When it comes to foreclosure cases, many courts automatically treat the plaintiff—the party bringing the foreclosure—as a “holder in due course,” even though no one specifically asks them to do that. But this isn’t always the correct legal standard. Especially when you know the law and Uniform Commercial Code 3-302 One of our favorite areas of Foreclosure Defense here at Livinglies.me is to challenge the legal standing of the pretend lender to foreclose on our clients. We use it both in our Quiet Title litigation support cases as well as Wrongful Foreclosure cases; often combined with issues of Fraud and sometimes even using criminal statutes.
Now, here’s what you need to know!:
1. Foreclosure is About Money
Foreclosure is ultimately about collecting money. If you owe money on your mortgage and don’t pay it, that’s when foreclosure comes into play. Sometimes, debt collectors and mortgage servicers go after homeowners for debts that aren’t even real or for people who have no legal right to collect that debt.
2. What’s Foreclosure Based On?
Foreclosure is a legal claim based on a mortgage or deed of trust, which means someone is trying to enforce the terms of your home loan. The promissory note (the document that says you promise to pay back the loan) is usually presented as proof that you owe the money. But just enforcing the promissory note can only get a lender a judgment for the money—foreclosure involves taking your house, which is a bigger step.
3. Who Can Foreclose?
The law (based on the Uniform Commercial Code or UCC) says that only the entity to who you owe the debt to can foreclose on your home. But many lawyers and judges allow foreclosures just because someone holds a promissory note, without checking whether that person or company has the legal right to collect the debt.
Here is definition of a holder in due course Under UCC 3-302 found on the great Cornell Law School site. Click here
4. Holder vs. Holder in Due Course
- A holder is someone who physically has the promissory note. They can try to collect on the debt, but that doesn’t mean they have all the rights to enforce it.
- A holder in due course (HDC) has extra protection under the law. To be an HDC, they must have paid for the note in good faith, without knowing about any problems with the loan. This status gives them more power to enforce the debt, even if the borrower has defenses (like claiming fraud or other issues with the original loan).
In most foreclosure cases today, plaintiffs claim to be holders of the note but not HDCs. This is important because a simple holder might not have the right to foreclose, especially if they can’t prove they have the legal authority to collect on the debt.
5. Why This Matters in Foreclosure
In many cases, homeowners who offer to pay off their debt have had their offer rejected because the entity claiming to collect the debt didn’t have the proper authority. The foreclosure industry is more interested in taking the property than in collecting the debt. Judges are often surprised by this because, in normal situations, someone trying to collect a debt should be happy to get paid.
6. Litigating the Issue
When the clients we help with Litigation Support services end up in court, the defense most often utilized can focus on forcing the plaintiff to prove they have the legal right to collect the debt. Many times, they can’t. They often rely on fake or incomplete documents to trick the judge into thinking they have a real case.
One key point: just because a payment wasn’t made doesn’t automatically mean you’re in default. It only counts if the payment was legally required to go to the person or company claiming the default.
7. Problems with the UCC and Article 3
Many lawyers argue that if they hold the note, they can foreclose. But according to the Law, even holding the note doesn’t necessarily mean they have the right to enforce it. The real power to enforce comes from the creditor—the person or entity that owns the actual debt.
If the party trying to foreclose can’t prove they have the right to enforce the note (and they’re not an HDC), they can lose the case. That’s why it’s important to demand proof of their authority during the discovery phase of the lawsuit.
8. Conclusion
Foreclosure should only be allowed if the party trying to foreclose is the one who is owed the money, or at least can prove that the money from the foreclosure will go to the rightful creditor. But many courts don’t enforce this rule strictly, leading to foreclosures that may not be legally justified. The result is that some homeowners lose their homes even though the foreclosure was never valid in the first place.
In the end, most of these foreclosure claims, especially those involving REMIC trusts, don’t result in the money going to the entity that’s supposedly owed the debt. These trusts are often just fronts for investment banks, and they don’t actually collect any of the money from the foreclosure. This raises serious questions about the validity of many foreclosure actions happening today.
Contact us today for our opinion of options you have in your case. Submit A free Case Registration statement so our legal team can take a look and possibly help.
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Need help in assessing your case? Does your attorney need our help? Use our services to help guide you through the process early enough to avoid mistakes that can cost you your home in an illegal foreclosure action.
Call our office today at 844.478.6774 to inquire if we can help. You can also submit a case statement here and get a complimentary recommendation as to your best course of action.
FORECLOSURE DEFENSE IS NOT SIMPLE. THERE IS NO GUARANTEE OF A FAVORABLE RESULT. THE COMMENTS ON THIS BLOG AND ELSEWHERE ARE BASED ON THE ABILITY OF A HOMEOWNER TO WIN THE CASE NOT MERELY SETTLE IT. OTHER LAWYERS HAVE STRATEGIES DIRECTED AT SETTLEMENT OR MODIFICATION. THE FORECLOSURE MILLS WILL DO EVERYTHING POSSIBLE TO WEAR YOU DOWN AND UNDERMINE YOUR CONFIDENCE. ALL EVIDENCE SHOWS THAT NO MEANINGFUL SETTLEMENT OCCURS UNTIL THE 11TH HOUR OF LITIGATION.
But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 14 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).
Yes you DO need a lawyer.
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8 thoughts on “Legal Standing and Holder in Due Course”
Thanks Lance , i have actually been following neil and now your blog for a while and actually followed alot in my New Jersey foreclosure which is now on appeal . In my case neither the plaintiff nor court even bothered to address the HDC status ! in my case US BANK lied and insisted that US BANK was the exclusive lender based upon the PSA , whereas in my prior Federal case the judge ruled that Citimortgage inc was the exclusive lender who could have perhaps foreclosed in their own name , I declared a chapter 7 bankruptcy and indeed at the time Citi was the exclusive lender , could not have avoided that , but now in the foreclosure US BANK lied that they were exclusive lender , …surely US BANK was not a HDC ! even though they squarely admitted to never having custody of the note at any point in time , and whatever they did produce was post bankruptcy , and during the citi litigation ..they further squarely admitted that it is not the trustee role to collect money and foreclose ! (like neil demonstrated, and have those us bank kevin goldade letters too) and ok i understand a servicer does that , but CENLAR the “servicer” vehemently denied doing so ! and not only this produced a expired limited power of attorney ! …clear fdcpa and NJ CFA violations ….so awaiting the appeal court opinion …. but i think the doctrine of comity would apply and the state court should be compellled to follow the state court right ?
It appears that while you can’t directly challenge anything further until the court issues its ruling in the appellate court, you can, depending on the appellate court’s decision,1) be ready to file a motion for reconsideration or rehearing if there are procedural or factual issues that the appellate court overlooks, such as failure to address U.S. Bank’s lack of standing or Holder in Due Course status.2)If not already fully briefed, your appeal should emphasize U.S. Bank’s failure to prove standing, reliance on post-bankruptcy documents, and violations of FDCPA and NJ CFA by the servicer. The federal court’s ruling that CitiMortgage was the true lender is crucial, so stressing the doctrine of comity in your appellate brief is also important 3)If the appellate court remands the case back to the trial court, you can aggressively challenge U.S. Bank’s standing and the authenticity of their documents at that point, using motions to strike, discovery, and further challenges to the validity of the foreclosure.
For now, it’s a waiting game, but having a clear strategy in place for any potential ruling will keep you ahead. Let us know if we can help you to navigate the challenges associated with proper responses and objections. Lance
Yes , it definitely a waiting game in the appeal court , the trial court nor US BANK never bothered to even address the Holder in due course at all ! and you cant bring up first time arguments for the first time in appeal and as far as “paying value” they squarely admitted , that the trustee doesnt collect monies or forecloses on property , and also admitted that they didn’t even pay monies for the taxes and insurance ! . The federal court emphasized that Citi was the exclusive lender and only citi was able to foreclose in their own name ….and basically invited me to quiet title any other entity , hint hint US BANK and US BANK claimed to be the exclusive lender since 2006 ( which was unrecorded and unsecured) so squarely such was discharged as any unsecured and unrecorded debt …US BANK pled that the loan was assigned post bankruptcy …which is permitted …but after i challenged that they said oh it was transferred in 2006 “pursuant to a PSA” which clearly ,as matter of law doesnt transfer a loan ….but hey they say a borrower cant challenge a assignment or psa terms , but then how can you prove a FDCPA violation , without being able to challenge it and being able to prove a FDCPA violation , like basically , no one can ever prove anything without being able to challenge assignments and terms on how a loan gets transferred ! …but all has to be pled and timely etc .
This still sounds like a candidate for a quiet title action which you can file during your appeal. Call our office to discuss. 844.478.6774
Is there a form to file a motion in Anoka county MN
We just emailed you.
Lance,
Very well said, and in layman’s terms, no less. I realize that it is sometimes difficult to explain various legal topics in simple language , but this is a good example of doing just that.
I’ve been following Neil’s ( now yours) blog since 2008.
Regards,
Ian
What about unlawful/wrongful foreclosures with MERS, GMAC, Nationstar, BBW law Firm in Maryland. I can prove robo signing as well. All of my unlawful players have been prosecuted in court including my lawyer who was disbarred. However, I did not get any relief. I vacated in 2017.
More than 70 years ago, the Court of Appeals held that “[t]here is no Statute of Limitations in Maryland applicable to foreclosure of mortgages.” Cunningham v. Davidoff, 188 Md. 437, 442 (1947).