Possession vs. Enforcement: Why Possessing a Note Is Not Enough

Most articles on foreclosure miss a critical point: mere possession of a promissory note does not entitle the possessor to enforce it — let alone foreclose on property.

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Possession Is Not Ownership

• A possessor is simply someone holding the original note.

  • Example: if a courier delivers a promissory note and tries to enforce it, that would be theft. Possession alone conveys no rights.

• A holder (Article 3, UCC) is different. To be a “holder,” one must:

  1. Have possession of the original note, and

  2. Be granted the right to enforce it — either by the creditor who owns the obligation or that creditor’s authorized agent.

• A holder in due course is the highest standard. This status requires proof of payment of value for the underlying obligation (UCC § 3, tied directly to § 9-203). Only then does enforcement follow automatically.

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The Key Statute: UCC § 9-203

Adopted verbatim in every U.S. jurisdiction, UCC § 9-203 states plainly:

A security interest is not enforceable against collateral unless value has been paid for the underlying obligation.

• This is why courts repeatedly hold that a mortgage assignment without transfer of the debt is a legal nullity.

• For foreclosure, the claimant must show not just a paper assignment but proof of a concurrent transfer of the underlying obligation, for value, from someone who actually owned it.

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What This Means in Court

1. Possessor: Cannot foreclose. Possession alone is not standing.

2. Holder (without proof of value): May sue for damages on the note, but cannot foreclose.

3. Holder in Due Course (with proof of payment for the obligation): May both enforce the note and seek foreclosure.

Thus, foreclosure requires far more than waving an “original note” in court. It requires proof of a transaction where value was paid for the loan account.

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Why Banks Struggle to Prove This

• In securitization cases, the obligation is rarely conveyed with value.

• Securities (so-called “mortgage-backed” certificates) issued by investment banks:

  • Do not transfer ownership of homeowner debt.

  • Are often unsecured IOUs disguised as securities, operating outside the scope of pre-1999 regulations.

  • Typically reference trusts that never actually acquired loan assets.

This means claimants in foreclosure almost never satisfy UCC § 9-203. They rely instead on fabricated assignments, presumptions, and judicial shortcuts.

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Supporting Authority

From the Permanent Editorial Board for the UCC:

“The UCC is the primary source of commercial law rules… while principles of common law and equity may supplement provisions of the UCC, they may not be used to supplant its provisions or the policies those provisions reflect.”

“The enforcement of real estate mortgages by foreclosure is primarily the province of state real property law, but legal determinations made pursuant to the UCC… will, in many cases, be central to administration of that law. In such cases, proper application of real property law requires proper application of UCC rules.”

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Bottom Line

• Possession ≠ ownership.

• Assignments without debt transfer = nullity.

• Foreclosure requires proof of value paid for the obligation.

Without meeting these requirements, foreclosure judgments are void or voidable because the claimant is not a creditor and suffered no economic loss.

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