(2). However, R.C. 1303.03(A)(3) states that the promise or order may not contain any other undertaking or promise, except for limited situations.
    Given the numerous legal documents and relationships that have become attached to the transaction, a promissory note referring to a residential mortgage may no longer be an exception to R.C. 1303.03(A)(3). The majority of mortgages will often identify some entity other than the lender as the mortgagee. The majority of mortgages will then be transferred through a number of entities and will eventually be transferred to a trust. The trust will be governed by a pooling and servicing agreement. The pooling and servicing agreement will designate numerous other entities that have authority to take certain actions related to the mortgage. Accordingly, a promissory note that makes reference to a residential mortgage may no longer comply with R.C. 1303.03(A)(3). Even the Permanent Editorial Board for The Uniform Commercial Code considered a ” proposal to amend the UCC to render real estate mortgage notes nonnegotiable” at its October 4, 2009 meeting. See, a copy of the October 4, 2009 agenda attached hereto. If a ” mortgage note” is not a negotiable instrument, then a plaintiff does not have standing to file a complaint based solely upon plaintiff’s possession of the promissory note. A blank endorsement would not create bearer paper.

  • Sandy Lynn Timms says:

    Matt, since a negotiable instrument is an unconditional promise to pay, does not the condition of waiving presentment and notice of dishonor preclude a mortgage note’s negotiability status?

    Also, is it possible that the mortgage and note are contracts of adhesion, unconscionable due to this required waiver, thus unenforceable? A purchaser’s prior notice of dishonor means loss of holder in due course status and loss of immunity from liability for previous unlawful acts concerning the mortgage loan, yet the borrower is required to waive notice of dishonor.

    Granted, most one-sided contracts are enforceable, regardless of whether the more sophisticated party to the contract prepares the “take it or leave it” agreement. However, one of the few exceptions is when the unsophisticated (weaker) party must give up effective means to assert a legal right, or else the one-sided deal is off.

    Unsophisticated borrowers do not know the real meaning of these securitization terms, much less realize at closing that they are signing away one of the few legal defenses the UCC allows the borrower to defend title to his or her property. Add to this the conflict in the mortgage, wherein a borrower MUST AGREE IN WRITING to defend title to the property, then one can realize the unconscionable demandS of these contracts.

    Most borrowers have no reasonable means to find out or comprehend the effects of these waivers. Even Obama stated that he and Michelle are lawyers, but didn’t understand their closing documents. They signed them anyway, I guess–like most of us.

  • Garry Fourre says:

    My Promissary note states “I understand that the Lender may transfer
    the note”. I agreed to this and signed the note.
    The note states who the Lender is!! It dosen’t say anyone else can transfer the not only the Lender. Citi wasn’t the lender nor was freddie and they have no right to transfer!!

  • Walter Hackett says:

    As a career banker (May 1980 – April 2007) I know of no bank that ever treated RE secured notes in CA as negotiable instruments. Beyond California Civil Code section 1642 and 2936, it is my belief that the following language from the Uniform Note renders it non-negotiable in any jurisdiction: “This Note is a uniform instrument with limited variations in some jurisdictions. In addition to the protections given to the Note Holder under this Note a Mortgage. Deed of Trust, or Security Deed (the ” Security Instrument”), dated the same date as this Note protects the Note Holder from possible losses that might result if I do not keep the promises that I make in this Note. That Security lnstrument describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note. Some of those conditions read as follows;”

    • Corey says:

      IM very interested in your analysis. Why do you think that phrase makes a note a non-negotiable instrument? Please email me, thank you!

  • Chuck Schulze says:

    Matt,

    I am not an attorney – nor an attorney spokesman. I am just a recent fan of your work and I am impressed that their are still lawyers in the legal profession that actually care about the law. I am not blind that being a lawyer requires years of dedication and study. I am not blind to the fact that lawyers need to make a living and be paid for their work. With that said, I did what you have suggested in one of your videos and I went to FORECLOSURE court. I sat through the biggest circus since Barnum Bailey. In these cases anout 150 these lawyers did not display the passion for the law that I have seen through you. To them it is a job, it is check. To you, it appears to be preservation of civil rights. The path that everyone deserves EQUAL protection under the law.

    I am again whole when I see this in a lawyer.

    To that I say who is your West Palm Beach couterpart? Who handles cases for you in West Palm Beach? I would like to talk to them. I have found some interesting issues in my file and with one shot at the bank I would prefer to have counsel.
    Thank you for all you do .

    Chuck

  • Danelle Hills says:

    Mr. Weidner, is there ANY lawyer you know, an attorney friend or colleague perhaps, for foreclosure defense in the state of North Carolina that you think is ethical like you, and would fight like you do for the client’s rights that you could refer us to? My husband and I really need a lawyer we could count on, we are in a non-judicial foreclosure state and lawyers around here just want to do bankruptcy, and maybe get the mortgage loan modified some. We had a Countrywide refinance of 2003 (predatory ARM loan) that was later securitized (Bank of America sent us a letter long ago in which they admitted the loan was split into three pieces, and named the buyers – Deutsche Bank was one of them at the time). Now that we are in arrears, Bank of America wants to foreclose. Must we sit and let them steal this house out from under us after we have paid on it for sixteen years, just because we cannot find a lawyer who “gets it”? Please help us if you can.

  • Attorney Wendy Alison Nora says:

    POSTING THE TRUTH WHEREVER I CAN, THANK YOU:
    The foreclosure defense bar, bar associations and the courts have all been duped by the mistaken perception that mortgage notes are negotiable instruments. We are all waking up at the same time.
    I wrote an article for the Wisconsin Lawyer, the State Bar of Wisconsin trade magazine, which is widely circulated and read.
    Yesterday, I appeared in a Wisconsin court proceeding in which I had relied on the professionally-vetted article which I authored and repudiated it. The judge was interested. Nothing is a better proof of the truth than to have the proponent of the proposition demonstrate the error of his or her own position.
    The UCC does not apply to real estate transactions by its own terms and the mortgage is a separate writing which contains terms which prevent the circulation of the mortgage note as an unconditional promise to pay. The Statute of Frauds (English common law dated 1671) is the law in every state for which the law is grounded in Anglo-American jurisprudence. It requires a writing for the transfer of interests in lands which identifies the party to which the interest is transferred. ” Blank” on an endorsement does not identify the party to whom the transfer is made.
    I feel like the chemist whose widely read academic writing described the wrong chemical formula. In stream of consciousness postings to Naked Capitalism, posting as oldsoul (because I am old, with 36 years of experience as a practicing lawyer, and I still have my soul, having been able to resist the temptations of money and power, which I have been able to reject) I reworked the formula:
    1. The UCC does not apply to real estate by its own terms and
    2. The Statute of Frauds requires that the party taking title to land by mortgage foreclosure must be identified in writing.
    Trying to deconstruct the frauds using the concepts upon which the frauds relied has misled even the wisest of courts. In re: VEAL looks to Articles 3 and 9 of the UCC. Article 3 is the law of negotiable instruments and Article 9 is the law of secured transactions EXCEPT REAL ESTATE.
    I simply could not believe the full scope of the lawlessness which has been running roughshod over our Constitutional Republic. I, like the VEAL court, sought to find the answer in the UCC. The answer is not and never could be in the UCC.
    Again and again, I must state what the law really provides (except that I do not know the law in Louisiana, which is founded on the Napoleanic Code and not Anglo-American jurisprudence):
    1. The UCC does not apply to real estate by its own terms;
    2. The Statute of Frauds requires that the party taking title to land by mortgage foreclosure must be identified in writing.
    Never in my career of 36 years have I found an instance in which the law ultimately justifies theft because to do so would means that there is no property law at all. And the real law, its foundation and its correct application does not do so.
    1. The UCC does not apply to real estate by its own terms;
    2. The Statute of Frauds requires that the party taking title to land by mortgage foreclosure must be identified in writing.

    Here is the complete sentence intended to follow “I simply could not believe the full scope of lawlessness which has been running roughshod over our Constitutional Republic. I, like the VEAL court, sought to . . . ”
    Trying to deconstruct the frauds using the concepts upon which the frauds relied has misled even the wisest of courts. In re: VEAL looks to Articles 3 and 9 of the UCC. Article 3 is the law of negotiable instruments and Article 9 is the law of secured transactions EXCEPT REAL ESTATE.
    I simply could not believe the full scope of the lawlessness which has been running roughshod over our Constitutional Republic. I, like the VEAL court, sought to find the answer in the UCC. The answer is not and never could be in the UCC.
    Repeating this again and again until we all get out of the loop if the “Law Merchant,” which does not apply to real estate:
    1. The UCC does not apply to real estate by its own terms;
    2. The Statute of Frauds requires that the party taking title to land by mortgage foreclosure must be identified in writing.

  • BC says:

    In looking at all of the arguments posted on this blog. You are forgetting one important detail 1) During a foreclosure action, the Mortgagee, lets use MERS has to assign the mortgage agreement to the foreclosing party. The Note holder has to indorse its rights to the foreclosing party. Lets say the mortgage servicer.

    The Mortgage Agreement within itself is non-negotiable, meaning it cannot be assigned, transferred, bought or sold. The Note for simplistic purposes is held by a Fannie Mae REMIC Trust. The note goes into default regardless if it has been indorsed in blank.

    MERS first cannot receive any rights to the mortgage to begin with since the original lender cannot assign its title as Mortgagee to a non-negotiable instrument. Second, Fannie Mae REMIC Trust cannot assign or indorse its ownership of the note to begin with either. Fannie Mae when it elected to create a REMIC sold its ownership interest to the Tust. the REMIC is now has beneficial ownership of the notes. Further since the note now has an uncured default, a new party cannot be deemed to be a “Holder in Due Course” on a defaulted note.

    A mortgage servicer takes ownership of the note. During the life of the note, the servicer has been receiving principal and interest payments, then upon default, they are required by Fannie Mae to report the default. So, both parties are aware of the default. Therefore, the servicer cannot become a holder in due course.

    The end result is that MERS or the Original Lender cannot assign the mortgage agreement and are stuck with it. Fannie Mae cannot assign or transfer ownership of the Note for first electing the REMIC and two having ownership of a defaulted note.

    The Mortgage and Note are split and no party can rightfully foreclose. In this country the mortgage follows the note. Without both of them together providing the security interest, it becomes an unsecured debt at most.

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