Editor’s Note: READ this Tampa Tribune article ALL THE WAY through. It exposes the cracks you should exploit. The clerical staff of foreclosure mills, sometimes charged with the responsibility of fabricating documents, has no idea what they are doing. The paralegals don’t know anything about the loan, the securitization, or anything else. The junior lawyer who signs off on the foreclosure hasn’t the foggiest idea of what he is signing and whether the allegations or representations are true, false or unknown.

Your discovery request should initially be directed at information the foreclosure mill should have had BEFORE they commenced the action. So you can argue that you are not seeking delay. If they started the foreclosure they obviously have this information. If they have the information, they should have no trouble in giving it to you within hours or days.

By the time your discovery request comes in asking for the name of the creditor and an accounting for what is owed and how much is owed to which parties, they are completely unable to answer because they only have the information from the last servicer. They don’t have the information from what happened before this servicer took over, and they certainly don’t have any knowledge or even interest in what financial transactions took place between other parties affecting this loan before, during or after the servicer entered into a relationship with the homeowner.

Remember that your discovery request should be laser-like. What document gives this servicer the right to collect payments from the homeowner? Did the grantor of servicing rights have the title or authority to do so? Again trace the documents. And then hit them with the big one — who is the creditor and exactly how does the creditor get the proceeds of  foreclosure when this is done?



Published: January 3, 2010

Related Links

TAMPA – If there’s one industry that’s not feeling the economy’s sting these days, it’s the business of filing foreclosure lawsuits.

Recently, mortgage servicing companies have been filing about 2,000 initial foreclosure documents every month in Hillsborough County Circuit Court. To handle the overwhelming caseload, an army of lawyers, paralegals and clerks at big foreclosure law firms have streamlined the art of separating homeowners from their homes.

Few are as large or as efficient as Tampa-based Florida Default Law Group, which processes at least 300 new foreclosure suits a month in Hillsborough County, court documents show.

By forging relationships with mortgage companies and focusing on volume, Florida Default Law Group offers to foreclose on a home at the bare-bones price of $1,200, about half the typical cost.

In the streamlining, distressed homeowners such as 75-year-old Janice Winemiller of Sarasota sometimes get hurt. Florida Default Law Group charged her more than $4,000 for delivery of legal documents, according to her nonprofit legal aid lawyer. The firm couldn’t substantiate the fees.

Dubbed foreclosure mills by some in the industry, these companies have turned the job into a factorylike process. Speed is the key to their success.

“The only way their business model works is if they don’t lay eyes on the lawsuit,” said Jim Kowalski, a Jacksonville lawyer who has litigated against Florida Default Law Group.

Four firms, 1,049 filings

Few areas of the legal field are so dominated by a handful of players as foreclosure law. Florida Default Law Group is one of four foreclosure mills operating in Florida that appear to be winning the lion’s share of business from lenders or their representatives. Along with Florida Default, other big firms include the law offices of David J. Stern in Plantation, the law offices of Marshall C. Watson in Fort Lauderdale and Shapiro & Fishman in Boca Raton.

The Tribune looked at 1,994 initial foreclosure documents filed in October to see which firms were handling the most foreclosures.

Combined, those four industry heavyweights filed 1,049 foreclosure cases in October, or 53 percent of all new foreclosures filed in Hillsborough County that month. Florida Default filed 323 new foreclosure cases in October, second only to the 352 cases filed by David J. Stern. Florida Default operates in Florida’s 66 other counties, the firm’s managing partner testified in a court deposition.

To handle the workload, foreclosure mills have developed a common model: use lower-paid paralegals and support staff for much of the routine legwork, and hire young lawyers to sign off on the lawsuits and handle complications.

It’s unclear how big Florida Default has gotten. Founder Michael Echevarria, 52, did not return several calls and e-mails from the Tribune.

According to Martindale-Hubbell, an information service for lawyers, Florida Default Law Group has at least 32 lawyers. Its offices take up the bulk of a three-story building in an office park near the Veterans Expressway and Anderson Road, and it has an office in Miami.

Jeffery Hakanson was a lawyer at Echevarria’s former law firm in the late 1990s, then known as Echevarria and Associates. It wasn’t as large as Florida Default Law Group, but even then it was using an assembly-line model to handle foreclosures.

Generally, there were six to 10 paralegals and support staff for every lawyer. One group handled the title documents, another group prepared the foreclosure lawsuit, another was responsible for the delivery of legal documents to the affected parties and so on, he said.

Its clients aren’t banks, which long ago pooled their mortgages into securities and sold them to investors. Instead, Florida Default’s clients are the mortgage servicing companies that collect monthly mortgage payments from homeowners and, when necessary, foreclose on them. Often, major banks own the mortgage servicers.

Why these companies like dealing with mills is simple: With their efficient structures, they can underbid other law firms on foreclosures, which otherwise might cost thousands of dollars apiece.

“It’s machinery,” said Hakanson, who practices real estate and bankruptcy law with a different firm in the Bay area. “We thought it was huge (in the 1990s) when we got 200 files a month, and now these firms are doing 1,000 or 1,500 a month.”

On the back burner

The foreclosure factory begins to sputter, though, when foreclosure cases break from the routine, critics say.

Attorneys who defend homeowners against foreclosures say they have trouble contacting Florida Default lawyers.

“They’re just extremely nonresponsive in the bankruptcy arena,” said Patrick Smith, a Tampa bankruptcy lawyer who occasionally deals with Florida Default. “I don’t think they’re structured to put too much time into any one case.”

In Sarasota County, Lee Haworth, chief judge in the state’s 12th Judicial Circuit, got fed up when his fellow judges had to wait weeks for a returned call from a foreclosure firm, he said.

Haworth started noticing a trend: Foreclosure law firms would start a foreclosure lawsuit against a homeowner but push it to the back burner if complications arose. Meanwhile, the stalled cases began to languish in Sarasota and Bradenton courts. Foreclosure mills seemed to think pursuing such cases was too much trouble for the $1,200 fee, he said.

Haworth is trying to clear up the backlog. Florida Default is one of the major players in Sarasota County, but the judge would not speak about specific foreclosure mills.

John Olson, a U.S. Bankruptcy Court judge in Fort Lauderdale, had no problem taking Florida Default and a big client, Wells Fargo, to task. After the firm made errors in up to 50 cases in court, Olson called out the firm in October 2008 in a strongly worded opinion.

Florida Default made the errors when an employee pulled information from the wrong computer screen, according to court documents.

Florida Default and Wells Fargo “have engaged in the systematic process of churning out unrefined and unexamined form pleadings, instead of producing and filing carefully considered legal papers,” Olson wrote.

Winemiller, the Sarasota retiree, faced foreclosure this year when she fell behind on her mortgage payments. She was negotiating to pay off her mortgage with Wells Fargo with a reverse mortgage, but the process got delayed. Wells Fargo filed for foreclosure in April.

What upset her was Florida Default’s $4,004 charge for process service. Her case required the delivery of numerous documents to her family and the family of a friend with whom she owned the house. But when pressed to explain the fees, Florida Default could substantiate about $3,200 in charges, said her lawyer, Elizabeth Boyle of Gulfcoast Legal Services.

“It took setting a court hearing and getting to the eve of the hearing to get (Florida Default) to address the request for an accounting,” Boyle said.

Florida Default eventually refunded Winemiller about $1,500, Winemiller said.

Despite the critics, Hakanson, who formerly worked at Echevarria and Associates, called Echevarria a shrewd businessman who built relationships with mortgage servicing companies years before the mortgage crisis. Now his firm is a leader in a booming business.

And despite drawing the scorn of homeowners’ attorneys and some judges, Hakanson insisted Echevarria is a humble, giving person, rather than a diehard capitalist.

He chalks up some of the criticism of Florida Default to the overwhelming caseload facing foreclosure lawyers and the impersonal nature of the work. When you’re dealing with so many distressed homeowners, it’s sometimes easier to avoid picking up the phone when one of them calls, he said.

“It’s a reality of real estate lending in America,” Hakanson said. “It’s a natural culmination of the lending practices.”

Reporter Michael Sasso can be reached at (813) 259-7865.

35 Responses


  2. Currently in Superior court Riverside, Ca. trying to keep home after Century21 Realtor and Broker sold loan to investor after modification was done by Quantum Fl. Quantum CT claim to not have known that modification was done sold to Century21 Investor who then filed NOD even though we were current on payments.

    Returned from military tour to find Century21 Realtor had misrepresented Broker who was a Notary. Century21 in New Jersey did nothing but cause more problems with threats and notified Broker, wrong one about out filing a complaint.
    Anyone have any similar experiences or help? Under 10 day rule every day. Zombie homeowner!!!

  3. Don’t forget about the Process Serving Mills such as ProVest LLC… If not served properly (and there were some where they weren’t” no trial dates can be set.

    As a former employee, I can tell you their pushing for work to be done was to the point of bullying the employees, and the servers.. so I am sure anything “goes” to show stuff was served.

  4. why does that lawyer have to be in the panama city area…the same rules that allow the mills to call in you loss of your home apply to the defense bar as well…there are probably 20 lawfirms now in the state (that are not bait and switch bk firms) who send shivers down the spines of LPS and their little gremlin foreclosure mill partners…good luck

  5. Martin,
    Well, I lost the remand to state court–got the judge’s opinion yesterday. Basically, the pretender lender got everything they wanted despite procedural errors on their part to which the judge admitted. So now we’re going to be in federal court with an essentially misconstrued (on behalf of the pretender lender and probably the judge) complaint.

    Oh well, just gotta dig harder, work longer hours, and keep reading Living Lies…

  6. Michael T. Pines: EXCELLENT information!

    Marting: Thank you very much. I am so focused on certain things that I completely miss issues such as these.

    Dan Edstrom

  7. Dan Edstrom,

    You need to think in terms of allowing the Promissory Note as Evidence.

    The Federal Rules of Evidence will only allow a Promissory Note into evidence if it can be authenticated.

    This opens up the endorsed in blank, or allonge to many attacks if there was no notary, no date, no power of attorney for the signing authority, etc…

    Evidence must be authenticated by a competent fact witness of course at trial to be admissible.

    So here’s the million dollar question to ask Counsel at any discovery hearing or interogatorries/admissions: “Counsel, are you in direct communication with the Plaintiff(servicer/trustee), or are you in fact required by contract to communicate and receive documents such as Assignments, Complaints, Affidavits, Endorsements, Allonges, prepared by a 3rd party agent, such as Fidelity Title or First American Document Solutions?”

    Watch them squirm.

    This phony negotiation of Notes will support your discovery requests, where you ask for Affidavits from counsel where you must prove to the Court that some monkey business is going on, and specifically, the Plaintiff and counsel are not the real parties in interest, and furthermore, the mortgage and note were separated.

    the list goes on….

  8. In California, unlawful detainer mills are paid less than in Florida..
    Most times the unlawful detainer attorney who has NO knowledge of the facts signs the “verification” under oath stating the facts in the complaint are true. Notice his deposition and see him run.

  9. Predatory lenders find new ways to steal from the elderly Please read our story

    About Linear Capital, Barry Silber
    America’s Mortgage Broker’s Llc, Jim Marks
    Dale Group, Suzanne Marks of Tampa Florida
    Amanda Sigler Realty of Dunnellon, Florida











    Predatory lenders or Rescue Scamers?

    Barry Silber, Jim Marks, Suzanne Marks.
    Linear Capital, America’s Mortgage Brokers LLC.
    Affordable Home Funding, The title Team
    Dale Group of Tampa Fl
    Amanda Sigler Realty, Dunnellon Fl
    324 N. Dale Mabry Hwy
    Tampa Florida 33609
    United States of America
    Phone: 813 514 6200
    Web Address:

    Category: Was this ORGANIZED CRIME?


    To Whom it may concern,

    It is our hope that Law Enforcement and you the media will investigate and expose these people and their companies. they have found a complex way to legally steal from the elderly, if they don’t do something about this scam. Why is law enforcement saying that they cant help us? Because the Scamers are not big enough or its not their problem. We have been forced to filed a civil case when I believe it should be a criminal case. ( case # 09 13757 division H ) in circuit court Hillsborogh County, Florida. By the time we are dragged through court they will have milked everything to death and we will be homeless. . My attorney thinks they might have violated some state and federal statutes if they got more then 45% interest. I think its could be as high as 300%. Please read or story and help us stop them from ever doing this again.

    Category: Predatory Lending Bait-and-Switch Equity Stripping. Flipping, Steering, Rescue Scamers?

    Why Should you Read this story and avoid these PEOPLE and their companies?

    Re: Barry Silber, Jim Marks, Suzanne Marks, Amanda Sigler

    Here is a comment worthy of note which I found trolling the comments on my blog: Remember if you are dealing with an unscrupulous licensed professional (attorney, mortgage broker, etc.) you can file a grievance with the licensing agency who will investigate, prosecute if necessary, and possibly require restitution.

    Comment: [Editor’s Note: If con men looked like crooks they wouldn’t’ get anywhere. They always ingratiate themselves and seem like good people interested in helping. They intentionally do not appear to be much different from legitimate lawyers, auditors, debt counseling etc.
    A Warning to others having Mortgage problems:
    Our family was having some problems with our mortgage, we got behind and were facing a potential foreclosure. We got a lot of the typical rescue mailers telling us that we had the plenty of equity and not to worry. We knew this and we only needed 20 to 50 thousand dollars to bring the loan current. Plus we knew that our family would loan us the money if we needed it, they would sell just one property that would pay off part of our loan at any time. That seemed simple enough,


    We were approached by a kind broker / lender named Jim Marks out of Tampa Florida who said he could rescue us from a foreclosure and the rates would be very low because we had so much equity in our waterfront home. He said he could find us plenty of money. We were very clear to him that we did not have the income to do any major loan an we only needed a small amount.

    THE SCAM: Seeing that we had a lot of equity, Marks gained our trust via some acts of kindness and eventually befriends our family, He showed great concern for our financial problem and found various ways to come to our home. He had lunch many times in our home and invited me out to lunch as his guest many times. He also worked his way into using our boats and waterfront property. He went snorkeling and diving on our boat with his family and we felt that he had a nice family and was sincere. After a while I shared some of our families information regarding investments that had been made. Jim Marks was very interested and wanted to see all the waterfront and residential properties my family had invested in, he also brought out investors to see what we had, later we found out that the investors were his own relatives (Barry Silber the lawyer / hard money lender with LINEAR CAPITIAL of Tampa ). Was Silber directing Marks? Was Marks the front man for either Silber or Linear?

    The investor Barry Silber came to our home invited by Marks and talk about a long term Joint Venture and wanted to know if any of my friends had good deals on waterfront properties, I fell for all of it like a sucker and provide what they needed, Silber disappears for a long time but some how comes back as the hard money lender but we did not know that he was Marks relative. Marks is now telling us that we can get any loan from anyone except Silber. I think this is against the law because marks was steering us right into the hands of his relative, Did marks get kickbacks or other profits? Marks got 50% of the corp and many fees after flipping our loans. We shall See about that later during discovery.

    I believe that Marks only assisted Barry Silber as a front man who looked for the elderly who had good equity but had problems with a foreclosure. Did Marks and Silber work as a team and structured a deal putting everything into the [deal?] that we already owned, We now believe that everything in the scam was planned from day one Marks even created a corporation for our family. We had no idea what Marks was doing with the company and can only guess that as a JV partner Marks took 50% and gave us 50%, Marks took complete control of everything, sold many lots we had, used the money for other purchases, took out loans without approval from our family. Were Marks and Silber having regular meeting on how to extract more from our family?

    Our family was about to sell three of our waterfront lots and an investment home, that would have brought in aprox $300.000.00. Jim Marks said don’t do it, put it in the JV and we will do much better later with him in control. So we trusted Marks with everything including the check book. We thought he was our friend and would managed and protect us but boy were we dead wrong.

    WAS AMANDA SIGLER INVOLVED? Was Amanda Sigler (a local real estate agent) feeding Jim Marks our personal information as she to befriended our family? Did she assist in taking thousands of dollars worth of personal property without due process. The plan may have been set up from the very beginning to get control of everything we had. How much did Amanda Sigler gain? It is clear now that we were elderly and easily conned, we had a big target on our backs called equity. We were steered by Mr Marks right into what I now believe was nothing more than family of Predatory Lenders.

    They tricked me and my family by saying that they could rescue us from a foreclosure but all we got was more flipped loans, prepayment penalties, fees, and high interest rates. All designed to extract equity and get control of our lives. They eventually forced us into a foreclosures, but always stood by with another big loan with additional high cost in order to get them to stop their foreclosures. I think Barry had clauses in the loan agreement that took huge attorney fees if he had to foreclose. He foreclosed and we paid him, stripping more equity from our land. We were trapped.

    SETTING THE TRAP: We were forced to meet after hours at their LINEAR CAPITIAL offices in TAMPA to sign more rushed document that we did not really understand. Was this a typical BAIT AND SWITCH? or was the intent to just beat us down? I am very sure that they did not want others to see what they were doing so they had to get us in after hours. (e.s.) We had many questions as documents are being brought to us for signing but Jim Marks was always standing right by our side saying don’t worry I got your back and would never let you sign anything that would hurt you or your family. Document were changed for hours by the lawyer/ lender Barry Silber as he re-did document, was this the bait and switch? We were taken out of the room several times and were brought back in when new doc were ready for us to sign. Please note that these two men owned one or more of the Title Company, The Real Estate Company, The Mortgage company and we thought they were the attorneys for everything including the corporation that was created for us.

    We did not want to sign anything but we were up against the wall and the mortgages that they gave us were all due again. They took a years worth of payments up front that night and paid themselves many fees. Now we had a new giant mortgage on our home that was due in one year it also had a rider that would take away all our rights to the JV that controlled all our Families properties if we didn’t’ pay them back over $500.000.00 within that one year.

    We told Marks that we can’t pay this loan back and he said don’t worry we will sell something in the JV to pay this off or refinance you or the corporation at better rates. We believed that the lawyer Silber would protect our family but we were dead wrong about that too. We now know that the lawyer involved was Mr Mark’s distant relative by marriage who stood to gain a great deal of money if we failed. I believe that this man Barry Silber should be disbarred and put in jail. We were set up to fail because after many months of Jim Marks infiltration into our family, they knew everything about us and our family and knew we had good equity to take.

    SILBERS ETHICAL DUTY: It was Silber duty to not let this kind of thing to happen to anyone but was he after our land and equity as was Mr Marks from the very beginning? Barry Silber was also part of the company that gave us one or more of the mortgages. Before that year was up Barry Silber started foreclosure on our home and then said that they could not lend any more money. They got control of the land and the corporation (RSI LLC) via the attached default to our mortgage and started to sell everything. All our future income was now in their hands. What is astounding is that our Mortgage on our home is now over $ 1 million dollars. They sold several of our residential properties and took most of the cash without our permission. How did this happen and when will they be prosecuted?

    THE SUCKERS: How did we allow some one to take all our families properties? First: We allowed Jim Marks in because he had all the answers to many problems we had and he was saving us from a foreclosure. We eventually trusted Jim Marks completely as a friend and business partner. But now we see that he was clearly working his way into our family and eventually found out every aspect of our assets and liabilities so that he could make his move and set the trap. Second: We were not very smart with our finances. Third: We were not smart enough to see the scam because we were blinded by his promises and trusted him because he said he could handle everything properly.

    Now we see that they were all very smart men and we were conned over and over again into trusting a family of hard money predatory lenders who had one motivation and that was to milk us of all our equity by what ever means possible. We all feel very bad because we let this happen to our families holdings. We believe that state and federal laws have been broken AND WE HAVE BEEN IN CONTACT WITH EVERY AGENCY POSSIBLE Including our Governor SEEKING JUSTICE. FROM LOCAL LAW ENFORCEMENT TO THE UNITED STATES ATTORNEY GENERAL AND EVERYTHING IN BETWEEN. WE ARE ALSO FILING COMPLANTES WITH THE FLA BAR AND OTHER AGENCYS THAT CONTROL THE LIC OF THESE MEN IN THE HOPE THAT JUSTICE WILL BE SERVED. Law enforcement and media take notice…We would like others to give their own story about these people or like kind cases.

    The KILL SHOT: This was the last statement from Mr Marks, He strongly advised us that we should quick claim our home to his wife’s relatives to avoid another foreclosure. So Don’t ever fall for someone trying to rescue you with a hand of friendship. Report Predatory lenders and Mortgage fraud abuse to everyone. Expose these people when found.
    Put them in jail if crimes have been committed I can tell all of you that this web site has helped in several ways. Keep it going

  10. Unfortunately, the foreclosure figures are correct and are increasing. This information is very helpful for those already in default of their mortgage. However, it can be better to stop it before it starts. Litigation can be expensive so it is better to stop it before it happens. Do not let yourself default find a solution before it comes to litigation.

  11. How in the world does a Mortgagee morph into a co-defendant?

  12. *for instance – MERS boiler plate jargon states;

    “MERS is a separate corporation that is acting solely as a NOMINEE for Lender and Lender’s successor and assigns. MERS is the MORTGAGEE under this Security Instrument.”

    So… if they are the Mortgagee then why are they not licensed as a lender in ANY of the 50 states and WHY ARE THEY BEING LISTED AS DEFENDANT on more recent Lis Pendens actions?

    What a mess!

  13. Why someone doesn’t audit their work is beyond me. Even a cursory look at FDLG’s Lis Pendens and Assignment of Mortgage filings would undoubtedly reveal the truth about what is happening… en masse!

  14. Sweet Treat. Thanks to Niel, and the great postings of the contributors below. Lots of ammo, sure to hit the pretender lenders in both eyes.

  15. Neil or any body who knows some media people

    Please I have more than 200 fraudulent, instrument recorded by the foreclosure mills, through the two big law firms in Virginia. The signatures are not identical of the same person, notary misconduct and many more.

    Please sir refer to the MEDIA to me so that I can show them these frauds. I have contacted the Attorney General of Virginia and have not received the response yet. I have such evidence which can make the life of these thieves and the fraud vehicles who are acting as vehicles. Two big law firms are involved in this fraudulent, fabricated assignments.
    If media gets involved in this and show on 20/20, then this will help the poor people who are in trouble.
    Please tell media to contact me on 540-687-0004.

  16. Anybody know why the David Weichel post about his Power Point presentation was removed? I thought it had some useful info.

  17. Martin,
    Your post brings up another thing and I just realized what a UCC financing statement is all about security interests (the light bulb went on when I re-read your post). In my case the promissory note was endorsed (“negotiated”) from the originator (Mortgage Lenders Network AKA MLN) to EMAX (an affiliate of MLN). This endorsement was done by a stamp on either the back of the note or an allonge (I cannot tell which). (In order to be negotiable it has to be on the note because their is plenty of room). EMAX endorsed (“negotiated”) it to Residential Funding Corporation (RFC) by attaching an allonge and placing the endorsement on the allonge (it is actually not negotiable because there was plenty of space on the note itself). RFC endorsed (“negotiated”) it to US Bank as Trustee by placing the endorsement next to the previous endorsement on the allonge (again not effective). The SEC filings (in the Assignment and Assumption agreement) actually show a different chain of title for the note. But what I am actually talking about is the “security interest” of other companies that are maintained in the note.

    RFC stated that “It is intended that the conveyances by the Depositor to the Trustee of the Mortgage Loans [ ] and the Uncertificated Regular Interests be construed as a sale by the Depositor to the Trustee of the Mortgage Loans the the Uncertificated Regular Interest for the benefit of the Certificateholders. Further, it is not intended that any such conveyance be deemed to be a pledge of the Mortgage Loans and the Uncertificated Regular Interest by the Depositor to the Trustee to secure a debt or other obligation of the Depositor. Nonetheless, (a) this Agreement is intended to be and hereby is a security agreement …”

    So at the same time they are stating it is a sale and WITHOUT RECOURSE, they are saying it is a security agreement that is WITH RECOURSE. The Trustee has title through endorsement of the notes WITHOUT RECOURSE (“negotiation”) and the Depositor maintains a security interest through the “security agreement” and as evidenced by (allegedly) the SEC filings and a UCC financing statement. Theoritically the only evidence of the secured financing is the SEC filings so, just like recording a loan or an assignment with the county to protect their interest, they record the UCC financing statement to protect their security interest (which is not evidenced by the note, endorsements and allonges). So how can the loan be transferred with recourse and without recourse? My only guess is UCC 9 and automatic perfection (which I have read a little bit about and have to spend a lot more time on). Except that, at least in my case, the endorsement to the Trustee is not valid. In fact the endorsement to the warehouse lender is not valid either. So what about any alleged UCC financing statement? It is all that is left and it is WITH RECOURSE and not a true sale. On top of that, only the Trustee can initiate a foreclosure sale (in California). But, US Bank is not a valid Trustee because of the defective endorsement. Therefore a non-judicial foreclosure cannot be done. If they want to foreclose their only choice is a non-judicial foreclosure.

    Many in California have asked the courts for the foreclosing party to “Produce the Note”. The judges have in the cases I have seen denied this and said it is not required. Oh really? That would deny me the ability to use any of the defenses I have just stated. For more info on this issue (Produce the Note), see this article (which I have glanced at but haven’t read yet):


    Dan Edstrom

  18. Jeff,
    That’s good news. It doesn’t solve all of their problems, but it does mean the “lender” will have to start over again.

    I sure would like to see the law that says they need a notary and a date for each assignment. As far as I know the notary and assignment are for recording with the county. If they do not record with the county I am not sure why a notary would be required. The date should be required no matter what (my opinion). I also believe a notary should be required but we have to find the law that says this. I know I am searching for it!

    I try to think about it in terms of a check. You can endorse a check with your signature and then write “Pay to the Order of [whoever]” on it. I don’t see the need for a date or a notary for it to be negotiated (the check has a date on it). But, a promissory note is different and can last for decades, so it would seem that a note is required. It also seems that a notarized statement should be given also since the person endorsing could be long gone by the time the note is again negotiated, litigated, reconveyed or whatever.

    Dan Edstrom

  19. The NY Judges are following the New Laws.

    Bank of Am. v Guzman
    2009 NY Slip Op 29528
    Decided on December 18, 2009
    Supreme Court, Queens County
    Agate, J.
    Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
    This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

    Decided on December 18, 2009

    Supreme Court, Queens County



    Marcos Guzman; NILDA GUZMAN, ET AL., Defendants.


    Rosicki, Rosicki & Associaties for Plaintiff and Stiene & Associaties, P.C.

    Augustus C. Agate, J.

    This is an action by plaintiff to foreclose on a mortgage on real property located at 91-10 98th Street, in Woodhaven, Queens. Plaintiff is the holder of the subject mortgage and note through an assignment. Plaintiff contends that defendants Marcos Guzman and Nilda Guzman defaulted in making payments on the subject mortgage beginning on October 1, 2008. Defendants now seek to dismiss the complaint on various grounds, including the plaintiff’s failure to comply with RPAPL §1304. Plaintiff cross moves for leave to amend the complaint.

    Effective September 1, 2008, the Legislature enacted RPAPL § 1304, as part of legislation intended to protect homeowners in foreclosure. RPAPL § 1304 requires a lender or mortgage loan servicer, with respect to high-cost home loans, subprime home loans or non-traditional loans, to send a notice to a borrower at least 90 days before commencing a legal action, including a foreclosure action, against the borrower. This notice, thus, is a condition precedent to the commencement of a foreclosure action. The notice must be in the form prescribed in the statute and contain the warning “YOU COULD LOSE YOUR HOME.” The notice must also provide information regarding assistance for borrowers who are facing financial difficulty. (RPAPL § 1304[1].) Under the statute, the notice is to be sent to the borrower by [*2]registered or certified mail and by first class mail to the last known address of the borrower. (RPAPL § 1304[2].) A defendant may raise the failure to comply with RPAPL § 1304 as a defense in a foreclosure action. (RPAPL § 1302 [2].)

    In the case at bar, defendants maintain that the plaintiff has failed to comply with the notice requirements of RPAPL § 1304. This action was commenced on June 22, 2009, and, thus, the notice requirements of RPAPL § 1304 apply, if this case involves high-cost, sub-prime or non-traditional loans. Plaintiff, in opposition, does not dispute that RPAPL § 1304 is applicable to this action. Plaintiff also fails to unequivocally aver compliance with RPAPL § 1304 or submit any documentary proof that the requirements of the statute were satisfied. Rather, plaintiff merely avers, in opposition, that defendants’ argument that plaintiff has not complied with RPAPL §1304 is “insufficient to warrant the dismissal of plaintiff’s complaint.”

    This court disagrees with the plaintiff’s position. The court finds that the language of the statute is clear in requiring the service of the 90-day notice. (see RPAPL § 1304[1] stating that “the lender or mortgage loan servicer shall give notice to the borrower …” [emphasis added].) Inasmuch as the plaintiff has failed to comply with this condition precedent, the action must be dismissed. (see e.g., Troy v Town of Hyde Park, 63 AD3d 913 [2009]; Misek-Falkoff v Metropolitan Transit Auth., 44 AD3d 629 [2007].) In reaching this decision, the court is not unmindful of the Legislature’s goal of assisting homeowners facing foreclosure when it enacted this new provision of the RPAPL. It would be against the spirit of the legislation were this court to allow the action to proceed in the absence of the requisite notice.

    Accordingly, this motion by the defendants to dismiss the complaint is granted, and the action is dismissed.

    The cross motion by the plaintiff is denied as moot.

    Date: December 18, 2009


  20. Let’s also remember that for every endorsement we also need:

    1. a Notary and date

    2. a UCC-1 financing statement when no Assignment is attached. (not sure of case law on this…this is from the Power Point from the other day)

    ….the banks used to get away with tranfering the Note by Assignment of Mortgage, now that trick has been defeated. So they of course resort to having First American or Fidelity title make up a fraudulent Endorsement. These fools are not lawyers, they are fakes and criminals hired by the banks to produce documents for the foreclosure mil….er….Lawyers

  21. We have to thanki Bill Clinton for getting the ball rolling–downhill in this economic crisis. Without his pushing for the end of Glass-
    Steagle, it might not have occurred. He is a bright guy and surely
    understood the consequences but he was playing games with Alan Greenspan and they set us up for this economic debacle.
    And Hillary is now oplaying policeman in foreign policy matters.

    As a lifelong Democrat, I doubt that I can continue supporting the
    party. Most are taking in huge “campaign” contributions–to be polite, but we all know they’re BRIBES, plain and simple.

    This country is a shadow of its former self and appears to be going to hell in a hand basket. Work hard and you’ll get ahead?? You can work 3 jobs and barely pay your bills. We’ve
    been had. Sadly, Americans won’t do a national strike as they
    have done in France, Italy and elsewhere. It turns things around in a hurry and brings the greed-heads up short.

  22. I was saying it facetiously. The securitization “deals” are fascinating in that they are so contradictory. For instance, what I have stated repeatedly from my SEC filings:

    “The sale of the loans is intended to be and is a sale and is not intended to be and is not a security interest. Nonetheless, this agreement is a security interest …”

    Remember – a true sale is “without recourse” and a security interest is “with recourse”. So this leaves us with a bunch of assignments that are with recourse and without recourse. This means NO PERFECTED title for any of the parties.

    There is safety in numbers and that is what both are about (loans and securitization “deals”). There are so many of them that to rule against them would be CRAZY and they know that so they were emboldened to continue and keep uping the ante. Plus, these were not regulated securities so that helped them immensely. The SEC doesn’t have time to read or study regulated securities so how will they ever get to unregulated securities? They can only go after the low hanging fruit. And with these unregulated securities, the only fruit they are even attempting to go after (if any at all) would be the fruit on the ground that is completely rotten – and even then they are missing out on most of the rotten fruit.

    I know you can use these arguments (the promissory note is an exchange and not a loan), but my view is that it will only buy you some time. It will not result in any substantial relief. Plus it takes the focus away from the other real issues of the case and could easily distract a judge into thinking you are just trying to get your “obligation” free and clear (as in a windfall).

    Dan Edstrom

  23. That’s just it, though, Dan–it isn’t conjecture (which strikes me as a somewhat pejorative term) at all. What struck me about that sentence–“plaintiffs executed promissory notes in payment for investments”–in the case you cited is that I’ve never before run across a description of a promissory note in quite those terms. After all, the Merriam-Webster definition of the term “promissory note” is this: “a written promise to pay at a fixed or determinable future time a sum of money to a specified individual or to bearer.”

    But the sentence from the cited case treated the promissory notes as payment as opposed to a promise to pay in the future. From my reading, which includes the sources you cited, the way the sentence in question was phrased belies the truth of what a promissory note really is as opposed to what we are told it is.

    Knowing that the money for my mortgage was created by my promissory note and not by a bank assuages any feelings of guilt and shame which society expects me to have over my purported “default” because the truth of the matter, which I think we’ve firmly established, is that I ALREADY paid the mortgage when I gave the bank an asset called a promissory note, as did everyone else. The fact that a bank can do something you and I are forbidden to do–i.e., convert a sheet of ordinary copy paper with my (or your) signature on it into hundreds of thousands of dollars, and do this multiple times simply by virtue of being a bank as opposed to a natural person–is an outrage of unbelievable magnitude. I can’t understand why we allow this practice to continue for one second more or why anyone–given the facts like those you listed from the Federal Reserve as well as similar ones from other knowledgeable sources–could rationally argue that ANY “borrower” owes ANYTHING to ANY bank, including all mortgages currently in existence.

    And the facts concerning this promissory note fraud are not hidden at all–as you point out, they’re right there in the open, admitted to by the Federal Reserve itself. This is all based on pretense, as Neil pithily observes when he uses the term “pretender lenders.” But the fact of the matter is that not even the investors in MBS are “true lenders” because THEIR money was created in the same fashion mentioned above, i.e., out of nothing. It’s ALL fake money. The entire SYSTEM is a fraud and a racket, not just a few bad apples within the system.

    Of course, I don’t think that this is a good argument to put before a judge at this point, but I think it could be in the (possibly near?) future if we keep publicizing this fraud. I was going to say “if we keep EXPOSING this fraud,” but like I said, the fraud isn’t a secret. It’s admitted to by the fraudsters themselves.

  24. zurenarrh,
    You sure do extract a lot of conjecture out of one sentence:

    “Plaintiffs executed promissory notes in payment for investments in Madison Partnerships…”

    However, I have to concur that it is that simple. When combined with statements from the Fed, these turn out to be statements of FACT. At least in my opinion.

    The section What is Money (pg 1-2 from Modern Money Mechanics from the Federal Reserve Bank of Chicago) has this to say:

    “Today, in the United States, money used in transactions is mainly of three kinds – currency (paper money and coins in the pockets and purses of the public); demand deposits (non-interest bearing checking accounts in banks); AND OTHER CHECKABLE DEPOSITS, such as negotiable order of withdrawal (NOW) accounts, at all depository institutions, including commercial and savings banks, savings and loan associations, and credit unions.”

    and from the section Who Creates Money?:

    “The actual process of money creation takes place primarily in banks.(1) As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.”

    Read it again: They increase [ ] when the proceeds of loans made by the banks are credited to borrowers’ accounts.

    When money is borrowed, a CREDIT is applied to the borrowers’ account. This credit is money that is created! Except for the fact that I do not know of ANY borrower who has been successful in getting the money OUT of this concealed, non-disclosed bank account that has been opened in the name of the borrower(s).

    Later in this document it says:

    “Then, bankers discovered that they could make loans merely by giving their promises to pay, or bank notes, to borrowers. In this way, banks began to create money.”

    And this:
    “Suppose a customer of Bank A wants to borrow $100. On the basis of the managements’s judgment that the bank’s reserves will be sufficient to provide the necessary funds, the customer is accommodated. The loan is made by increasing “loans” and crediting the customer’s deposit account. Now Bank A’s deposits have increased by $100.”

    And this:

    “If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction
    accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged
    by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system.”

    And this:
    “Loans are made by crediting the borrower’s account, i.e., by creating additional deposit money.”


    – Loans……. +9,000

    – Borrower deposits…. +9,000

    Again, when you get a loan, this document shows that the borrowers’ “deposit account” is credited and the banks deposits have increased.

    How did the deposits increase? They “negotiated” the promissory note by stamping the back (pay to the order of) and simply deposited it into a bank account. A promissory note is the same as (or very similar to) a check.

    Yes it is that easy. Right from the horse’s mouth.

    Now from the Two Faces of Debt published by the Federal Reserve Bank of Chicago:

    “But a depositor’s balance also rises when the depository institution extends credit–either by granting a loan to or buying securities from the depositor. In exchange for the note or security, the lending or investing institution credits the depositor’s account or gives a check that can be deposited at yet another depository institution. In this case, no one else loses a deposit. The total of currency and checkable deposits–the money supply–is increased. New money has been brought into existence by expansion of depository institution credit. Such newly created funds are in addition to funds that all financial institutions provide in their operations as intermediaries between savers and users of savings.”

    Did you know that you are entitled to pull this concealed, non-disclosed money back out of the bank?

    “A deposit created through lending is a debt that has to be paid on demand of the depositor, just the same as the debt arising from a customer’s deposit of checks or currency in a bank. By writing checks, the borrower can spend the deposit acquired by borrowing.”

    “For present purposes, it is enough to point out that these institutions can make additional loans and investments, and thereby increase checkable deposit money, to the extent that they have the required amount of reserves against the increased deposits.”

    How exactly does that work? Since they failed to disclose this account and failed to give me the account number. Do I just go out and order checks if I find the account number for this account? Is it my account? Who is paying taxes on this account? How come I have to pay back the “loan” if it was actually an exchange and not a loan? Can I just ask the bank to payoff the loan using this account and to send me whatever is left over? When this account goes unclaimed for a certain amount of time (depending on state laws), does it escheat to the state?

    If anyone cannot find a copy of these documents on the Internet, just email me.

    Dan Edstrom

  25. Florida Default Law Group is a den of corruption as far as I’m concerned. In 2007, after falling behind in making payments to “servicer” Homecomings Financial (now GMAC Mortgage), a foreclosure suit was filed against us, not by Homecomings, but by U.S. Bank National As Trustee. FDLG was the foreclosure mill who represented US Bank. The attorneys outright lied and committed perjury in the complaint, but several issues of fraud were brought to his attention, Osceola County tyrant Judge R. James Stroker gave U.S. Bank one year to produce the alleged original Note and Mortgage, and then scheduled the unlawful sale of our home. The services + banks + trustees + foreclosure mills + courts = Criminal Enterprise, who answer to D.C., the District of Criminals.

  26. I love it! Especially this part from Pribus v. Bush:

    “It follows, then, that the assignment by allonge of plaintiff’s promissory note by the Williams to the defendant was ineffective as an indorsement, since there was sufficient space on the note itself for the indorsement. There having been no indorsement of the note, the defendant is not a holder in due course and, therefore, takes the note subject to the defenses that plaintiff has against the Williams.”

    It makes sense–the only reason to attach an allonge would be if there is no room on the note. And even then, the allonge HAS to be attached to the note; an allonge by itself is evidence of nothing. It certainly isn’t evidence that a borrower owes anything, because allonges are not signed or approved by the borrower–they are generated after a loan closing when the borrower is no longer physically present to affix his/her signature to the new document.

    I also found this language from Adams v. Madison Realty (posted above by Dan) interesting because it confirms the research I’ve been doing:

    “Plaintiffs executed promissory notes in payment for investments in Madison Partnerships…”

    The promissory note then, IS payment, and not in the future. A promissory note is literally a check from a “borrower” written to a “lender.” It’s true that at the time of signing of the note, the so-called borrower does not have the funds to make good on the note. But two other things are also true: 1) the promissory note IS the “funding check” for the amount given by the bank to the borrower (or to a third party on behalf of the borrower), necessarily meaning that a) the bank is not lending the borrower any of its own money and that b) it is in fact the “borrower” who has lent the bank money to sell back to the “borrower;” 2) as far as a “lender” is concerned, a promissory note is (or can be) money in the present, not just in the future, because a note can be sold by the “lender” as soon as it is executed by the “borrower” (or as Neil has pointed out so often, it can be pre-sold or pre-pledged for sale).

    Furthermore, all of the above is done only on paper (or digitally), and nothing of inherent value passes between either the “borrower” or the “lender”–only paper. Am I missing something, or is the racket really that diabolically simple?

  27. Good stuff 🙂

  28. More on Allonges from the Texas Supreme Court (1997)

    Allonges can be used and staples are OK as long as their is no room on the note.


    NO. 97-0148
    An indorsement of a negotiable instrument must be written on the instrument itself or on a
    paper affixed to the instrument. The dispositive issue in this case is whether an indorsement on a
    paper stapled and taped to a note meets this requirement as a matter of law. We hold that it does.
    Southwestern Resolution Corporation purchased a promissory note executed by First Texas
    Realty Corp. to Canyon Lake Bank for the principal sum of $85,000, a guaranty of the note by First
    Texas’ president, Vernon Lee Watson, and a deed of trust securing payment of the note. The note
    is printed on an 8½” x 14″ sheet of paper so that it completely covers both sides except for a 2″ x
    4″ area at the bottom right corner on the back. That area is filled by an indorsement from the Federal
    Deposit Insurance Corporation, receiver for Canyon Lake Bank, to Intervest Capital Corp. There
    is no space on the note for another indorsement. On a separate 8½” x 11″ sheet of paper — an
    allonge — are two indorsements, one from Intervest to Dosohs, Inc., and the other from Dosohs to
    Southwestern. The allonge does not refer to the First Texas note.
    Southwestern sued First Texas and Watson on the note and guaranty. At trial,
    Southwestern’s president testified that Southwestern owned the note, having purchased it from
    Dosohs, and that nothing had ever been paid on it. When the note and allonge were produced at trial,
    they were taped together and both had several staple holes in them. Southwestern’s president,
    Charles Hummel, testified that when Southwestern received the note the allonge was stapled to it
    and may also have been clipped and taped, but that the note and allonge had been separated and
    reattached five or six times for photocopying.
    The rights of the parties are governed by the Uniform Commercial Code as it was adopted
    in Texas prior to the 1995 amendments. With certain exceptions, a transferee of an instrument
    receives whatever rights his transferor has. Act 1, 1967 Tex. Gen. Laws 2343, 2416 (formerly TEX.
    BUS. & COM. CODE § 3.201(a), now § 3.203(b)). If the transferee is a holder, he is entitled to recover
    on the instrument when the signatures are admitted or established unless the defendant establishes
    a defense. Id. at 2422 (formerly TEX. BUS. & COM. CODE § 3.307, now § 3.308). If the transferee
    is not a holder, he is not aided by the statute and must prove the rights of his transferor and, of
    course, any prior transferors. A transferee cannot be a holder unless the instrument is negotiable.
    Id. at 2417 (formerly TEX. BUS. & COM. CODE § 3.202(a), now § 3.201(a)). For an instrument to be
    negotiable, former section 3.202(b) required that any indorsements must be written “on the
    instrument or on a paper so firmly affixed thereto as to become a part thereof.” Id. The current
    statute provides that “[f]or the purpose of determining whether a signature is made on an instrument,
    a paper affixed to the instrument is part of the instrument.” TEX. BUS. & COM. CODE § 3.204(a).
    Southwestern claims to be a holder of the First Texas note, and it did not prove what rights
    the FDIC, Intervest, or Dosohs had. Based on the jury’s failure to find “that the indorsement page
    is so firmly affixed to the promissory note as to become a part thereof”, the district court rendered
    judgment against Southwestern. The court of appeals affirmed, holding that Hummel’s admission
    that the note and allonge had been detached and the multiple staple holes in the two pages were some
    evidence that the allonge and note were not “firmly affixed”. ___ S.W.2d ___. We believe, however,
    that Southwestern proved that the allonge and note were firmly affixed as a matter of law.
    The court of appeals cited no authority for its holding, and we are aware of none. There is
    authority to the contrary. The use of an allonge to add indorsements to an instrument when there is
    no room for them on the instrument itself dates from early common law. Adams v. Madison Realty
    & Dev., Inc., 853 F.2d 163, 167 (3 Cir. 1988). rd Section 31 of the Uniform Negotiable Instruments
    Law, adopted in Texas in 1919, provided that an “indorsement must be written on the instrument
    itself or upon a paper attached thereto.” Act of March 17, 1919, 36th Leg., R.S., ch. 123, § 31, 1919
    Tex. Gen. Laws 190, 194. The allonge could be attached by a staple. Plattsmouth State Bank v.
    Redding, 258 N.W. 661, 663 (Neb. 1935). When the UCC changed the requirement from “attached
    thereto” to “so firmly affixed thereto as to become a part thereof”, Law of May 25, 1967, 60th Leg.,
    R.S., ch. 785, § 1, 1967 Tex. Gen. Laws 2343, 2417 (formerly TEX. BUS. & COM. CODE § 3.202(b)),
    the drafters of the new provision specifically contemplated that an allonge could be attached to a note
    DRAFTS 311, 424 (1984) (“The indorsement must be written on the instrument itself or on an
    allonge, which, as defined in Section __, is a strip of paper so firmly pasted, stapled or otherwise
    affixed to the instrument as to become part of it.”).
    Attachment of an allonge to an instrument by staples was approved in Lamson v. Commercial
    Credit Corp., 531 P.2d 966, 968 (Colo. 1975) (“Stapling is the modern equivalent of gluing or
    pasting.”), and was assumed to be appropriate in Adams, 853 F.2d at 166, and Estrada v. River Oaks
    Bank & Trust Co., 550 S.W.2d 719, 725 (Tex. Civ. App.—Houston [14th Dist.] 1977, writ ref’d
    n.r.e.). Only when an allonge has been considered unnecessary because the instrument contained
    room for indorsements has attachment by staples been disapproved. E.g. Crossland Sav. Bank v.
    Constant, 737 S.W.2d 19, 21 (Tex. App.—Corpus Christi 1987, no writ); Pribus v. Bush, 173 Cal.
    Rptr. 747, 749 (Cal. Ct. App. 1981). See generally V. G. Lewter, Annotation, Indorsement of
    Negotiable Instrument by Writing Not on Instrument Itself, 19 A.L.R.3d 1297 (1968).
    The attachment requirement has been said to serve two purposes: preventing fraud and
    preserving the chain of title to an instrument. Adams, 853 F.2d at 167. Still, the requirement has
    been relaxed in the current code from “firmly affixed” to simply “affixed”. TEX. BUS. & COM. CODE
    § 3.204(a). As the Commercial Code Committee of the Section of Business Law of the State Bar
    of Texas concluded in recommending adoption of the provision, “the efficiencies and benefits
    achieved by permitting indorsements by allonge outweigh[] the possible problems raised by easily
    detachable allonges.” Daryl B. Robertson, Report of the Commercial Code Committee of the Section
    of Business Law of the State Bar of Texas on Revised UCC Articles 3 and 4, 47 BAYLOR L. REV.
    427, 459 (1995).
    We conclude that an allonge stapled to an instrument is “firmly affixed” to the instrument.
    In the present case, Southwestern’s president testified that the allonge was stapled, taped, and clipped
    to the note when Southwestern received it. There was no evidence to the contrary. The fact that the
    documents had been detached for photocopying does not raise a fact issue for the jury about whether
    the documents were firmly affixed. If it did, the validity of an allonge would always be a question
    of the finder of fact, since no allonge can be affixed so firmly that it cannot be detached. One simply
    cannot infer that two documents were never attached from the fact that they can be, and have been,
    detached. Nor could the jury infer from the staple holes in the two papers, as the court of appeals
    suggested, that the two documents had not been attached. This would be pure conjecture.
    The issue here is not how the documents were attached — the facts in that regard are
    undisputed — but whether the way they were attached satisfies the policies expressed in the statute.
    We hold that the policies are satisfied and that therefore, as a matter of law, the allonge was firmly
    attached to the First Texas note so as to make it negotiable. Inasmuch as First Texas and Watson
    did not establish any defense to enforcement of the note, guaranty, and deed of trust, Southwestern
    is entitled to judgment against First Texas and Watson for the principal plus interest, and for
    enforcement payment had been made on the note. In his deposition, Watson admitted that no
    payment had been made, but at trial he testified that he had made one payment of $2,785.20. Thus
    the evidence was disputed as to the exact amount due on the note. Although Watson did not plead
    payment, an affirmative defense, TEX. R. CIV. P. 94, Southwestern did not object to his testimony
    or to submitting the issue to the jury. Thus the issue was tried by consent. TEX. R. CIV. P. 67. The
    jury found that nothing was due on the note, presumably because they found that the allonge was not
    firmly affixed to the note, since the evidence is undisputed that at most one payment was made. But
    because the amount due was not established without dispute, that issue must be remanded for retrial.
    Accordingly, the Court grants Southwestern’s application for writ of error and, without
    hearing oral argument, reverses the judgment of the court of appeals and remands the case to the
    district court for new trial only on the issue of damages, including attorney fees. TEX. R. APP. P.
    Opinion delivered: October 30, 1997

    Dan Edstrom

  29. Excellent article:


    Dan Edstrom

  30. Reposting this because its in moderation:

    To be or not to be?

    These are both from the California Secretary of State site (http://sos.ca.gov):

    Number: C2416221
    Date Filed: 5/21/2002
    Status: suspended
    Jurisdiction: California
    2216 16TH STREET
    SACRAMENTO, CA 95818
    Agent for Service of Process
    ** RESIGNED ON 03/25/2009

    Number: C3109037
    Date Filed: 6/1/2009
    Status: active
    Jurisdiction: California
    3321 VINCENT RD
    Agent for Service of Process
    3321 VINCENT RD

    Dan Edstrom

  31. Hey Dan and Martin , NICE JOB ON THOSE POSTS! Thanks, rpr

  32. Getting Attached – What New York says about allonges

    Today’s common practice—including the allonge in the closing set without attaching it to the note—simply asks for trouble. An official comment to the New York UCC expressly rejects use of a paper clip, probably the technique most commonly used when people bother to attach the allonge at all. A staple seems to suffice as an attachment technique.


    Dan Edstrom

  33. Regarding allonges:
    “Instead, the record suggests that the failure to observe that Code formality was caused by nothing short of sheer carelessness.”


    853 F2d 163 Adams v. Madison Realty & Development Mxc & Pc

    853 F.2d 163
    57 USLW 2093, 6 UCC Rep.Serv.2d 732

    John M. ADAMS, Jr., et al., Appellants,
    MADISON REALTY & DEVELOPMENT, Inc., a corporation; Consolidated Mortgage Company, a corporation; American Funding Limited, a partnership; First American Services, Inc., a corporation; John Peter Galanis and Chandra Galanis; Jay Botchman; Tri-County Savings and Loan Association, a state chartered savings and loan association; Community Federal Savings and Loan Association, a federal savings and loan association; First Northern Cooperative Bank, a state chartered mutual savings bank; Empire of America Federal Savings Bank, a federally chartered savings bank; Empire of America Federal Savings Bank Deland Florida, a federally chartered savings bank; Barclays/American Businesscredit, Inc., a corporation; Public Loqan Company, Inc., a corporation; Morris Cofman; MXC Holdings, Ltd., a corporation; Arthur Mason; Leff & Mason, a partnership; and Friedman & Shaftan, P.C. a professional corporation, Federal Savings and Loan Insurance Corporation, as receiver for Tri-County Savings and Loan Association.

    No. 88-5111.
    United States Court of Appeals,
    Third Circuit.

    Submitted Pursuant To Third Circuit Rule 12(6)

    May 10, 1988.
    Decided July 22, 1988.
    Rehearing and Rehearing In Banc Denied Aug. 29, 1988.

    Kenneth N. Laptook, Kimmelman, Wolff & Samson, Roseland, N.J., Marcus E. Crahan, Jr., Crahan, Javelera, Ver Halen & Aull, Los Angeles, Cal., for appellants.

    Mark F. Hughes, Jr., Robinson, Wayne, Levin, Riccio & LaSala, Newark, N.J., Richard E. Moot, Moot & Sprague, Buffalo, N.Y., Robert B. Fiske, Jr., Davis Polk & Wardwell, New York City, for appellee Empire of America Federal Sav. Bank.

    Before GIBBONS, Chief Judge, GREENBERG and WEIS, Circuit Judges.


    WEIS, Circuit Judge.

    The district court entered summary judgments in favor of the purported indorsee of promissory notes and certified a controlling question of law pursuant to 28 U.S.C. Sec. 1292(b). The issue presented on this appeal is whether a good faith purchaser is a holder in due course of promissory notes containing indorsements on separate sheets of paper loosely inserted within each note. We answer in the negative and will vacate the judgments.

    The saga of this litigation is extensive and quite complicated. However, the question certified to us is narrow, and the essential facts are easily summarized.

    Plaintiffs executed promissory notes in payment for investments in Madison Partnerships, a series of tax shelters formed to acquire and operate residential real estate properties. Each of the promissory notes were made payable to one of three originator banks: Tri-County Savings & Loan Association of New Jersey, Community Federal Savings & Loan Association of Connecticut, and First Northern Cooperative Bank of New Hampshire. After a series of transfers, the notes came into the possession of defendant Empire of America Federal Savings Bank.

    Charging fraud in connection with the investment scheme, plaintiffs filed suit against numerous defendants who allegedly participated in the wrongdoing. Also named as a defendant was Empire, from whom plaintiffs sought rescission of the notes now in the bank’s possession. The discrete issue before us is the legal effect of purported indorsements not physically attached to the notes.

    Empire purchased the thirty-five promissory notes challenged in this appeal for $19.5 million in March 1985 as part of a bulk acquisition of negotiable instruments. According to the bank’s affidavits, the practice of acquiring notes through this “secondary market” is an established commercial banking practice. It allows smaller lenders to preserve liquidity and diversify risks, while permitting larger institutions to buy notes at discounted prices.

    In November 1984, Consolidated Mortgage Company sold to Empire for $6.1 million a package of 116 notes executed by investors in conjunction with the Madison Partnership venture. In early 1985, Putnam Funding Company offered Empire a similar batch of notes which included the 35 instruments executed by plaintiffs. This collection consisted of 267 notes tendered at a purchase price of $19.5 million dollars.

    On March 4, 1985 an Empire representative conducted a four-hour random review of 52 of the 267 loan files associated with the proposed Putnam transaction. He examined the supporting file material, including loan applications, credit reports, disbursal sheets, and current income tax 1040 forms. The documents indicated that the makers of the notes had substantial means, with individual net worths generally in excess of $500,000 and adjusted annual gross incomes usually greater than $100,000. None of the notes was found to be delinquent or beyond maturity.

    Empire’s representative could not recall whether he had inspected the notes. He did report, however, that he was satisfied with the financial condition of both borrowers and servicer and would recommend the purchase. On the following day, Empire’s management loan committee approved the transaction and wired a transfer of $19.54 million dollars to Putnam.

    On March 20, 1985 an examiner from the Federal Home Loan Bank Board met with Empire’s internal auditors to inquire whether the bank had any contact with certain persons then under investigation for conduct unrelated to these purchases. The examiner’s list included some of the individuals who had negotiated the sale of the Consolidated and Putnam notes to Empire. The district judge found that the examiner’s report, shown to Empire personnel, did not contain specific allegations of fraud and had no apparent connection to the notes under discussion.

    Plaintiffs allege that both Consolidated and Putnam participated in the asserted fraud. No evidence of record, however, demonstrates that Empire played any role in the original investment proposals.

    On March 28, 1985 Empire’s Board of Directors ratified the purchase. Twelve days later, the original notes were sent to Empire.

    The promissory notes are each two-page, fold-over documents. The front page names the originator bank and sets forth the repayment schedule. The reverse side contains printed agreement conditions and signature lines. Inserted loosely within the fold, lacking any physical attachment to the note, are two sheets of paper containing purported indorsements, the last of which is the transfer from Putnam to Empire.1 Each note contains a provision directing that its terms be interpreted under the law of the state in which the originator bank is located–New Hampshire, Connecticut, and New Jersey, respectively.

    The district court acknowledged that the use of a separate, unattached sheet of paper to carry the indorsements failed to comply with Uniform Commercial Code section 3-202(2), which reads: “An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.” Conn.Gen.Stat.Ann. Sec. 42a-3-202(2) (West 1987); N.H.Rev.Stat.Ann. Sec. 382-A:3-202(2) (1961); N.J.Stat.Ann. Sec. 12A:3-202(2) (West 1962).

    The court commented that the object of this statutory provision was “to protect subsequent purchasers from the risk that the present holder or a previous holder has negotiated the instrument to someone outside the apparent chain of title through a separate document.” In view of this purpose, the court reasoned, even if the indorsee had been exposed to some risks, “that is no reason to absolve the notemakers, who are in no way injured by the use of an unattached indorsement, of their obligations.”

    The court observed that the makers of the notes in this case were not threatened with double liability because there “is no reasonable basis to fear that there are other indorsees to the notes in question other than Empire.” Failure to properly attach the indorsements, therefore, was excused as “hypertechnical.” Nevertheless, the court conceded that the issue was a “close one” which justified certification under 28 U.S.C. Sec. 1292(b).

    On appeal, plaintiffs contend that the district court’s ruling runs contrary to explicit language in the Uniform Commercial Code and decisional precedents. Admitting that the affixation requirement may be technical, plaintiffs assert that the privileged status of holder in due course is also a technical creation bestowed only after strict compliance with the statutory prerequisites.

    Defendant argues that it is the rightful owner of the notes, that it purchased them for value, and that the unambiguous indorsements were intended by the parties to negotiate the notes. The bank insists that the “purely clerical omission” of proper affixation distinguishes this case from others in which collateral documents such as assignments, guarantees, or mortgages were denied effect as indorsements.


    Whether a separate, unattached indorsement page can constitute a proper indorsement of a negotiable instrument is a question of state law. The parties concede there is no controlling precedent in any of the three relevant jurisdictions, but each state has adopted the Uniform Commercial Code. The briefs have not cited any case recounting facts close to those presented here,2 nor has our independent research uncovered any such authority. We are left, therefore, largely to the wording of the Code itself.

    Article 3 of the Uniform Commercial Code incorporated many portions of its predecessor, the Uniform Negotiable Instruments Law (NIL), drafted in 1896 by the National Conference of Commissioners on Uniform State Laws. By 1924, the NIL had been adopted in every state. See 2 F. Hart & W. Willier, Commercial Paper Under the Uniform Commercial Code Sec. 1.06, at 1-25 to -26 (1988). When it was transplanted into the 1956 draft of the Uniform Commercial Code, the indorsements provision was altered in only a minor respect. Section 31 of the NIL had specified that a proper indorsement “must be written on the instrument itself or upon a paper attached thereto.” The Code substituted the words “so firmly affixed as to become a part thereof” for the phrase “upon a paper attached thereto.”

    Indorsement constitutes one step in the process of establishing the highly advantageous position of holder in due course, a status which cuts off certain defenses of previous parties to the instrument and which offers a procedural means for obtaining a judgment on the note promptly and inexpensively. See U.C.C. Sec. 3-305. As a condition for conferring this privileged position, the Code not unreasonably imposes a number of prerequisites.

    A holder in due course must take the instrument for value, in good faith, and without notice that it is overdue, that it has been dishonored, or that a claim or defense to it exists on the part of any person. See U.C.C. Sec. 3-302(1). But preliminarily, a person seeking to become a holder in due course must satisfy the threshold requirements for becoming a “holder,” the critical issue on this appeal.

    The Code defines a holder as one “who is in possession of … an instrument … drawn, issued or indorsed to him or to his order.” U.C.C. Sec. 1-201(20). Mere ownership or possession of a note is insufficient to qualify an individual as a “holder.” The instrument must be obtained through a process the Code terms “negotiation,” defined as “the transfer of an instrument in such form that the transferee becomes a holder.” U.C.C. Sec. 3-202(1). If the instrument is payable to order–as is the case with the notes here–negotiation is accomplished “by delivery with any necessary indorsement.” Id.

    In explaining the requirement that the indorsement be on or firmly affixed to the instrument, the Official Comment states that the Code “follows decisions holding that a purported indorsement on a mortgage or other separate paper pinned or clipped to an instrument is not sufficient for negotiation. The indorsement must be on the instrument itself or on a paper intended for the purpose which is so firmly affixed to the instrument as to become an extension or part of it. Such a paper is called an allonge.” U.C.C. Sec. 3-202 Official Code Comment (3).

    We may assume, without actually deciding, that the loose indorsement sheets accompanying Empire’s notes would have been valid allonges had they been stapled or glued to the notes themselves. Cf. All American Finance Co. v. Pugh Shows, Inc., 30 Ohio St.3d 130, 507 N.E.2d 1134, 1136-37 n. 3 (1987) (collecting cases showing disagreement among courts on how firmly indorsements must be affixed). Nevertheless, the fact remains that the indorsement sheets here were not physically attached to the instruments in any way, and thus patently fail to comply with the explicit Code prerequisite. Conceding the requirement’s formalistic nature, we explore the arguments in support of its enforcement here.

    The Code’s requirement that an indorsement be “firmly affixed” to its instrument is a settled feature of commercial law, adopted verbatim by every American state, the District of Columbia, and the Virgin Islands. See 5 R. Anderson, Uniform Commercial Code Sec. 3-202:2, at 416 (3d ed. 1984) (citing codifications). With a unanimity unusual in decisional law, the directive has been faithfully observed.3

    The historical origins of the provision have been chronicled to the days of the Law Merchant. See Pribus v. Bush, 118 Cal.App.3d 1003, 173 Cal.Rptr. 747, 749 (1981). The practice of multiple indorsements which accompanied the growth in commerce eventually led to acceptance of the use of allonges. See id.; Estrada v. River Oaks Bank & Trust Co., 550 S.W.2d 719, 725 (Tex.Civ.App.–Houston [14th Dist.] 1977, writ ref’d n.r.e.). Even today, however, numerous jurisdictions permit allonges only where, because of multiple indorsements, no additional space for signatures remains on the negotiable instrument. See, e.g., Pribus, 173 Cal.Rptr. at 751; Tallahassee Bank & Trust Co. v. Raines, 125 Ga.App. 263, 187 S.E.2d 320, 321 (1972). But see Crosby v. Roub, 16 Wis. 616, 626-27 (1863) (allonge permitted even where space remains on note).

    When the drafters of the Uniform Commercial Code replaced the term “attached” in the NIL with the phrase “firmly affixed,” they intended to make the use of allonges more difficult. See Hills v. Gardiner Savings Institution, 309 A.2d 877, 880-81 (Me.1973); Estrada, 550 S.W.2d at 728; 5 Anderson, supra, Sec. 3-202:05. Courts have advanced two justifications for the firmly-affixed requirement. The California Court of Appeals reasoned that the provision serves to prevent fraud, remarking that a signature innocently placed upon an innocuous sheet of paper could be fraudulently attached to a negotiable instrument in order to simulate an indorsement. Pribus, 173 Cal.Rptr. at 750. But cf. Lamson v. Commercial Credit Corp., 187 Colo. 382, 531 P.2d 966, 968 (1975) (allonge consisting of two legal sheets stapled to two small checks held valid because signing on checks themselves would have been impossible; “stapling is the modern equivalent of gluing or pasting”).

    The affixation requirement has also been cited for its utility in preserving a traceable chain of title, thus furthering the Code’s goal of free and unimpeded negotiability of instruments. Nearly a century ago, the Supreme Court of Georgia declared it “indispensably necessary” that negotiable instruments “should carry within them the indicia by which their ownership is to be determined; otherwise, their value as a circulating medium would be largely curtailed, if not entirely destroyed.” Haug v. Riley, 101 Ga. 372, 29 S.E. 44, 46 (1897). See also Crosby, 16 Wis. at 627 (permanently attached indorsements to instrument “travel with it wherever it might go”). Chancellor Hawkland writes that it would be “unreasonable to impose upon the indorsee the risk that the present holder or a prior holder had negotiated the instrument to someone not in the apparent chain of title by virtue of a separate document.” 4 W. Hawkland & L. Lawrence, Uniform Commercial Code Series Sec. 3-202:05 (1984).

    Defendant here argues that these considerations warrant enforcement of the requirement only against those persons who acquire the notes after issuance, not against the makers who undertook to repay the amount loaned by the bank. This argument overlooks the rights which pass to an indorsee. Through effective negotiation, the indorsee becomes a holder, acquiring the authority to discharge the obligation on the note by accepting payment. See U.C.C. Sec. 3-301. Until the maker pays a holder, he will not be discharged from his obligation. Thus, “if the primary party pays an instrument bearing an improper indorsement, he will not have paid a holder, and the true owner of the instrument may recover against the primary party.” See 1 R. Aldermann, A Transactional Guide to the Uniform Commercial Code 633 n. 294 (2d ed. 1983).

    From the maker’s standpoint, therefore, it becomes essential to establish that the person who demands payment of a negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the obligor is exposed to the risk of double payment, or at least to the expense of litigation incurred to prevent duplicative satisfaction of the instrument. These risks provide makers with a recognizable interest in demanding proof of the chain of title. Consequently, plaintiffs here, as makers of the notes, may properly press defendant to establish its holder status.

    Plaintiffs have another reason for insisting on compliance with the Code’s indorsement requirements. They allege their notes were procured by fraud and they wish to assert that as a defense to payment. As the Code provisions have been interpreted, however, the defense of fraud in the inducement is not available against holders in due course. See 6 Anderson, supra, Sec. 3-305:62. Thus, if Empire successfully establishes its status as a holder in due course, it will be able to expeditiously fend off the plaintiffs’ fraud allegations and obtain a judgment on the notes.

    Notwithstanding these concerns, defendant maintains that mere “clerical oversight” should not obscure its right to recover as a holder in due course on notes it purchased for value. There is some equitable appeal to this line of reasoning, but overriding considerations militate against it.

    We must be mindful of the limitations imposed on federal courts sitting in diversity. Where an appeal to this court challenges an application of state law, we are not free to indulge our preferences as to how the common law should best develop. Falcone v. Columbia Pictures Indus., 805 F.2d 115, 118 (3d Cir.1986). When, as here, no controlling state case law guides our consideration, we are left to the “unenviable task” of predicting how the highest courts of Connecticut, New Hampshire, and New Jersey would rule were the question now before them–a review decried as “omniscient in a way that is not possible for mortals.” Santiago v. Johnson Mach. & Press Corp., 834 F.2d 84, 84 (3d Cir.1987).

    Fortunately, our review in this case does not demand such clairvoyance. When interpreting the attachment requirement, the courts “have been of one mind” that the lack of an indorsing signature on the instrument itself, or on a sheet “firmly affixed” to the instrument, is fatal to holdership. See, e.g., Bailey v. Mills, 257 Ala. 239, 58 So.2d 446, 447 (1952); Lopez v. Puzina, 239 Cal.App.2d 708, 49 Cal.Rptr. 122, 124-25 (1966); Lamson, 531 P.2d at 968; Shepherd Mall State Bank v. Johnson, 603 P.2d 1115, 1118 (Okla.1979); Estrada, 550 S.W.2d at 725; Crossland Sav. Bank FSB v. Constant, 737 S.W.2d 19 (Tex.Ct.App.–Corpus Christi 1987); Crosby, 16 Wis. at 627. As one treatise states, “[t]he unanimity of the courts in cases where the signature is separate from the instrument can be explained by a judicial perception that it is sound policy to require the indorsement to be on the instrument.” R. Hillman, J. McDonnell, & S. Nickles, Common Law and Equity Under the Uniform Commercial Code p 11.02[b], at 11-18 (1985).

    Where the state courts, the scholarly commentators, and the unambiguous language of the statute all admit of but one result, only an overwhelming equitable ground would warrant a departure from what is unquestionably settled law. Absent such a circumstance, the Code’s express goal of national uniformity must prevail. See U.C.C. Sec. 1-102(2).

    One premise underlying the defendant’s position on appeal is that plaintiff makers, once they give up possession of the instruments, lack standing to contest subsequent developments occurring in the course of later negotiations. Yet, as we have seen, the obligors have a very real interest in determining whether the person demanding payment on the note is actually a holder.

    The defendant’s attempt to distinguish the district court’s holding from the great weight of contrary precedent is similarly unpersuasive. Defendant argues that its indorsement sheets serve no collateral purpose other than to negotiate the notes, and that section 3-202(2) was intended only to prevent giving legal effect to purported indorsements contained in collateral purpose documents–such as mortgages and guaranties. This contention has been rejected by courts that have denied holder status to transferees relying on plain, unattached indorsement sheets. See Pribus, 173 Cal.Rptr. at 748; Duxbury v. Roberts, 388 Mass. 385, 446 N.E.2d 401, 403 (1983). Moreover, the same goals prompting adoption of the provision–prevention of fraud and ensuring an attached chain of title record–are equally served in applying the requirement here.

    Empire is not in a strong position to justify equitable relaxation of a settled formality in the Code. That longstanding provision was enacted, after all, for the benefit of parties in Empire’s position, commercial sophisticates that trade in the secondary market for negotiable instruments.4 The provision is not ambiguous, nor can Empire assert excusable ignorance of an unusual local technicality, given the rule’s universal application. The flaws in the notes should have been perceived quickly and readily cured. Instead, the record suggests that the failure to observe that Code formality was caused by nothing short of sheer carelessness.

    Financial institutions, noted for insisting on their customers’ compliance with numerous ritualistic formalities, are not sympathetic petitioners in urging relaxation of an elementary business practice. It is a tenet of commercial law that “[h]oldership and the potential for becoming holders in due course should only be accorded to transferees that observe the historic protocol.” Hillman, McDonnell, & Nickles, supra, at p 11.02[b], at 11-17. In sum, we are not persuaded that defendant presents a credible case for nonapplication of the plain wording of the state statutes.


    Denying the bank holder in due course status does not necessarily relegate it to simple contract remedies, claiming payment as a mere assignee subject to the plaintiffs’ fraud defenses. Even though it is not entitled to the abbreviated proof granted to a holder in due course, Empire perhaps may benefit from the Code’s shelter provision, succeeding to the rights of a holder in due course albeit not entitled to that status itself.

    Section 3-201(1) of the Code embodies what has come to be known as the “shelter” or “umbrella” principle. It provides that transfer of an instrument will vest in the transferee “such rights as the transferor has therein, except that a transferee who has himself been a party to any fraud or illegality affecting the instrument or who as a prior holder had notice of a defense or claim against it cannot improve his position by taking from a later holder in due course.” Ct.Gen.Stat.Ann. Sec. 42a-3-201(1) (West 1987); N.H.Rev.Stat.Ann. Sec. 382-A:3-201(1) (1961); N.J.Stat.Ann. Sec. 12A:3-201(1) (West 1962).

    This section extends the accepted rule in commercial law that a transferor assigns to his transferee all the rights he had in the transferred note. U.C.C. Sec. 3-201 Official Code Comment (1). The shelter principle permits a transferee, who cannot satisfy the formal prerequisites of negotiation, to step into the shoes of his transferor, succeeding to the same rights and liabilities as his predecessor. 2 Hart & Willier, supra, Sec. 12.02.

    If the transferor was a holder in due course, the transferee succeeds to the rights of a holder in due course, althoughbecause the purported negotiation failed–he does not enjoy the status of holder in due course. See Security Pac. Nat’l Bank v. Chess, 58 Cal.App.3d 555, 129 Cal.Rptr. 852 (1976) (provision assures transferee rights of transferor); Crossland Savings Bank FSB, 737 S.W.2d at 21 (if transferor is holder in due course, transferee can assert rights of holder in due course); Estrada, 550 S.W.2d at 728 (same). See also Great Western Bank & Trust Co. v. PIMA Savings & Loan Ass’n, 149 Ariz. 364, 718 P.2d 1017, 1020 (1986) (assignment to owner transferred rights of holder through shelter principle); Weast v. Arnold, 299 Md. 540, 474 A.2d 904, 909 (1984) (same.).

    To attain its purpose of guaranteeing the transferor a ready market for his negotiable instrument, the shelter principle operates cumulatively. As some commentators explain, a transferee of a holder in due course takes through, rather than from, his transferor. Thus, if the transferor’s predecessor was a holder but the transferor was not, the ultimate transferee may succeed to the rights of the original holder: the holder’s rights pass through each assignee. See 5 Anderson, supra, Sec. 3-201:22; 1 Alderman, supra, at 630.

    The commentary on this point, however, is not unanimous. Chancellor Hawkland observes that under both the NIL and the Code a question exists “whether a purchaser from a party who was denied protection of the shelter provision because he was a party to a fraud or illegality (or, under the Code, had notice of a defense or claim) obtains merely the rights of his transferor or whether he can succeed to the rights of a previous holder in due course.” 4 Hawkland & Lawrence, supra, at 278-79.

    Nevertheless, Official Code Comment (3)(a) implies that such a result is permissible, offering the following example:

    “A induces M by fraud to make an instrument payable to A, A negotiates it to B, who takes it as a holder in due course. After the instrument is overdue B gives it to C, who has notice of the fraud. C succeeds to B’s rights as a holder in due course, cutting off the defense.”

    See Weast, 474 A.2d at 909.

    We are aware that section 3-201(3) grants a transferee for value a specifically enforceable right to have the unqualified indorsement of the transferor. However, actual “[n]egotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner.” U.C.C. Sec. 3-201(3). This timing provision, a carryover from NIL Sec. 49, may pose problems for Empire.

    In view of this litigation, it is incontestable that the bank is now on notice of the plaintiffs’ fraud defense against the promoters. See Security Pac. Nat’l Bank, 129 Cal.Rptr. at 857. Comment 7 of the Official Comment to section 3-201(3) reiterates that until the indorsement is made, “the purchaser does not become a holder, and if he receives earlier notice of defense against or claim to the instrument he does not qualify as a holder in due course under Section 3-302(1)(c).”

    In his treatise, Chancellor Hawkland submits that this post hoc provision may be unnecessarily harsh. He concedes, however, that “except in the case of depository bank/transferees, the clarity of subsection 3-201(3) has discouraged any court from holding otherwise.” 4 Hawkland & Lawrence, supra, Sec. 3-201:09, at 286.

    At this stage of the litigation, we cannot anticipate what course the bank may choose to follow in light of our decision here, nor can we predict the responses defendant may interject. We hold only that, on the present state of the record, Empire is not entitled to the status of a holder in due course.

    The judgments in favor of Empire will be vacated and the case remanded for further proceedings consistent with this opinion.5

    Costs will be taxed against Appellee.


    The exemplar reprinted in the Appendix shows what appears to be two unattached sheets of paper containing indorsements. The first page contains the indorsement of Community Federal Savings & Loan to Consolidated Mortgage Company, Consolidated Mortgage Company to Barclays American/Business Credit, and Barclays American to Consolidated Mortgage. The second sheet records indorsements from Consolidated Mortgage to North American Trust Company, North American Trust Company to Putnam Funding Corporation, and Putnam Funding to Empire of America Federal Savings Bank

    The closest authority, not cited by either party, appears to be National Bank v. Leonard, 91 Ga. 805, 18 S.E. 32 (1893). There, a bank had received two obligation notes, one folded inside another, with the purported indorsement on the exterior note only. The court ruled that this attempted negotiation did not qualify as an indorsement

    The published authorities and legal commentators have identified only two decisions which have excused the attachment requirement and permitted the transferee to claim holder status. Mosely v. Graydon, 35 S.C.L. (4 Strob.) 7 (1849); First Nat’l Bank v. Bell, 88 S.W.2d 119 (Tex.Civ.App.–Fort Worth 1935, writ dism’d). Notwithstanding their obvious equitable appeal, these rulings have not persuaded other courts, but have been expressly disapproved. See, e.g., Lopez v. Puzina, 239 Cal.App.2d 708, 49 Cal.Rptr. 122, 124-25 (1966); Tennessee Valley Bank v. Williams, 246 Ala. 563, 21 So.2d 686, 688 (1945); Estrada v. River Oaks Bank & Trust Co., 550 S.W.2d 719, 726 (Tex.Civ.App.–Houston [14th Dist.] 1977, writ ref’d n.r.e.)

    See Professor Gilmore’s interesting discussion in Gilmore, Formalism and the Law of Negotiable Instruments, 13 Creighton L.Rev. 441 (1979)

    Empire of America Federal Savings Bank has its principal place of business in Buffalo, New York. The parties have referred to this company as “Empire North.” Empire’s subsidiary, referred to in the record as “Empire South”, has its administrative headquarters in Fort Worth, Texas and is incorporated under the name “Empire of America Federal Savings Bank, Deland, Florida.”

    The district court concluded that, although the notes bear the legend “Pay to the order of EMPIRE OF AMERICA FEDERAL SAVINGS BANK” (Empire North), Putnam intended to indorse the notes to Empire South. The court found the misnomer in the designation of the transferee not material. We find no error in this ruling. See Swanson v. Commercial Acceptance Corp., 381 F.2d 296 (9th Cir.1967); First State Bank v. Cox, 192 Wis. 566, 213 N.W. 290 (1927).

    Dan Edstrom

  34. This is big.

    I have felt for some time, that the use of an Allonge as evidence for the endorsement of a Note is not legally sufficient, unless the back of the Note is chaulk full of endorsements, requiring an “extra paper”. Thus was born the Allonge.

    This case is older, however, it goes indepth to cite case law surrounding the UCC and interpretation of the Holder in Due Course and ……..

    How an endorsement by Allonge is not valid unless the back of the Note is full of other endorsements!!!!!!!!!!!!!!

    Pribus v. Bush


    Citation Number 118 Cal.App.3d 1003, 173 Cal.Rptr. 747, 749 (1981)

    May 12, 1981
    Superior Court of Orange County, No. 314923, Philip Edgar Schwab, Jr., Judge.
    Howser, Gertner & Brown and David L. Sanner for Defendant and Appellant.
    Stephen D. Johnson for Plaintiff and Respondent.
    Opinion by Morris, J., with Kaufman, Acting P. J., and Garst, J.,*fn* concurring.
    Civ. No. 23473
    1981.CA.40697 ; 173 Cal. Rptr. 747; 118 Cal. App. 3d 1003
    May 12, 1981
    Superior Court of Orange County, No. 314923, Philip Edgar Schwab, Jr., Judge.
    Howser, Gertner & Brown and David L. Sanner for Defendant and Appellant.
    Stephen D. Johnson for Plaintiff and Respondent.
    Opinion by Morris, J., with Kaufman, Acting P. J., and Garst, J.,*fn* concurring.

    Defendant appeals from a judgment enjoining the foreclosure of a trust deed on plaintiff’s house, and ordering the cancellation of a promissory note signed by plaintiff. Judgment was entered against defendant after the trial court concluded that he was not a holder in due course.

    Charles Pribus, the son of Helen Pribus (plaintiff), owed $126,500 to Ford and Mary Williams. At Charles’ request, plaintiff executed a promissory note for $126,500 and a trust deed on plaintiff’s house to secure the note, both in favor of the Williams. Charles delivered the trust deed to Ford Williams, who caused it to be recorded. The note was never delivered. Ford Williams then induced the plaintiff to execute a second promissory note for $126,500, the subject of this appeal. The trial court made the finding, which is not now challenged, that this note was executed on the false representation by Williams that he would hold the note and would make no use of it. The court also made the uncontroverted finding that plaintiff received no consideration for the note.
    Within a few months, Williams bought from Philip Bush (defendant) an option to purchase Bush’s contractual rights to buy an apartment complex in Texas. As part of Williams’ written agreement with defendant Bush, Williams assigned the trust deed on plaintiff’s house to defendant and transferred to defendant the promissory note which Williams had induced plaintiff to execute. Stapled to the note was a paper, signed by Ford and Mary Williams, which stated: “For a valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned do hereby assign the attached Note to Phillip L. Bush.” There was sufficient space on the note itself to write an indorsement in the words that were written on the paper stapled to the note.
    After an unsuccessful effort to collect on the promissory note, defendant filed a “Notice of Breach and Default and of Election to Cause Sale of Real Property Under Deed of Trust.” Plaintiff responded by initiating the present action, seeking “cancellation of instrument, declaratory relief, and injunction.”

    Following a trial on the merits, the court found for the plaintiff. Although the promissory note was a negotiable instrument payable to order, the court held that the plaintiff could assert the defenses of fraudulent inducement and lack of consideration against the defendant because he was not a holder in due course.*fn1 The court concluded that the Williams’ indorsement of the promissory note was not sufficient for effective negotiation, because 1) the paper attached to the note was ineffective as an indorsement because there was sufficient space to write the indorsement on the note itself, and 2) the Williams retained an interest in the note. Judgment was entered ordering the cancellation of the promissory note and enjoining the defendant from foreclosing on the trust deed. This appeal followed.

    California Uniform Commercial Code section 3302, subdivision (1) provides,*fn2 “A holder in due course is a holder who takes the instrument a) For value; and (b) In good faith; and (c) Without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.” In the present case, the trial court did not question defendant’s status as a holder in due course because of any failure to satisfy the value, good faith, or no notice requirements. Rather, the court concluded that defendant is not a holder in due course because he is not a holder at all, an essential prerequisite to qualifying as a holder in due course. A holder is “a person who is in possession of . . . an instrument . . ., issued or indorsed to him . . . .” (? 1201, subd. (20).) The trial court ruled that the Williams’ signature on the paper attached to the promissory note did not qualify as an indorsement because there was adequate space for the indorsement on the note itself.*fn3 We affirm the judgment.

    Section 3202, subdivision (2) states, “An indorsement must be written by or on behalf of the holder and on the instrument or on a paper so firmly affixed thereto as to become a part thereof.” Thus, the code does not say whether or not such a paper, called an “allonge,” may be used when there is still room for an indorsement on the instrument itself. Nor has any reported California case dealt with this issue under the code.*fn4 The code does, however, instruct us as to where to look for the law with which to resolve the issue. Section 1103 states that “[unless] displaced by the particular provisions of this code, the principles of law and equity, including the law merchant . . . shall supplement its provisions,” and that section’s Uniform Commercial Code comment notes “the continued applicability to commercial contracts of all supplemental bodies of law except insofar as they are explicitly displaced by this Act.” Therefore, since the Commercial Code has not addressed the issue, we decide the present case according to the rules on allonges of the law merchant.*fn5

    Although the cases are not unanimous, the majority view is that the law merchant permits the use of an allonge only when there is no longer room on the negotiable instrument itself to write an indorsement. (See generally Annot., Indorsement of Negotiable Instrument By Writing Not On Instrument Itself (1968) 19 A.L.R.3d 1297, 1301-1304; Annot., Indorsement of Bill or Note by Writing Not On Instrument Itself (1928) 56 A.L.R. 921, 924-926.) Typical of the majority position is Bishop v. Chase (1900) 156 Mo. 158 [56 S.W. 1080]. There it was held that the general rule is that an instrument could be indorsed only by writing on the instrument itself, but that an exception to the rule allows the use of an attached paper “when the back of the instrument is so covered as to make it necessary.” (Id., 56 S.W. at p. 1083.) Thus, the court invalidated an attempted indorsement by allonge when “there was plenty of room upon the back of the note to have made the indorsement, and the only excuse for not doing so was that it was more convenient to assign it on a separate paper.” (Id., 56 S.W. at p. 1084.)*fn6

    As the Bishop case indicates, the law merchant rule on allonges was developed as a refinement of the basic rule that an indorsement must be on the instrument itself. This basic rule must have become impractical when strictly applied in certain multiple indorsement situations, due to the finite amount of space on any given instrument. The allonge, then, was apparently created to remedy the inconveniences of the basic rule, not as an alternative method of indorsement. Support for this analysis is found in Folger v. Chase (1836) 35 Mass. (18 Pick.) 63. There, the Massachusetts Supreme Court dealt with an allonge indorsement as a case of first impression. The indorsement had been made on “a paper attached to the back of the note by a wafer” because the back of the note was covered with previous indorsements. The defendants, citing the basic rule, contended that no indorsement had been made. The court disagreed. “The objection is, that such an indorsement is not sanctioned by custom; but we think it is supported by the reasons on which the custom was originally founded. Bills of exchange and promissory notes were indorsed on the back of the bills and notes, because it was a convenient mode of making the transfer, and in order that the evidence thereof might accompany the note. Such an indorsement as this will rarely happen, and no authority to support it could reasonably be expected; but there is no authority against it.” (Id., at p. 67.)*fn7

    The minority position is best expressed in Crosby v. Roub (1863) 16 Wis. 616, 626-628.*fn8 There it was said that “the usual reason stated for using [an allonge] is, that there is no longer room on the note to make the indorsement. But this does not mean that there must be an actual physical impossibility to write the indorser’s name on the original paper. On the contrary, the usage of the mercantile law is, as Chief Justice Marshall says, ‘founded in convenience.’ And all that its spirit or its letter requires is, that when it is inconvenient to write on the back of the note the real contract between the vendor and the vendee, which, if so written, would pass the title, it may be written on another paper and attached to it with like effect.” (Id., at p. 626.)*fn9 The Crosby case was considered, but rejected, in a number of majority jurisdictions. (See, e.g., Bishop v. Chase, supra, 56 S.W. at pp. 1083-1084; Doll v. Hollenback (1886) 19 Neb. 639 [28 N.W. 286, 288].)

    [118 CalApp3d Page 1010]
    The majority view interpretation of the law merchant rule of allonges was adopted statutorily in California. When the Civil Code was enacted in 1872, it contained these two provisions: 1) section 3109 — “One who agrees to indorse a negotiable instrument is bound to write his signature upon the back of the instrument, if there is sufficient space thereon for that purpose,” and 2) section 3110 — “When there is not room for a signature upon the back of a negotiable instrument, a signature equivalent to an indorsement thereof may be made upon a paper annexed thereto.”*fn10
    These Civil Code sections were in force for 45 years until California adopted the Uniform Negotiable Instruments Act. The act, like its successor, the Uniform Commercial Code, did not state whether or not an allonge could be used when there was still room for an indorsement on the instrument itself. Section 31 of the act (former Civ. Code, ? 3112) stated in part, “The indorsement must be written on the instrument itself or upon a paper attached thereto.” (Stats. 1917, ch. 751, ? 1, p. 1538.) However, also like the Uniform Commercial Code, the Uniform Negotiable Instruments Act intended prior law not in conflict with the act to supplement the act. Former Civil Code section 3266d stated in part, “In any case not provided for in this title the rules of the law merchant shall govern.” (Stats. 1921, ch. 194, ? 12, p. 215.) Thus, it has been held that the act was “but a statutory affirmation of the rule of the old law merchant” that an allonge “was allowable only when the back of the instrument itself was so covered with previous indorsements that convenience or necessity required additional space for further indorsements.” (Clark v. Thompson (1915) 194 Ala. 504 [69 So. 925, 926]; see also Plattsmouth State Bank v. Redding (1935) 128 Neb. 268 [258 N.W. 661, 663].)

    We conclude that the majority view of the law merchant relating to allonges is the better reasoned one, and is the view adopted by the Legislature.*fn11 It follows, then, that the assignment by allonge of plaintiff’s promissory note by the Williams to the defendant was ineffective as an indorsement, since there was sufficient space on the note itself for the indorsement. There having been no indorsement of the note, the defendant is not a holder in due course and, therefore, takes the note subject to the defenses that plaintiff has against the Williams. (? 3306.) The judgment is affirmed.

    We conclude that the majority view of the law merchant relating to allonges is the better reasoned one, and is the view adopted by the Legislature.*fn11 It follows, then, that the assignment by allonge of plaintiff’s promissory note by the Williams to the defendant was ineffective as an indorsement, since there was sufficient space on the note itself for the indorsement. There having been no indorsement of the note, the defendant is not a holder in due course and, therefore, takes the note subject to the defenses that plaintiff has against the Williams. (? 3306.) The judgment is affirmed.

    Disposition FOOTNOTES
    11 We have found four Uniform Commercial Code cases that discuss the allonge issue which is presented here. Three of the cases state the majority position. (Shepherd Mall St. Bank v. Johnson (Okla. 1979) 603 P.2d 1115, 1118; Tallahassee Bank & Trust Company v. Raines (1972) 125 Ga.App. 263 [187 S.E.2d 320, 321]; James Talcott, Inc. v. Fred Ratowsky Associates, Inc., supra, 2 U.C.C. R.S. at p. 1137.) The fourth case did not decide the issue. (Estrada v. River Oaks Bank & Trust Co. (Tex.Civ.App. 1977) 550 S.W.2d 719, 725.)

  35. Does anyone know of a lawyer that “gets it” in the Panama City area of Florida ???

    If so please reply to this message with contact information.

    Thanks in advance …. RG

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