NOTE HOLDER IS NOT A HOLDER IN DUE COURSE

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FROM JOHN GALT, BUT ATLAS IS STILL SHRUGGING

I’m taking this as an invitation to discuss the fact and ramifications of the noteowner NOT being a holder in due course (one who takes a note, for instance, with notice of its dishonor, i.e., it’s in default ) is not a holder in due course. This is no small matter. It means that the noteowner is subject to any number of ‘affirmative defenses” to the enforcement of the note. I think we might spend some time identifying these affirmative defenses and the tenets of hidc,, as ongoing discussion will bring to light “winners”….?

Acc to Article 3-302, for instance,

U.C.C. – ARTICLE 3 – NEGOTIABLE INSTRUMENTS
..PART 3. ENFORCEMENT OF INSTRUMENTS

3-302. HOLDER IN DUE COURSE.
•(a) Subject to subsection (c) and Section 3-106
(d), “holder in due course” means the holder of an instrument if:

(1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; AND

(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in Section 3-306, and (vi) without notice that any party has a defense or claim in recoupment described in Section 3-305(a).

(b) Notice of discharge of a party, other than discharge in an insolvency proceeding, is not notice of a defense under subsection (a), but discharge is effective against a person who became a holder in due course with notice of the discharge. Public filing or recording of a document does not of itself constitute notice of a defense, claim in recoupment, or claim to the instrument.

(c) Except to the extent a transferor or predecessor in interest has rights as a holder in due course, a person does not acquire rights of a holder in due course of an instrument taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor’s sale or similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of business of the transferor, or (iii) as the successor in interest to an estate or other organization.

(d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for an instrument has been partially performed, the holder may assert rights as a holder in due course of the instrument only to the fraction of the amount payable under the instrument equal to the value of the partial performance divided by the value of the promised performance.

(e) If (i) the person entitled to enforce an instrument has only a security interest in the instrument and (ii) the person obliged to pay the instrument has a defense, claim in recoupment, or claim to the instrument that may be asserted against the person who granted the security interest, the person entitled to enforce the instrument may assert rights as a holder in due course only to an amount payable under the instrument which, at the time of enforcement of the instrument, does not exceed the amount of the unpaid obligation secured.

(f) To be effective, notice must be received at a time and in a manner that gives a reasonable opportunity to act on it.

(g) This section is subject to any law limiting status as a holder in due course in particular classes of transactions. ”

1) Shouldn’t it be reasonable to force ABC to prove what if anyting was paid (d – “performance) for the note it seeks to enforce? My take on( d) is if ABC only paid 10k of a promise to pay 100k for a note, ABC is only entitled to enforcement of the 10k actually paid. But how might this interplay with
‘mere’ holder status?

2) Hasn’t the shell game made it impossible for one to give notice of a defense to the note to an alleged hidc? How do you notice a hidc when you don’t know who the hey it is? Isn’t this a violation of due process or some common right? Would notice of your defense to the servicer cut it? I doubt it. Don’t know. Is it reasonable to expect a homeowner to engage in forensic sleuthing $$$$ to determine (good luck) the owner of the note for the purpose of notice of your defense to the note? These questions may depend on the interpretation / meaning of the first line of (e). Is this reference to some kind of benefit in a cdo
or form of hypothecation? (got me)
There is a right to defeat hidc status (or notice wouldn’t be cited in this section), and it has been violated by third parties by the intentional hiding of the identity of the noteowner to whom the notice must be given. What does one call this infraction?
Violation of what right, what rule? This one? Due process?

So what are affirmative defenses available against a ‘mere’ holder of a note?
Fraud, set-off, duress, failure of consideration, payment before maturity. It seems to me the latter would include any kind of ‘insurance’, by any other name, payment on the debt by 3rd parties. (This should apply even in he case of hidc, would it not?)

Fraud in the inducement to sign the note in the first place?
A note is a contract, probably subject to the “meeting of the minds” provision. Was there a meeting of the minds? Were the maker and the payee agreeing to the same thing? (And for those of you who argue the payee is not the lender, there’s that)

So, as one judge so aptly put it, “What the court needs to know is a fact.” I say the court needs to first know the fact of whether the alleged claimant is a holder at all, and then is the alleged claimant a hdic – or not.

Ask the alleged bankster for a more definitive statement as to its alleged position if you plan to fight. I have yet to see one of these yeahhoos alleges hidc status. That’s because they’re not.

Since it is absolutely true, as I have maintained and Mr. Garfield confirmed, that paying a wrong party is no defense to a hidc, why in the world are people not bringing up this very real issue in pleadings? It’s a form of double jeopardy. If nothing else, banksters should be made to indemnify the homeowner against a claim by the real noteowner down the road. The only time I see that as a viable ‘alternative’ to the rules of evidence is when a court has ruled in favor of a bankster alleging possession of a bearer note. The bankster isn’t going to want to make the indemnification, that’s for sure.

Rule 17 demands than an action be prosecuted in the name of or by the real party in interest. How is a holder of a note it doesn’t own a real party in interest? It isn’t. So, as I’ve probably already said,
possession of a bearer note is not singularly dispositive of enforcement.

If a note endorsed in blank (anyone) or to a trust (trustee) could not have made it into a trust, may a bearer of that note nonetheless enforce? Who’s the real party? Not the trust – the note didn’t make it.
Not the depositor – it’s prohibited from double pymt.
Note is unenforceable? Windfall to homeowner?
Tough – homeowner didn’t do it. AND, trust has recourse against the depositor for non-delivery, so the trust is not without remedy. The one without the remedy is the one who caused the problem.

Real people need real strategies while the
securitization unfolds. So while MS is busy destroying Wall Street (and please get back to us on that one), we need arguments a judge can get his head around NOW.

Tags: borrower, creditor, disclosure, Eviction, foreclosure, foreclosure defense, foreclosure offense, fraud, MERS, mortgage meltdown, securitization, TILA audit, trustee
Posted in bubble, Corruption, Eviction, securities fraud |