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The Note Is All a Lender Needs to Foreclose

Recently, the issue of a lender's authority and right to pursue foreclosure on defaulted residential mortgage loans has become a subject of national interest. It is at the heart of the $25 billion settlement agreed to recently between the Federal government, 49 state attorneys general and the nation's five largest loan servicers.

Mortgage foreclosure practices are also the focus of suits brought by certain state attorney generals against several major banks in the past few months. The propriety of mortgage foreclosure processes are defenses commonly raised by defaulting borrowers in contested foreclosure litigation.

The courts are clogged with people asking the same question: does this bank have the right to foreclose on this home?

Two documents are critical to a residential lending relationship, and therefore to foreclosure on a defaulting borrower's loan: the note and the mortgage (or deed of trust).

The note identifies the amount of the loan, and the repayment terms. The mortgage provides security for the loan. To have the authority to foreclose the mortgage (what lawyers call "standing"), a plaintiff must be the "holder" or "assignee" of the note. In the current environment where mortgage loans have frequently been bought, sold and securitized, confusion has sometimes ensued over who is the proper party to commence the foreclosure — or at least over a bank's ability to prove its authority.

Counsel for borrowers often demand that lenders prove that both the note and mortgage are held by the foreclosing lender before a residential mortgage foreclosure may proceed, and some courts have, mistakenly, agreed. Certain courts have gone so far as to say that lenders who cannot provide exacting evidence of when and how the note and mortgage were transferred to the bank cannot maintain a foreclosure action, thereby allowing borrowers to reside at the mortgaged home "payment free," without making mortgage payments and without the risk of foreclosure.

Proving the right to foreclose, however, should not be as difficult as those attorneys and courts claim. Under the Uniform Commercial Code, a note is a negotiable instrument (just like a check), freely transferable by endorsement to a specific entity or by physical delivery of the note endorsed in "blank" to a new party, who becomes the "holder" of the note. The holder of the note (or check) whether or not he is the owner of the instrument can enforce it. Thus the party who "holds" the note has standing to enforce the note. This is no different from a check. You can receive a check payable to you and then endorse it by signing the back. If a check is payable to you, your signature on the back makes the check enforceable by any person in possession.

Here, however, is the important part when it comes to the transfer of a note. When a note has been transferred, the mortgage securing it automatically follows. This rule is codified in the UCC section 9-203. The maxim that the "mortgage follows the note" has been followed in most states, including  Florida, New York, Ohio, Texas and California.

Though UCC law is long established, it is often forgotten or ignored in the mortgage foreclosure context. Applying this simple, clear rule to foreclosure cases would quiet much of the uproar about who has the right to foreclose because the focus would, correctly, be on the note only.

Disputes about whether mortgages were properly assigned to the foreclosing lender by Mortgage Electronic Registration System — commonly known as MERS — could be put to the side. Lenders designate MERS as their nominee and grant MERS the authority to transfer mortgages within its network of lenders, without recording the assignments publicly. MERS has become a favored whipping boy of borrower lawyers who regularly challenge the validity of mortgage assignments executed by or on behalf of MERS. But an assignment by MERS, and whether it legally transfers the mortgage or not, is irrelevant because possession of the endorsed note is all that matters.

Another issue that arises repeatedly is the claim that assignments of mortgages were "robo-signed." Borrowers claim that the mortgage assignments are invalid because they were improperly notarized or signed by someone without verifying the facts in the document. Again, this issue regarding the assignment of the mortgage does not affect the legal right of the lender to foreclose if the UCC is followed.

These issues regarding assignments and documentation of mortgage transfers have become serious distractions in many cases and on the national political stage, causing delay and expense for foreclosing parties, burdening courts unnecessarily and wastefully expending taxpayer money to address an "issue" which is not an issue at all.

Lawyers and judges need to keep their eye on the ball, and here all that is needed to prove the right and authority to foreclose is proper transfer and physical possession of the loan note.

Lenders would be well-served to check their files and confirm that they have possession of the original note, either endorsed in blank or endorsed specifically to them, before commencing their next foreclosure action. If a lender can walk into court waiving the original note, the lender has standing to foreclose and nothing about the assignment of the mortgage, robo-signing, faulty notary stamps, and so on, matter. If the lender has possession of a properly indorsed note, the law will do the rest.

David Dunn and Allison J. Schoenthal are partners at Hogan Lovells.

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Comments (12)
Im Judy Parker by name. I live in USA, i want to use this medium to alert all loan seekers to be very careful because there are scammers everywhere.Few months ago I was financially strained, and due to my desperation I was scammed by several online lenders. I had almost lost hope until a friend of mine referred me to a very reliable lender called Mr.Ramsy Dave who lend me an unsecured loan of $50,000 under 5 hours without any stress. If you are in need of any kind of loan just contact him now via: ramsedave121@gmail.com Im using this medium to alert all loan seekers because of the hell I passed through in the hands of those fraudulent lenders. And I dont wish even my enemy to pass through such hell that I passed through in the hands of those fraudulent online lenders,i will also want you to help me pass this information to others who are also in need of a loan once you have also receive your loan from Mr.Ramsy Dave i pray that God should give him long life.

God bless him forever.

Judy Parker
Posted by judyy12 | Tuesday, September 06 2016 at 3:05AM ET
ONLY BANKS GET FREE HOUSES THEN? Ha-ha-ha...

In my case Plaintiff submitted, in foreclosure case, an alleged note without indorsement. Problem for lying plaintiff bank (First Horizon Home Loans) is that the servicer (Nationstar Mortgage LLC, well known criminals) had sent me 90 days earlier a copy of the alleged Note WITH an indorsement. FHHL decided to submit note without indorsement as it was easier that way to claim they never sold the note. Of course they lost this case as they altered the note, removed the indorsement, which voided the note. FHHL moved for dismissal when they were caught lying to the court. Nationstar knows they have unclean hands and while they have filed suit they are yet to serve me. Meanwhile Freddie sold note and mortgage to new crooks Roosevelt Loan Management who owns Rushmore Loan Services who is going to try to foreclose again. NEVER GOING TO HAPPEN AS THEY HAVE ALREADY FAILED...

UCC...you need to show you have all the rights! Lying plaintiff "holds" the note but in what capacity? Can they pledge the note? Trade it? Encumber it? Why don't they just put their name on the blank line? Oh, right, that would usurp someone else's rights!!! Get it? SURE THEY HOLD BUT ONLY AS CUSTODIAN.

How to win against banks? THEY HATE AND CAN NOT ANSWER DISCOVERY.

Love these bank stooge articles as they give the banks BAD information. Thanks!
Posted by Ban KKiller | Monday, September 05 2016 at 2:16PM ET
What a load of crap written by two partners of Hogan Lovells.Either they don't have a full understanding of the law or they do know but are getting paid by their clients to lie about it.First of all, about your "the note, endorsed in blank, is all you need because it is a negotiable instrument" theory; the problem there is that millions of homeowners were duped into signing their loan agreement, thinking it was actually a loan agreement, a contract between the two parties.It sure is convenient that by failing to sign the contract themselves which would hold them accountable to the terms of their own faulty contract, the lenders can then use the borrowers signature to collect ten times the amount of the note from the Fed,and then they can also sell the same note multiple times through securitization and/or by selling the note at a great discount to investors,and the lenders can collect all this money before they ever actually loan the original borrower any money at all. They also don't have to record any transfers, or pay the fees & taxes that are legally required for making them. Mers is the vehicle they use to keep all the secret transactions that occur behind closed doors, from being made known to the general public. Long gone are the days where a lender makes a loan by using their own money and then collects an agreed on rate of interest from the borrower for the cost of borrowing the money.Why would they want to tie up any of their own money when they don't have to. They can collect the same rate of interest by loaning debt instead. The loans are made with money from investors who buy into the lenders securitized trusts and as monthly payments are made, they pass through to the investors. It is the big money the fake lenders are after, that they collect when they foreclose a property. Government incentives were offered to lenders that increased the percentage rate that a note's value would be paid out at,and the percentage of value was noticeably increased when the number of properties they foreclosed on increased.This was a big incentive to the lenders to increase their number of foreclosures, and they were rewarded with our taxpayer dollars to steal people's homes for a quick payoff of an investment in which they had no real losses. They have created so many additional ways to duplicate the earning potential of the loans. Why should the lenders care what happened after they collected all this cash up-front, plus several thousand dollars more they collected by charging brokerage fees and underwriting fees to originate their own loans. Most of the pretender lenders who were named on original loan documents were assumed by other companies or went under shortly after making all of these fake loans in order to discourage homeowners from being able to recover the losses they incurred as a result of signing their name to a Note that lenders would later treat as a "blank check". The homeowners were the biggest losers in this giant ponse scheme that the lenders created.The homeowners who lost everything have been lied about in the media by idiots like the two who wrote this article.They didn't cause this crisis because they went looking for free houses to squat in at anyone else's expense, and they didn't ask for or deserve the onslaught of multiple debt collectors using extortion as their main method of enforcing seriously inflated payments and many other excessive fees and their bombardment of entities they have never heard of that were putting them in constant default of their loans for reasons that were not mentioned or agreed to in any of the paperwork, including the failure of the servicer to record on-time monthly payments, the failure of the servicer to pay the property taxes or hazard insurance out of an individual escrow account that was suppose to be paid into monthly as the borrower paid the additional funds with their monthly payments,force-placing and over-insuring property, and for making massive accounting errors that no one would correct and homeowners were forced to pay.It's the lenders living lies!!!
Posted by Justice Forall | Tuesday, May 31 2016 at 6:50AM ET
Well, I have a story for all, as I have been fighting this fraud since 2007, and still in the house. Luckily I have file for bankruptcy protection time and time again, and have flushed-out document after document from these criminals. I have Notes without endorsments, Notes with endorsements after they pushed down articles, Notes that now contain stamped endorsements. So, now with such a history of different Notes, I now ask the judge which Note is correct? Or do I owe a whole bunch of people on many different Notes, LOL! Worse, I filed for the Security instruments to be rescinded in 2008 and I won, the court at the time refused to cancel and expunge my Notice of Rescission, thus the Note and any security instruments were rescinded. Unfortunately at the time, attorneys and judges did not know the effective date of the Notice of Rescission and what needed to be done to effectuate the rescission being under the belief that I had to return everything before they had to rescind the loan. Then came Justice Scalia's decision, a unanimous decision by the United States Supreme Court in Jesinowski that rescission is not rescission in equity. So, long story short, an attorney, Bruce T. Beesley from Lewis and Roca LLP lost the rescission, and then almost a year later had me sign a modification agreement stating I could not return the monies, and now, 8 years later, Mr. Bruce T. Beesley is the Chief Bankruptcy Judge who states I waived my right to rescission a year after the rescission, LOL. Although I argue no, it is clear from the Supreme Court that resiccision is effected from the date of Notice and they had 20 days to fight the rescission, but you judge, lost that, LOL! The judge states that the rescission was waived a year later when the modification agreement was signed, I say a modification agreement on dead/terminated instruments. The judge told me not to bring up rescission again or he would essentially have me thrown out of court. When I had him look at the different Notes with an endorsement and without an endorsement that he, as an attorney, filed with the court, he went with the Note with the endorsement. LOL! Attorney's and Judge's are bought and paid for; they will never let a 13 trillion dollar mortgage industry fail, no matter what forgery and falsification of documents exist. A bank can hand a judge a completely blank piece of paper and the judge will say oh, I see your authority and your right to foreclose; the U.S. justice system is a joke, a paid system for rulings in favor of criminal banks, with criminal attorney generals signing off on an agreement to obtain a small portion of the 13 trillion dollars the banks hold and continue to allow banks to use these forged documents in courts all across the United States! There is no integrity nor Law used by attorneys and Judges, money rules, money is integrity, and MONEY IS THE LAW!
Posted by TimTheGreat1 | Sunday, May 01 2016 at 2:34PM ET
Let share a little secret with all of us, when we read an article from any one on such an important matter, always find out where the people are employed. The Law firm that David and Allison are acquainted with are lawyers and legal advisers for big banks and institutions. Therefore, their will always speak in the interest of their firms and clients. The information which they provided has no validity in facts or law. How can anyone make a claim on another if they do not have proper documentation, and the Note it self says that all payments must be made to the note holder. The first question we need to ask anyone that says that they have been given the right to collect your mortgage payment, kindly ask them who is the holder of The NOTE and MORTGAGE. Most of these companies are debt collectors that obtain their rights by buying the rights to service the loan without the proper authorization from the Note and Mortgage Holder, they don't have the Note. If there is no Note and Mortgage there is no Holder therefore they have no authorization to collect, especially if the Lender is dead as in out of business.
Posted by vieuxfort | Wednesday, October 22 2014 at 3:55PM ET
Oh, Mr. American Banker....what if the note is forged? Trace forgery of owner's own signature, and then slap on a fraudulent endorsement. Yeah, what about that Mr. Banker?
Posted by yoshi11 | Monday, September 29 2014 at 2:11PM ET
YOU ARE INCORRECT. IT ALSO DEPENDS ON DIFFERENT CASES.
1. WITH THE 3.5 MILLION HOMES CONRTACTED FRAUDULENTLY BY AWL THIS CERTAINLY DOES NOT APPLY. FIRST OFF THE NOTE WAS VOIDABLE UPON SIGNING SINCE THIS WAS A FICTITIOUS ENTITY WITH NO LEGAL STANDING AND CERTAINLY DO NOT HAVE TO EXPLAIN HOW BANK OF AMERICA COULD NOT HAVE BOUGHT SOMETHING THAT DID NOT EXIST......NEED I FINISH MY THOUGHTS ON THIS. SO THIS IS ONE EXAMPLE OF YOU NOT KNOWING WHAT YOUR TALKING ABOUT.

2. WHEN THE PSA WERE CREATED IN ORDER TO REACH TAX EXEMPT STATUS THEY HAD TO BE PUT IN THE REMIC AND TRANSFERRED AT THE SAME TIME AS FUNDING. THEY WERE NOT. NOT ONLY WERE THEY NOT DONE PRIOR TO FUNDING MANY OF THEM WERE NEVER DONE. AND THIS MERS SYSTEM WAS DESIGNED TO PERPETUATE THE FRAUD.......ONE MORE EXAMPLE OF YOU NOT KNOWING WHAT YOUR TALKING ABOUT.

3. LASTLY, THERE IS NO DEED AND NOTE IF IT WAS DESIGNED UNDER FRAUD. IT WOULD MAKE THEM VOIDABLE. NOT NULL AND VOID, BECAUSE THERE IS A DISTINCT DIFFERENCE. JUST VOIDABLE. ONE MORE EXAMPLE OF YOU NOT KNOWING WHAT YOUR TALKING ABOUT.

4. HERE IS AN EXAMPLE OF WHERE YOU WOULD BE CORRECT IF YOU DID NOT LEAVE OUT THE AFOREMENTIONED INFO............IN A REAL WORLD WHERE THERE WAS NO COVER UP, CHEATING, LYING THEN A NOTE AND DEED WOULD FOLLOW AND WITHOUT DOUBT THE BORROWER WOULD OWE UNDER ALL CIRCUMSTANCES. BUT GUESS WHAT-THAT AIN'T THE CASE.
Posted by jax_hut | Wednesday, September 17 2014 at 11:15AM ET
Objection! I know this article is a couple years old, however, these two Bankster clowns need to be smacked into reality. The note never in a million years, will be the only proof of claim needs to steal someones home.

The "holder" or "assignee" must have material fact the that the original note has not been bifurcated from the actual allonge. Unfortunately, these crooked judges (Lawyer's in a black robe)in these inferior courts always rules for the criminal banks for "summary judgment", that is evidence alone that the judges and banks are in a "public and private partnership," engaging in extortion, blackmail and racketeering.

Now your "theory" that the the negotiable instrument (note) is 'standing' for foreclosure is pure baloney. Please read Ucc S 3 - 102 sub-paragraph (b)carefully. Then read this article again, and you start to get the gist that these Bankers and Lawyers are nothing more than liars and mafia thugs dressed in suits.

UCC S 3-102. SUBJECT MATTER.

(a) This Article applies to negotiable instruments. It does not apply to money, to payment orders governed by Article 4A, or to securities governed by Article 8.

(b) If there is conflict between this Article 3 and Article 4 or 9, Articles 4 and 9 govern.

(c) Regulations of the Board of Governors of the Federal Reserve System and operating circulars of the Federal Reserve Banks supersede any inconsistent provision of this Article to the extent of the inconsistency.

In addition, the 8th circuit court ruled Jan 2013, that foreclosure attorney's are subject to the FDCPA and are nothing more than "debt collectors", and should be treated as such.

Your honor, I rest my case!
Posted by igot1thatcansee | Tuesday, September 02 2014 at 10:49PM ET
UCC 9 goes to the secured party who is also obligated under the contract. That means the BANK! If the bank lent its "credit" instead of it's "money", they are in violation of Wisconsin Statute 134.15. Wisconsin is one of a few states in the union that has a law against banks lending CREDIT. In my opinion, they're SCREWED. But what do I know? 5 years of protracted litigation costing the investors over $200,000 to take my crappy little $100k house. WHY? Why didn't they modify under HAMP? They don't want my mortgage payments, and they certainly don't want to wait thirty years. Just service the homeowner into default (losing payments,inspections, BPO's, late fees) and collect on the insurance products. OOPS! The bond insurer filed bankruptcy (TRIAD). Now what?
Posted by usedkarguy | Wednesday, August 21 2013 at 11:57AM ET
I am in the trenches fighting this fraud. Banks and their foreclosure-mill law firms feel very comfortable forging assignments of mortgage and filing them with the courts. QUESTION TO THE AUTHOR: "If the assignments of mortgage are unnecessary, why did Wells create THREE ASSIGNMENTS, one 14 months after filing of foreclosure, one in the BK proof-of-claim post filing, and one that was alleged to have been made 8 years ago, but never seen until the 2nd proof-of-claim? I have both Wells and HSBC claiming to be creditor (neither of them are-the money came from Deutsche Bank). Attorneys plead the "crime-fraud" exception does not apply, and misrepresentations to the courts are at an all time high! The note is gone, my friends. Copies, forgeries, endorsed-in-blank notes differing from those used in foreclosure, when will it end? The banksters have been caught with their pants down, and as time goes by, all the lesions and sores are being exposed to the world.
What's the solution? Make the fraudsters take the loss, give the homeowners back their homes, and kick the National Banks and their Foreign National Bank accomplices (Deutsche, HSBC, Barclays, PNC, etc.) to the curb. But I know American Banker will continue to obfuscate the facts and belittle the homeowners who were scammed.
Posted by usedkarguy | Wednesday, August 21 2013 at 11:42AM ET
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Posted by SL Fiddler | Friday, October 26 2012 at 6:09PM ET
The uproar that you and all of us are witnessing is the result of the biggest fraud ever perpetrated on this country and its people. You are very well aware that majority (if not 100%) of the mortgages originated in the last ten years are fraudulent and the ownership can not be proved. The banks/servicers don't posses the original notes (they can keep checking their files, but I've been waiting for over a year to get a proof that "my lender" has the original note), they never transferred mortgages to REMIC trusts, and on top of this all, the chain of assignments are broken! Step by step this fraud is being uncovered and we, the victims, are patiently waiting for our day in court :)

The following text citation from MA Practice Series: Real Estate Law with Form (4th ed. 2004 & Supp. 2009-2010)
- A leading Massachusetts treatise, Howard J. Alperin, 14C Massachusetts Practice: Summary of Basic Law, chapter 15.126 (4th ed. & Supp. 2009-2010), summarizes rules as follows:
BOTH, the obligation (the note) and the security interest (the mortgage) MUST be transferred to the same person, because "a transfer of the mortgage without the debt is a nullity, and no interest is acquired by ti. The security cannot be separated from the debt and exist independently of it."

And let me remind you of the most important law for MBS:
Relevance of New York Trust Law - EPT. LAW S 7-2.1: NY Code - Section 7-2.1
The endorsement on the most Notes purportedly held in private Mortgage Backed Security (MBS) Trusts are in blank and missing the endorsement to the "Depositor". Such understatement are not complaint wit the conveyance law of New York Trust which is the controlling law of most private MBS Trusts.
Pursuant to EPT. LAW S 7-2.1: NY Code - Section 7-2.1: Extent of trustee's estate, subsection (c)
"A trust as described in sections 9-1.5, 9-1.6 and 9-1.7 of the estates, powers and trusts law, including a business trust as defined in subdivision two of section two of the general associations law, may acquire property in the name of the trust as such name is designated in the instrument creating said trust."
Notes endorsed in blank can not be lawfully the asset of the private MBS Trust established under New York trust law. Consequently the alleged servicer of the Trust has no entitlement to enforce the Note.
Posted by Senka | Thursday, May 03 2012 at 10:22PM ET
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