How to argue the “allonge”

An Allonge is defined as follows:
*
Allonge. Additional paper firmly attached to Commercial Paper, such as a promissory note, to provide room to write endorsements. An allonge is necessary when there is insufficient space on the document itself for the endorsements.
*
So the elements for a prima facie case involving proof of an allonge are as follows:
 
  1. It’s on a paper that is separate from the instrument (promissory note) itself.
  2. It contains endorsements (technically spelled “indorsements”). The endorsement conveys an interest in the note from the current owner to a new owner. It might contain restrictive covenants as to whether it is conveyed with or without recourse. 
  3. A condition precedent seems to be that there be insufficient space on the original instrument (note). This has not gained clarity in litigation. The presentation of an “allonge” contained a simple small stamped endorsement when there was room to place it directly on the note is indicative of foul play. At the very least it requires an explanation of why the endorsement wasn’t placed on the original. 
  4. It must be so firmly and permanently affixed to the note that it is actually part of the original instrument. In normal transactions involving commercial paper this requirement is strictly construed. In securitized residential loans this has not been strictly construed and applied. It is important to note that this requirement is meant to prevent the very thing that has been occurring for the past 20 years — unauthorized trading in debts that are neither owned by the buyer or the seller. 
An allonge can contain an endorsement to nobody, in which case it became “bearer paper.” Whoever has it in their possession is the owner of the note. But we have seen in securitization that being the owner of the note and being the owner of the debt are not the same thing. 
*
Notwithstanding the difference, the note can often be enforced without evidence of ownership of the debt because of legal presumptions arising from possession of the note. 
*
However, the fact that a party is entitled to judgment on a note does not mean they are entitled to enforce the mortgage or deed of trust which does require ownership of the debt as explicitly and expressly required by statutes in all US jurisdictions who have adopted verbatim the requirements of the Uniform Commercial Code Article 9 §203 which requires payment of value as a condition precedent to enforcement of the encumbrance (mortgage or deed of trust). 
*
It is custom and practice of the “industry” involved in foreclosures to use fabricated allonges that are not attached and never were attached to the original note. Such allonges are often executed by either a stamped endorsement or the signature of an “authorized signer.” In many if not most cases the authorized signer turns out to have been the real estate or mortgage broker on the loan at the time of origination. As such their “authorization” can be challenged. 
*
Upon investigation, discovery and analysis it usually turns out that neither the endorser nor the endorsee had ever paid value for an interest in the debt or the note. This revelation is useful in defeating presumptions arising from possession of the note. This revelation thus raises questions that may be sufficient to rebut legal presumptions that the court might otherwise employ in deciding the case. 
*
In fact, it could be used to defeat the presumption that the note is now evidence of the debt or that the merger doctrine, designed to prevent dual liability, even applies. This leaves the note as a separate claim for liability — separate, that is, from the debt itself. If the mortgage or deed of trust states that it secures the note that could mean that the mortgage is void or has become void. However if the security instrument ( mortgage or deed of trust) refers to the debt, then the security instrument would not be void unless the debt never occurred — i.e., there was no loan. 
*
You should refrain from making any decisions or taking any actions based upon “interpretations” or “advice” from the internet even if it from a knowledgeable licensed attorney like myself. You should get assistance from a professional who analyzes your specific situation to determine whether you can get traction in raising defenses or claims related to these issues. 
*

2 Responses

  1. We won a case in Maryland about a year ago where the judge agreed with our premise that the if the note must be the original to enforce so must the allonge. The Chase rep failed to establish that the allonge was the original so the judge dismissed the foreclosure case. The bank didn’t appeal for fear that it would set binding case law in the state.

  2. What to do if the blank stamped endorsement is stamped ABOVE the borrowers signature on the note ???

    Of course this blank stamp was AFTER the note was signed making the note VOID of what the borrower was agreeing to by signing the note.

    Does following the law even matter any more ????

Leave a Reply

%d bloggers like this: