While the two are often conflated there is a distinct difference between them. In an action to enforce the note it is often presumed that the note is being enforced to pay the debt to a creditor who might not even be identified. But the enforcement of the encumbrance requires actual ownership by an identified creditor. Judges and attorneys commit error when they act as though there is no difference. There are protections built into every statutory scheme for foreclosure and in the Bankruptcy code to prevent the loss of a home where the claim is sketchy or the claimant’s status is sketchy.
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Enforcement of the note requires evidence that the note is being enforced to pay the debt. Where the note is a negotiable instrument, possession of the note alone raises certain presumptions about the right to enforce it, presumably on behalf of either the owner of the debt or on behalf of an authorized representative of the owner of the debt.
So it is generally easier to enforce the note than it is to enforce the encumbrance (mortgage or deed of trust). But one thing is certain and highly relevant — enforcement of the note can only be accomplished by producing the original note or pleading and proving a “lost note.” Very strong evidence exists of “industry practice” in which the notes are destroyed contemporaneously with the loan closing — and in most (nearly all) cases that is what happened.
- The Assignor owns the debt or is the authorized representative of the owner of the debt, who is identified.
- If that condition is true then either the Assignor actually funded the loan or the previous party paid value for the loan.
- The Assignor has sold the debt to the Assignee for value either through a transaction that specifies sale of the debt or through a transaction in which the note or encumbrance is purchased for value, which means money paid in hand.
- The Assignee paid value for the debt, note and mortgage. This means that the owner of all three — debt, note and mortgage — are the same party.
- Both the Assignor and the Assignee must be actual legal persons.
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