Loan Modification

Transferring Rights to a Note

By L. Jed Berliner, Marlborough & Springfield, MA For

Foreclosure defense requires tracing the rights to a mortgage to make sure that the foreclosing party has the right to foreclose. It also requires tracing rights to the payment obligation represented by the underlying promissory note, to insure that the foreclosing party is actually owed the money.

(A promissory note is a payment obligation.  A mortgage creates a lien which secures a note’s payment obligation and gives the right to foreclose on the lien.)

By law in most states, if not all (Article 3 of the Uniform Commercial Code), a note cannot be transferred by assignment. It can only be transferred by an endorsement.

A check is a type of a note. Like a check, any note’s transfer must be by endorsement -  a signed instruction on the note itself. An assignment is different from an endorsement.  It is a separate document.  It cannot transfer rights to the note (again, in most states).

Sometimes the rights to the note get separated from rights to the mortgage.  Your state law will tell you what happens and who can foreclose, the note holder or the mortgage holder. In Massachusetts, the mortgage holder can only act on the direction of the note holder and has no independent authority to foreclose.

Related posts:

1. California Foreclosure Primer: The Basics of Note Enforceability Part 1 of 2
2. California Foreclosure Primer: The Basics of Note Enforceability Part 2 of 2
3. Missouri Court Weighs In on ‘Show Me the Note’

Full post as published by Mortgage Law Network on February 28, 2010 (boomark / email).