Let’s start with real basic stuff here. Sometimes law is complex, nuanced, difficult. Other times it’s black and white…you just read the words, look at the facts and the answer is unavoidable. Such is the case with the simmering dispute over the fact that the notes that are part of nearly every residential foreclosure case are not negotiable instruments. Oh sure, too many courts won’t take the time to consider the argument and…just yesterday I heard an appellate court argument where the judges just kept repeating the mantra, “this is a negotiable instrument” without ever doing any analysis at all and without any finding of that “fact” from the trial court. The attorney needed to stop the appellate judge right there and say, “No Your Honor, it’s Not A Negotiable Instrument”.
Just last week, in a trial court, here’s exactly they way it went down. Now, keep in mind, this argument in court was supplemented by a long and detailed memo similar to the one attached here. The best part it was in front of one of Florida’s most respected and brilliant judges. He’s been on the bench longer than I’ve been alive, he knows more law in the tip of his finger than most lawyers get in their whole bodies in an entire lifetime, he’s presided over tens of thousands of foreclosure cases. It was a beautiful thing to see an argument before a dedicated jurist whose seen and heard it all before that really made him sit up, dig in to those decades of judicial wisdom and then do the heavy lifting. That’s one of the beautiful things about this job….despite decades of work and hundreds of years of law, out of nowhere something new and exciting can still get the intellect and wisdom fired up and shooting like a cannon. Here’s how it goes down:
Your honor, I’ve highlighted and present for you the statutory definition of a “negotiable instrument”. Because it’s a statutory definition, it’s black and white. We cannot alter or weave or color it with shades of gray….here’s what it is:
673.1041 Negotiable instrument.””
(1) Except as provided in subsections (3), (4), and (11), 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) Is payable to bearer or to order at the time it is issued or first comes into possession of a
(b) Is payable on demand or at a definite time; and
(c) Does 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.
Now, we’re all stuck with exactly that definition. Before we examine the note in this case, let’s first think about what a negotiable instrument is….a check made payable to a person for $100. An IOU for $100. Bills of lading with a total included. It’s all real simple.
So now that we’re fixed about what a negotiable instrument is, let’s examine what it ain’t. What ain’t a negotiable instrument, as defined by Florida law is the standard Fannie/Freddie Promissory note and the following paragraphs are the primary reasons why. Read each one carefully and ask, “Are these sentences conditions or undertakings other than the promise to repay money?” (Of course they are)
4. BORROWER’S RIGHT TO PREPAY
I have the right to make payments of Principal at any time before they are due. A payment of Principal only is known as a ” Prepayment.” When I make a Prepayment, I will tell the Note Holder in writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the monthly payments due under the Note.
I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.
5. LOAN CHARGES
If a law, which applies to this loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with this loan exceed the permitted limits, then: (a) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (b) any sums already collected from me which exceeded permitted limits will be refunded to me. The Note Holder may choose to make this refund by reducing the Principal I owe under this Note or by making a direct payment to me. If a refund reduces Principal, the reduction will be treated as a partial Prepayment.
10. UNIFORM SECURED NOTE
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 which might result if I do not keep the promises which I make in this Note. That Security Instrument 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 are described as follows:
If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.
If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.
So, the deal is, if we were sitting in a law school classroom, there’s not a chance in the world but that every student in the room and the professor would agree and understand that the document being examined side by side is not covered by the definition provided. The problem is we get into courtrooms and we get infected by considerations that are beyond and above the operative law. Judgment gets clouded by preconceived notions and prejudices against our neighbors and favoritism for the criminal banking institutions that caused all this mess. Even to this day, years into this, years into all the fraud and the lies and the deceit, it’s like we’re still hypnotized by the banks and their black magic and voodoo.
Now, if you really want to take it a step deeper, Margery Golant makes a very credible argument that in doing this analysis we cannot just look at the note alone, but that we must also examine the mortgage that follows with it. They truly are two integrated documents and you can see from her highlights that so many of the provisions in the mortgage have nothing to do with security and everything to do with conditions on the payment of money….these provisions are just jammed into the mortgage and kept out of the note to try and prop up this artifice of negotiability. Read her highlights with this analysis in mind:
Further supported by this case Sims v New Falls
Now, understand the industry never intended these notes and mortgages to transfer via endorsement. The industry set this whole system up so that the notes and mortgage would transfer via Article 9 of the UCC. It’s just so plain and simple. They never set it up or intended that million dollar notes and mortgages would transfer via forged endorsements, undated squiggles and rubber stamps or floating allonges. Of course not…that’s just crazy. The entire system was created such that notes and mortgages and all the servicing agreements and rights and liabilities would transfer via far more formalized Assignments, with names and dates and notary stamps and witnesses. The Article 9 transfer regime had nothing to do with protecting consumers, but everything to do with protecting the players in the industry from the scams, the lies, the cons that they all like to play on one another. (Hello, LIBOR anyone?)
But when the shifty con artists that set this whole securitization card game up, they were so focused on how much money they were making, they never considered what would happen when the whole house of cards blew down. When it blew down, they threw their Article 9 intentions out the window and adopted the whole Article 3 negotiable instrument delusion. Isn’t it an absurd argument when they cannot answer the question, “if assignments don’t matter, why do you still bother to do them?” It’s because they do matter….assignments were and remain the foundation of their transfers. The problem is Assignments, what with their pesky dates and legible names and notaries and all reveal the lies and the fraud and the con that developed once the system came crashing down and they all started stealing from one another. (With the explicit approval of our state and fedeal government to do so….too big to jail you know.)
Anywhoo, there’s still some faint glimmer of hope as long as we still have good judges out there that are willing to think these things through and do the heavy lifting, we might be able to rescue our nation’s judicial system and in fact our nation as a whole from this deep, dark black pit that we’ve all descended down.
I urge everyone to be very careful with these arguments. I’m a very big supporter of pro se people and consumers being integrated into their courtrooms and being fully engaged in the public spaces they own. I’ve also seen some very good pro se people go into courtrooms and do some very beautiful things. In some ways it’s like a “From the mouths of babes” experience. Language and arguments stripped away from all their lawyerly pretense can have a magic effect on a judge’s ear and thoughtfully and well-prepared arguments are often received with great enthusiasm from our circuit courts….particularly those judges that recognize the roots of our civilian circuit justice system. The danger is that ill-prepared and poorly presented arguments will taint the ears and poison the minds of judges that might otherwise accept with an open mind…..keep that in mind. Max Gardner is the Obi One Kenobe of all this and there’s just something about the way he lays it out so clear and clean and simple that has it all make sense. I really encourage everyone to get all his material and invest in the week long bootcamp before you go trying any of this out…..MAX GARDNER BOOTCAMP
Now, one last thing here….let’s talk about the practical impact of all this BOOMING and BOMBSHELLING! When we get back around to some integrity of our laws and start recognizing that notes are not negotiable, that does not mean they aren’t enforceable….it only means they have to be transferred not by negotiation but via assignment pursuant to Article 9….do you see how that works? The end of the delusion of negotiability is not the END OF THE WORLD! It just means courts will not be relying upon illegible squiggles to transfer interests in billions of dollars worth of assets and the interests in real property to land and homes all across this nation. See how that works? When notes are enforced as non negotiable instruments, the transfer of interest in those documents occurs, along with the mortgage and the enforcing authority, pursuant to an assignment of mortgage or some other document which would actually show some chain of ownership…..
And now my briefs: