If a “Holder” Can Enforce a Promissory Note, Why Can’t He Enforce a Mortgage?

If the claimant is only a holder it is highly probable that he is neither a holder in due course nor a true lender or creditor. If it was otherwise, he would say so. And only a party who has paid value for the underlying obligation may enforce a mortgage. (Article 9 §203 UCC, adopted verbatim in all U.S. jurisdictions).

A true creditor would ordinarily say in judicial states that it is suffering financial loss or injury from the breach by the homeowner. You NEVER see that when a lawyer files a claim naming a REMIC trustee as the claimant. Yet is a basic rule and custom of pleading because the court may not hear a case unless someone has been injured or is being injured by the conduct of the other party.

A holder in due course by definition is ONLY one who has paid value for the claimed underlying obligation. If he has not paid value then he is not a holder in due course (the other elements being that the purchase was made in good faith and without knowledge of the borrower’s defenses — which is also a problem for any transfer of the original note to or from REMIC trusts).

It is of course possible for one who has paid value for the underlying obligation either at origination or acquisition and still enforce the mortgage — subject to defenses like the breach of TILA or state law obligations of disclosure (usually raised in affirmative defenses as recoupment which limit set off to the amount of the claim but are not limited by the statute of limitations).

A “Holder” is defined by statute. It is one who is in possession of the note AND who has received authority to enforce it. The authority to enforce can come from a previous holder. But the mistake made by nearly everyone is to drop it there. The question is where did the previous holder get authority?

Ultimately the authority MUST come from the party to whom the proceeds are required to be paid by whoever enforces the note. That is the person who owns the underlying obligation. That person is the one who loaned money or purchased the debt for value.

Because if there was no payment of value at origination then there is no consideration and the original claimed “debt” is unenforceable for lack of consideration — even if it is in writing, like a promissory note. That is even a defense against a holder in due course, against whom the maker of the note has few defenses.

The authority to enforce the note is not the same as satisfying the condition precedent to the enforcement of the mortgage, which requires the claimant in foreclosure has first paid value before seeking enforcement. In that way, it is completely different from the enforcement of a note which may be enforced by any holder or even a non-holder who has received authority to enforce it.
In most cases, without objection, transfer or even apparent transfer of the note is sufficient to raise the legal presumptions that the possessor is a holder who has the legal authority to (a) enforce the note and (b) enforce the mortgage — because the transfer of the note is presumed to mean that the underlying obligation had been purchased for value. But all of that can be challenged successfully and is challenged successfully if the homeowner takes a step by step approach.
If the underlying obligation has not been purchased for value, and the homeowner timely asks for proof that value was paid, and if the claimant refuses to comply with that discovery demand, the homeowner can (a) bar evidence of the debt from being introduced at summary judgment or trial and (b) is automatically entitled to an order from the judge stating that the presumptions arising from apparent possession of the note do not apply.
That order requires the claimant to put on OTHER proof that the debt exists and is owned by the claimant who is also entitled to enforce. In no case I have ever seen has any such evidence been forthcoming when the claimant is or was a REMIC trust.
Raising the issue is not enough. For example, “Objection, lack of foundation” is easier to overrule than “a lawyer standing up and saying “Your honor, I object on the basis of lack of foundation and most likely calling for hearsay testimony. The witness was just asked to read off of the document that counsel was handing him. The witness has not testified to any knowledge about any documents, nor about his knowledge or role in connection with the subject transaction.”

I am telling you that the first guy will be overruled but the second guy will most likely and almost certainly be sustained in his objection — and if the witness tried to answer while the question and objection were stated, the judge will also likely grant a motion to strike the answer from the record.  Assuming the objection is correct in its premises, any other ruling from the bench would be “clear error” and be reversed on appeal. But the first guy who lazily said “Objection, foundation” will probably not have his objection sustained and probably lose on appeal.


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Neil F Garfield, MBA, JD, 74, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.

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8 Responses

  1. Charles – I went back in and looked. No Ginnie Mae REMICs prior to year 2000. Could be just not posted due to time. But 2000 is 21 years ago — why would cut-off be then? Because DID NOT EXIST. These REMICs are birds of a different feather — and not good.

  2. Charles — I don’t think Ginnie is any different from Freddie Fannie (except Ginnie is government backed and F/F are not). None of them purchase the loans — they all have agreements with security underwriters to create certificates. Loans go straight to securitization. This did NOT occur prior to mid-90’s. Loans, prior to this time, were on someone’s accounting balance sheet. I looked up on link I posted below for 2003. The “trusts” are called REMIC trusts. Security underwriters were – among many – RBS, Goldman, UBS, Citi, Bear Stearns, Morgan Stanley, Credit Suisse (and I only did 2003). Trustee for many are Chase, and Wells Fargo. Ginnie claims (the same as Freddie/Fannie) that they are exempt from Registration under the Securities and Exchange Acts of 1933 and 1934. Nevertheless, Ginnie Freddie Fannie must at least have an assignment to them in order to securitize from SOME accounting balance sheet. REMICs – purchase securities — not always “loans.” I was in the field many years ago – before Ginnie Freddie Fannie REMICs, and this was not the process. One did NOT invest in a Ginnie REMIC – they invested in Ginnie itself for direct securities. But something changed – likely mid-90’s when Wall Street took over. Loans were removed from direct investment to indirect investment with claimed REMICs. ALWAYS with a REMIC is the trustee the legal holder. Nothing can happen without them the legal holder trustee. But if the REMICs contain someone else’s securities – we have a problem. There is no actual Sale or Assignment for all. Loans are liquidated – given ZERO Value, with collection rights sold – at whim by servicer. I say at whim because most of the time the homeowner does not even know it occurred – or why it occurred. They are left with a LENDER as required under the TILA and proper chain of title. This is a huge government problem that they do not know how to fix.,

  3. Since unlike other Mortgage Securities in Fannie and Freddie who do purchase the loans and create their own securities, is were it is different than Ginnie. Ginnie is handed the loans with the blank Note procedure without a sale as Ginnie per US Congress cannot purchase or sale mortgage loans. If you had a Trust which I don’t believe is the case with Ginnie pools because that was cause a conflict in ownership which because the ownership is granted without a sale the lender or Ginnie has no power in court.

    Wells foreclosed not as the trust but right before the foreclosure put a lien against the property as the Holder in Due Course as a judicial procedure as if through MERS there was no break in chain of a MERS member but as WAMU did not request an Assignment of Deed of Trust the local register did not know that there was a sale between the originator and WAMU, Jul 21, 2003, so years later on Oct 22, 2009, Wells made it appear as if they purchase the loan from the originator, leaving out the fact that the loan was sold back on Jul 21, 2003.

  4. Charles — where is confirmation anything went to Ginnie Mae pools — that Ginnie Mae purchased? Do you have a chain of assignment? There must be a trustee if there is a pool. There also has to be a security underwriter. I have never seen a Ginnie Mae REMIC prospectus published. Loans are removed from pools at whim. They are given zero value and liquidated. Until that occurs Ginnie Mae is obligated to advance any fees. This can be a severe liquidity problem, but since HUD — it is government protected.

  5. I received a copy of the Note with the endorsement from the originator who I worked for at Great Western Bank who my boss the head of the Mortgage Division signed and the Blank endorsement by WAMU. So I got the Note as it had been since Aug 6, 2003, We are talking about VA & FHA loans that all are process the same way when entering the Ginnie Mae pools.

    The Note was provide by the OCC through a FOIA request!

  6. WAMU – -disaster. But not all Ginnie. The other GSEs have records. There are no notes Charles. You have a crisis “loan” – you have a problem. And, if you are paying — only the “LENDER” can discharge/satisfy/cancel a mortgage — the note is irrelevant. But if title corrupted- that can’t happen. Title was corrupted after it left GSEs — where is all began. Thanks.

  7. We know from the Jul 31, 2006, servicing deal with WAMU and Wells that they started servicing the 1.3 million Federal Government Backed loans which over 95% of these loans are attached to the banks Ginnie Mae MBS which it is required by Ginnie rules that UCC3 is performed and the blank endorsed Notes must be relinquish to Ginnie which can be found on the MERS Milestone reports you can get by requesting your pooling information from HUD in a FOIA request.

    Wells was only the servicer and custodian of record up until WAMU was seized by the OTS on Sept 25, 2008 and on that day declared a “failed bank” which the bank stop existing. There was no BK filing by WAMU but on the next day the parent company filed for BK without and claim to the 1.3 million Fed Backed loan as Ginnie Mae was in possession of all the Blank Notes. All the Notes were physically held at the building housing the loans in Milwaukee WI where that building was sold to Wells as part of the servicing agreement. This was done in part because it would show an actually physical transfer of the Notes.

    Wells could not and did not purchase the loan debt nor could Ginnie purchase the loan debt. Instead of presenting proof of purchase as is required under UCC9, Wells as in Holm vs. Wells & Freddie Mac hired Kozeny and McCubbin to forge Assignment of Deed of Trust as if they purchase the debt. As in my case the Assignment of Deed of Trust acted as if the could Judicially foreclose because the Note does not have to be presented to the county, which the Note had a blank endorsement signed by WAMU when on Aug 6, 2003 the loan was attached to the WAMU Ginnie MBS.

    All the information to prove the fraud is kept at HUD!

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