Holder in Due Course — What’s the Big Deal?

The big deal is that it is ONLY the holder in due course who is allowed in court to make claims or enforce any rights regarding the mortgage and note. No servicer (e.g. Countrywide), administrator (e.g. MERS), or trustee has any right to do a judicial or non-judicial foreclosure because they are not the holder “in due course.” In order to qualify as a holder in due course,the first requirement is that you MUST have an economic interest, which means that the money is owed to you and not someone else. If the money on these mortgages is owed to anyone it is owed to investors or the Federal government which paid off many of these loans. If anyone has a right to be in court, it is the investors or the government. But They won’t step up and make the claim because THAT would expose them to liability for predatory lending, usury, fraud and dozens of other claims from the borrower.

“Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession….

M.G.L.A. 106 § 1-201(20). The term “holder” is similarly defined when used in connection

with a mortgage.  See B LACKS LAW DICTIONARY, 1034 (8th ed. 2004)(mortgage-holder or

mortgagee is “one to whom property is mortgaged; the mortgage creditor or lender”).

Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to

their roles is not unique in the residential mortgage industry.  In re Maisel, 378 B.R. 19 (Bankr.

D. Mass. 2007);  In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007). See also In re

Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007).  Nor are “mistakes” and

misrepresentations limited to the identification of roles played by various entities in this

industry.  In re Schuessler, 2008 WL 1747935, *3 (Bankr. S.D.N.Y. 2008) (movant’s motion

misrepresented debtor’s equity); Porter, Katherine M., “Misbehavior and Mistake in Bankruptcy

Mortgage Claims” (November 6, 2007). University of Iowa Legal Studies Research Paper No.

07-29. Available at SSRN: http://ssrn.com/abstract=1027961. As this Court has noted on

more than one occasion, those parties who do not hold the note or mortgage and who do not

service the mortgage do not have standing to pursue motions for relief or other actions arising

from the mortgage obligation.  Schwartz, 366 B.R. at 270.  The Court has had to expend time and

resources, as have debtors already burdened in their attempts to pay their mortgages, because of

the carelessness of those in the residential mortgage industry and the bombast this Court and

others have encountered when calling them on their shortcomings.  In re Foreclosure Cases,

2007 WL 3232430 at *3, n.1.

“The purpose of Rule 9011 is to deter baseless filings in bankruptcy and thus avoid the


expenditure of unnecessary resources by imposing sanctions on those found to have violated it.”

In re MAS Realty Corp., 326 B.R. 31, 37 (Bankr. D. Mass. 2005).  Pursuant to Fed. R. Bankr.

9011(b), an attorney or unrepresented party who signs “a pleading, written motion, or other

paper” is, among other things, certifying to the Court that “the allegations and other factual

contentions have evidentiary support, or if specifically so identified, are likely to have

evidentiary support after a reasonable opportunity for further investigation or discovery….”  The

certification is not an absolute guaranty of accuracy, however; the rule expressly permits the

representations to be based upon the signer’s best knowledge, information, and belief “formed

after an inquiry reasonable under the circumstances.”  The standard to be applied is “an objective

standard of reasonableness under the circumstances.”    Cruz v. Savage, 896 F.2d 626, 631 (1st

Cir. 1990).  “Courts, therefore, must inquire as to whether ‘a reasonable attorney in like

circumstances could believe his actions to be factually and legally justified.’” Cabell v. Petty,

810 F.2d 463, 466 (4th Cir.1987).  Cullen v. Darvin, 132 B.R. 211, 215 (D. Mass. 1991). A

finding of unreasonableness must be shown by a preponderance of the evidence.  Miller-

Holzwarth, Inc. v. U.S., 2000 WL 291728, 3  (Fed. Cir. 2000).12

16 Responses

  1. VIRGINIA-NON JUDICIAL STATE- lost property 3.5 years ago servicers attorney appointed themselves to be subtrustee. Appoint of subtrustee document also states MERS is beneficiary and holder of note and deed of trust. I am looking for a competent attorney here in Chesapeake or Va. Beach. retired Navy, homeless, living with relatives

  2. Hello everyone. My name is Rockney and I’ve been in this study since 1994 as a hobby and then it evolved into a necessity. My latest experience had to do with filing a Deed of Trust as an agent of a church on a property for a lady who was in foreclosure and so they sued me, the lady and the guy who runs the church to get the deed removed. But they cannot since recorded documents cannot get removed; only a new recording to assert the invalidity of the first recording. But the interesting thing that occured was that when I filed my ‘motion to dismiss’ I had titled it as “Motion to dismiss and Notice of appointment’. I was appointing the court actors esp. the attorneys as trustees to pay the taxes and close the escrow down. I paid the filing fee be getting it deferred, but they sent it back with my motion because the deferral papers were not an original. They may have not noticed the ‘appointment’ aspect at that time. So I sent it back with an original signature and notary signature this time and they filed it, but also sent back the deferral papers claiming that ‘motions to dismiss’ didn’t require a answer fee. But of course she’s full of it because to answer the complaint you have to pay an answer fee; it says that right on the summons and I’ve paid many an answer fee.

    Plaintiffs pay filing fees and defendants pay answer fees, but heirs, donors, grantors, executors etc don’t pay, they receive payment; that’s the only explaination I can conjure. That’s my commercial law tid bit for the day….Rock

  3. Can someone help me to understand. Lendia was the fake lender on the Note and the Deed, has no beneficial interest. MERS, no beneficial interest. My Hud show a “yield spread” where GMAC paid Lendia $1,800 for the servicing rights. If none of these are “parties in interest,” the Deed and the Note be sold, transferred or assigned.

    I read the livinglies article “What if the Pools are Empty,” which talked about the Loans merely be pledged because there was not interst to sell, transfer or assign.

    For the purposes of drafting my Amended Complaint, I have found no other information on the pledging, so were they actually sold?

  4. @ Shaun M in Minnesota – These are the first 5 paragraphs of my complaint…I’ll will give you the links. All of this information I discovered on livinglies.

    1. Plaintiff asks this Honorable Court to take judicial notice of the fact that she appears without counsel, is not schooled in the law and legal procedures, and is not licensed to practice law. Therefore her pleadings must be read and construed liberally. Further Plaintiff believes that this Court has a responsibility and legal duty to protect any and all of the Plaintiff’s Constitutional and statutory rights;

    2. specifically by the due process clause of the Fifth and Fourteenth Amendment thereto, which invokes the due process clauses of the Seventh, Fifth and Fourteenth Amendments, to said Constitution upon the States and guarantees to all private citizens the freedom of private property and the separate and, distinct common law jurisdiction of this Court, in accord with the rules of common law related to fiduciary duties.

    3. Plaintiff believes that the principle of equitable tolling does apply to all claims in this action, given Defendants’ violations of Constitutional law and federal and state statues and codes, at all times relevant hereto, as detailed below, Plaintiff could not have reasonably discovered the concealed facts of violations in-depth and explicitly, until she was faced with Defendants attempt to enforce an “illegal alleged foreclosure, sale and dispossession of the Property” (“Foreclosure”), at which time, she was assisted by others in researching all matters concerning the legality of the Foreclosure, as well as the media coverage of government entities’ and homeowners’ accusations of fraud in the enforcement of millions of foreclosures, leading her to study all documents and events relating to the purchase or the Property.

    4. The equitable tolling principles are to be read into every federal statute of limitations, unless Congress expressly provides to the contrary in clear and ambiguous language, (See Rotella v. Wood, 528 U.S. 549, 560-61, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000)). Since the Federal statutes and codes Plaintiff accuses Defendants of violating in this Complaint do not evidence contrary Congressional intents, all statute of limitations must be read to be subject to equitable tolling, particularly since the act is to be construed liberally in favor of consumers.
    5. The issue of “Standing” is a basic issue of Constitutional Law either at the Federal level or at the state district court level. That is to say, if you are not the person directly injured or directly benefiting from a specific law or circumstance, you cannot go to court and try to enforce any rights that do not belong to you.
    6. The United States Supreme Court in several cases has stated that federal courts must satisfy for themselves that “Standing” exists and that “the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction. “Warth v. Seldin, 422 U.S. 490, 498-99 (1975). Thus, if there is no direct injury or direct harm to the party that wishes to pursue a claim in court, then no right to “standing,” or right to be in court, exists in the first place.

    I’m not sure I’ll use Warth v. Seldin here. I read the decision and find that I have other that are specifically mortgage fraud and are more recent.

    This is Robello v. Wood


    This is Pierre Richard Augustin, Pro Se, Motion to Inform and Notify…he’s doing a TILA Recision based on equitable tolling.


    I hope this helps.

  5. Shaun,

    Just a quick view of your circumstances suggest that you need to immediately go to the court house and file an injunction to stay the order for defaul/ sale of property. This should be based on non-disclosure of documents as follows:
    1) FR 2046 balance sheet (OMB #’s 2046, 2049, 2099)
    2) 1099 OID report
    3) S-3/A registration statement
    4) 424-B5 prospectus
    5)RC-S & RC-B call schedules

    These will show the FULL ACCOUNTING related to the accounts and will verify the status of an “unconscienable contract” and deceptive. Also, under Title 12 1813 (L)(1) when a promissory note is deposited it becomes cash. On the FR 2046 balance sheet, (authority 12 USC 248, 347) this will show the promissory note as a liability to the bank and, thus, an asset to you. This is intermediate and advanced accounting, folks. But it’s there and is disclosable under law… look it up.




  6. Hello – I am the holder of a commercial property within a TIC – Tennant in common structure. The note to the property is serviced by a third party and it is unknown who the actual note holder is. It appears that it might have been packaged, like residential notes, and we will never know who owns the note. Does the Holder in Due Course apply to commercial properties? Or just residential?

  7. Vince: Everyone you know was involved in the transaction and everyone you don’t know but suspect exists (john Does 1-1000, with instructions to the people you DO know to pass this on to everyone else who has or might claim an interest in obligation, the note (which is evidence of the note), the mortgage (which secured the obligation according to the terms of the note), the revenue stream, all distributions starting before the first MBS was sold and before the loan was consummated through the present. Keep in mind that while before securitization all of these were terms that basically conveyed the same thing, now they all mean different things and accrue to the benefit of multiple co-obligors and co-conspirator intermediaries whose job it was to complete a scheme in which unregulated and unregistered securities were issued and sold by false pretenses to both the “borrower” and the investor. Start at the beginning: this was not a loan transaction. it was an investment by the borrower in a piece of property whose value was intentionally inflated under false pretenses in collusion between the named lender (who was acting for unknown undisclosed principals) and an investment by a “qualified”investor in a security whose value was intentionally inflated under false pretenses in collusion with bond rating agencies and insurers in collusion with the investment banker (CDO manager) who was directing the entire show from the selling of the MBS all the way to the application of mortgage. The fraud was the same at both ends. It was a single transaction. With no “borrower”, there would be no investor. With no investor, there would be no “Borrower.”

  8. When you ask for these reports, the 2046 balance sheet etc. Are you asking for the ones at the time the loan was closed. Which entity are you asking for them from? Wells Fargo was at the closing table, is that who I need to get these from?

  9. Shaun of Min,

    From what I have heard and gathered, the 3 yr limit for TILA is not absolute, I think that there’s a “tolling” for that. Also read that the 3 year limit is from the date that you found out about the violation or as a defense against a lawsuit stemming from a foreclosure. Am I right Jim?

  10. Thanks Jim,
    I’ll admit, you lost me. I don’t think my attorney (not actually my attorney yet) knows what any of this is or perhaps he just doesn’t want to get my mother’s hopes up. Do you know of any hlp in MN? I doubt I can handle this stuff myself and now my mother is trying to sign the modification Countrywide sent her. With the terms, she’ll be back in the same spot next year but all she sees is a moment of rest. It would seem to me that the signing of the mod leaves her completely powerless.


  11. Jim: Thanks for that

  12. Shaun,

    Just a quick view of your circumstances suggest that you need to immediately go to the court house and file an injunction to stay the order for defaul/ sale of property. This should be based on non-disclosure of documents as follows:
    1) FR 2046 balance sheet (OMB #’s 2046, 2049, 2099)
    2) 1099 OID report
    3) S-3/A registration statement
    4) 424-B5 prospectus
    5)RC-S & RC-B call schedules

    These will show the FULL ACCOUNTING related to the accounts and will verify the status of an “unconscienable contract” and deceptive. Also, under Title 12 1813 (L)(1) when a promissory note is deposited it becomes cash. On the FR 2046 balance sheet, (authority 12 USC 248, 347) this will show the promissory note as a liability to the bank and, thus, an asset to you. This is intermediate and advanced accounting, folks. But it’s there and is disclosable under law… look it up. Good hunting…Jim

  13. Shaun, I think you should examine your origination documents and make sure there were no “fake assets” included in the asset statement prepared by the bank at closing. That is the strongest issue in my case. Of course, if your mother had “prime credit” when she got her mortgage, they wouldn’t have had to do that. Ask Carl about a “produce the note” defense to buy you some time. Looking back, I’m glad I was a “subprime guy” because they had to lie to get me through underwriting. As far as proving you didn’t get the settlement statement,. make that claim in your answer/counterclaims, and force them to produce the original signed copy generated at the closing. I talked to Carl once (I’m in Wisconsin) and he made a couple of referrals to me for counsel. They actually didn’t work out (no fault of his) but he was nice enough to listen and offer some names for me to contact . I’m also lucky that Wisconsin has 6 year Statue of Limitations on fraud and contract law. Good Luck, keep the faith, FIGHT HARD!

  14. To Shaun..the people who will foreclose do not care if a person is disabled. I too am disabled. They do not care. You must talk to ACORN, HUD or other resources who might be able to help. Always use the word ‘fraud’…your mother is a victim of fraud. Even if she is in a wheelchair and is being evicted…the sheriff will wheel her out.

    Get help asap. I don’t know who Carl is…but find a good attorney from Neil’s list posted on this site.

    Call your State’s Attorney General and Governor…demand they put a moratorium on foreclosures….this worked for us in California…

  15. Neil

    I understand it is the only way to determine that a forclosing authority has jurisdiction bacause a true beneficiary may make claim in the future on the debt.

    So my question would be:
    In regards to a previous MERS foreclosure and trustee sale. Would the plan of action be to seek a void judgment via a motion to vacate claiming MERS did not have authority by the holder in due course?

    Also, what about seeking accounting records from the sale of the promissory note and ‘equal valuable consideration’ to the signor of the note? Should we ask the courts to make the holders in due course (John Doe’s) to provide accounting for the proceeds from the sale of the security insturment the signor created but did not receive proceeds? That is the premise if I understand that you are advocating by saying the note has already been paid in full correct?

    According to UCC 1-201(24) and 3-104, it was our signature on the note that created funds for the proceeds to be gained by the bank and should we be entitled to our ‘equal valuable consideration’ given to us by signing the note? Please help clarify, thanks.

  16. I am in need of serious help, or rather my mother is. I met with Carl Christensen from your list and he was very helpful but feels thecase is too difficult. We haven’t had a full audit and are out of options. My mother is approaching 90 days past due. She’s a permanently disabled senior citizen who has been seriously taken advantage of. We’re not looking for charity, we’re looking to save her home. Carl found TILA issues but we are past the 3 year point. However, she didn’t get a settlement statement at closing but how do you prove that.

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