As we have written about many times here at LRM, endorsements on promissory notes are a big deal, to put it lightly (see list of articles at the end of this post). The judges know this. The banks know this. MERS knows this. The attorneys for both homeowners and banks know this.
The reason endorsements are a big deal is that notes must be endorsed in order to “negotiate” them, and negotiation is a threshold requirement for securitization. Even though the UCC offers some ways around negotiation–i.e., a “person entitled to enforce” can be “a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument“–the “securitization” documents (PSAs, trust indentures, etc.) almost always call for endorsements.
Given this state of affairs, it is very curious then that when banks and/or servicers come to foreclosure court, they often show the court notes which are not endorsed. The fact that unendorsed notes are used by the banks usually in fact disproves the assertion they’re trying to make, i.e., that some trust or other is entitled to take someone’s house. Unendorsed notes disprove this because it is just like endorsing a personal check to someone else–if I’m party B trying to cash a check that is payable to party A and party A hasn’t endorsed it to me (or to blank), the bank won’t honor it. Same way with promissory notes.
So if I’m Fannie Mae and I’m trying to foreclose because I say I now own a promissory note that was originally payable to Countrywide and is not endorsed, I ought to be SOL–i.e., not allowed to foreclose–because there’s no endorsement and hence no negotiation per UCC 3 (and more than likely the lack of endorsement is also a violation of the PSA/trust indenture). And this is not conjecture or something that happens in only a minority of cases–it happened to me, it happened to people I have talked with. In the words of Violent Femmes “they [the banks] do it all time!”
So to cure this lack of endorsement in a court case if you or me or our attorney makes too big of a deal about it, at some point–usually late in the litigation–an endorsement will suddenly appear as if out of nowhere! Magic! Ta-da! Deus ex machina!
And in a lot of (the vast majority) cases, judges will just say, “OK–good enough, works for me!” Then you’re on the street. Or that has been the case for a number of years now.
Judges tiring of ta-da endorsements?
However, in an article today, Yves Smith of Naked Capitalism writes that maybe such chicanery is becoming less and less acceptable:
“Now it is admittedly late in the game, but more and more courts are taking a dim view of clearly inadequate documents. We’ve embedded a gratifying, short appellate court decision that reverses a lower court ruling in favor of a trustee, US Bank. Here, the amusing but depressingly common issue was not only did US Bank submit new documents (in this case, the usual “ta dah” allonge) but they didn’t do it correctly, as in the doctored documents were undated and thus failed to establish that US Bank had the right to foreclose when it started foreclosure proceedings against the borrowers, the LaFrances. Of course, it might well be that faking the documents correctly would clearly be a fraud on the court, and it would likely be possible to establish that via forensics. In other words, the foreclosure attorneys may have been incompetent, or they may have been willing to go only so far in how much sanctions risk they were willing to take.”
God, I hope so. The fact that it’s less acceptable now won’t undo the wrongful foreclosures of the past, and as Smith points out later in the article, this ruling she links to doesn’t mean the homeowners won or even that they will win:
“Now this ruling does not mean the LaFrances win, since the case has been sent back to lower court. But US Bank has painted itself in a real corner by twice having presented documents that failed to establish its right to foreclose. If they try submitting new ‘originals’ again, that would almost certainly open the case up for appeal, and this appeals court seems to be on to bank tricks.”
But it’s a start. Maybe.
I have a feeling that US Bank still has some tricks up its sleeve, not least of which is throwing itself on the mercy of the court. But we’ll see. Hopefully this is the beginning of the end, because once the ta-da endorsements can no longer get past the judiciary’s bullshit detector, there isn’t much else the banks can argue at that point.
Here are the links to past articles on this topic:
IMPORTANT NOTE/DISCLAIMER: The above article is not legal advice and was not written by an attorney. It is merely a collection of common-sense, rational observations written by a sane, rational layperson with common sense. It is recommended that you consult with an attorney for any and all legal advice and/or action.