WITHOUT RECOURSE: Hangman's Noose

By Collete McDonald

Editor’s Note: Ms. McDonald hits the nail on the head with this article. You should incorporate it word for word in any relevant memoranda. Why is this important?

Because most of the “notes” (assuming they were the real notes and were timely indorsed and not back-dated) are presented as having been indorsed “without recourse.” Your opposition is counting on the fact that you don’t know the UCC, and you don’t know anything about indorsements.

This is another case where the instrument could appear valid on its face but for the fact that it is a fake. In this case the words “without recourse” on a note (executed as evidence of an obligation on a home loan) is contradicted by the very instrument that authorizes the indorsement — the PSA (Pooling and Servicing Agreement). The PSA ALWAYS provides for conditions, terms and provisions that are exactly the opposite of “without recourse.” These conditions have a negative effect on the negotiability of the instrument. So not only do we have a case where the “assignment” or indorsement” was merely an offer that was never accepted (and could not be accepted as per the terms of the PSA) but you also have an instrument that could not be negotiated under the terms expressed on it.

WHAT ARE THE CONDITIONS EFFECTING THE INDORSEMENT “WITHOUT RECOURSE?”: Well the main one is that the pooling and servicing agreement states that if the loan becomes non-performing, the assignor must replace it with either cash or another performing loan. Nothing could be more clear that the indorsement was WITH RECOURSE.

The bottom Line: Most if not all “assignments” or “indorsements” are without effect, which means that the party having legal title to the instrument is the party named on it. And THAT means that each time the opposition attempts to establish authority under the chain of securitization, they are actually making the case that they have no such authority. You can’t come to court and say I am the Trustee for asset backed Pool XYZ which has ownership of this loan” and then turnaround and say you also have authority (legal authority supporting the power of sale in non-judicial states and the standing to foreclose in judicial states) to represent the “lender.” Not if the “lender” is named on the note as payee and on the mortgage or deed of trust as the lender.

If they want to establish some equitable right to enforce the note, they MUST file a judicial action.

WITHOUT RECOURSE:

A phrase used by an endorser (a signer other than the original maker) of a negotiable instrument (for example, a check or promissory note) to mean that if payment of the instrument is refused, the endorser will not be responsible.

An individual who endorses a check or promissory note using the phrase without recourse specifically declines to accept any responsibility for payment. By using this phrase, the endorser does not assume any responsibility by virtue of the endorsement alone and, in effect, becomes merely the assignor of the title to the paper.

A without recourse endorsement is governed by the laws of commercial paper, which have been codified in Article 3 of the Uniform Commercial Code (UCC). The UCC has been adopted wholly or in part by every state, establishing uniform rights of endorsers under UCC § 3-414(1).

A without recourse endorsement is a qualified endorsement and will be honored by the courts if certain requirements are met. Any words other than “without recourse” should clearly be of similar meaning. Because the payee’s name is on the back of the note, he is presumed to be an unqualified endorser unless there are words that express a different intention. The denial of recourse against a prior endorser must be found in express words. An implied qualification, based on the circumstances surrounding the endorsement to a third party, will not be recognized by the courts. An assignment of a note is generally regarded as constituting an endorsement, and the mere fact that an instrument is assigned by express statement on the back does not make the signer a qualified endorser.

The qualification without recourse, or its equivalent, is limited to the immediate endorsement to which it applies. It may precede or follow the name of the endorser, but its proximity to the name should be such as to give a subsequent purchaser reasonable notice of the endorsement to which it applies.

A person might agree to accept a check without recourse if the person believes she could collect the money in question. Often the purchaser of such a note will acquire it at a substantial discount from the face value of the note, in recognition that the purchaser can only seek to collect the money from the original maker of note.

An example of a without recourse note is a personal check written by A, the maker, to B, the payee. B, in turn pays off a debt to C by endorsing the check and adding the without recourse phrase. If A’s bank refuses to pay C the check amount because A has insufficient funds in his checking account, C cannot demand payment from B. C will have to attempt to collect the money from A.

Tags: assignment, Collete McDonald, conditions, indorsement, legal title, negotiable instrument, PSA, UCC, UCC § 3-414(1)., without recourse
Posted in evidence, foreclosure mill, Pleading |