Holder in Due Course — What's the Big Deal?

The big deal is that it is ONLY the holder in due course who is allowed in court to make claims or enforce any rights regarding the mortgage and note. No servicer (e.g. Countrywide), administrator (e.g. MERS), or trustee has any right to do a judicial or non-judicial foreclosure because they are not the holder “in due course.” In order to qualify as a holder in due course,the first requirement is that you MUST have an economic interest, which means that the money is owed to you and not someone else. If the money on these mortgages is owed to anyone it is owed to investors or the Federal government which paid off many of these loans. If anyone has a right to be in court, it is the investors or the government. But They won’t step up and make the claim because THAT would expose them to liability for predatory lending, usury, fraud and dozens of other claims from the borrower.

“Holder” with respect to a negotiable instrument, means the person in possession if the instrument is payable to bearer or, in the case of an instrument payable to an identified person, if the identified person is in possession….

M.G.L.A. 106 § 1-201(20). The term “holder” is similarly defined when used in connection

with a mortgage.  See B LACK’S LAW DICTIONARY, 1034 (8th ed. 2004)(mortgage-holder or

mortgagee is “one to whom property is mortgaged; the mortgage creditor or lender”).

Unfortunately the parties’ confusion and lack of knowledge, or perhaps sloppiness, as to

their roles is not unique in the residential mortgage industry.  In re Maisel, 378 B.R. 19 (Bankr.

D. Mass. 2007);  In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007). See also In re

Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007).  Nor are “mistakes” and

misrepresentations limited to the identification of roles played by various entities in this

industry.  In re Schuessler, 2008 WL 1747935, *3 (Bankr. S.D.N.Y. 2008) (movant’s motion

misrepresented debtor’s equity); Porter, Katherine M., “Misbehavior and Mistake in Bankruptcy

Mortgage Claims” (November 6, 2007). University of Iowa Legal Studies Research Paper No.

07-29. Available at SSRN: http://ssrn.com/abstract=1027961. As this Court has noted on

more than one occasion, those parties who do not hold the note or mortgage and who do not

service the mortgage do not have standing to pursue motions for relief or other actions arising

from the mortgage obligation.  Schwartz, 366 B.R. at 270.  The Court has had to expend time and

resources, as have debtors already burdened in their attempts to pay their mortgages, because of

the carelessness of those in the residential mortgage industry and the bombast this Court and

others have encountered when calling them on their shortcomings.  In re Foreclosure Cases,

2007 WL 3232430 at *3, n.1.

“The purpose of Rule 9011 is to deter baseless filings in bankruptcy and thus avoid the

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expenditure of unnecessary resources by imposing sanctions on those found to have violated it.”

In re MAS Realty Corp., 326 B.R. 31, 37 (Bankr. D. Mass. 2005).  Pursuant to Fed. R. Bankr.

9011(b), an attorney or unrepresented party who signs “a pleading, written motion, or other

paper” is, among other things, certifying to the Court that “the allegations and other factual

contentions have evidentiary support, or if specifically so identified, are likely to have

evidentiary support after a reasonable opportunity for further investigation or discovery….”  The

certification is not an absolute guaranty of accuracy, however; the rule expressly permits the

representations to be based upon the signer’s best knowledge, information, and belief “formed

after an inquiry reasonable under the circumstances.”  The standard to be applied is “an objective

standard of reasonableness under the circumstances.”    Cruz v. Savage, 896 F.2d 626, 631 (1st

Cir. 1990).  “Courts, therefore, must inquire as to whether ‘a reasonable attorney in like

circumstances could believe his actions to be factually and legally justified.’” Cabell v. Petty,

810 F.2d 463, 466 (4th Cir.1987).  Cullen v. Darvin, 132 B.R. 211, 215 (D. Mass. 1991). A

finding of unreasonableness must be shown by a preponderance of the evidence.  Miller-

Holzwarth, Inc. v. U.S., 2000 WL 291728, 3  (Fed. Cir. 2000).12

Tags: borrower, countrywide, disclosure, Federal reserve, foreclosure defense, foreclosure offense, Lender Liability, lenders, mortgage meltdown, predatory lending, quiet title, rescission, RESPA, securitization, TILA, trustee
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