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Negotiation and Indorsement of a Mortgage Note

community of houses representing a home owners association

Most homeowners are aware that there is a foreclosure crisis in the United States, but they may not understand precisely why there is a crisis. The crisis is caused, at least in part, by the sloppy record keeping of the banks. Mortgagors/home owners nowadays are finding that they are being brought into expedited power of sale foreclosure proceedings by someone other than the party to whom they issued the note (the bank who you did a loan with). This is a result of a complicated mortgage industry where banks and mortgage companies constantly sell and swap pools of mortgages. In some cases, the party foreclosing the mortgage may not actually have adequate proof of being a holder of the note. In that situation, you may be able to fight foreclosure. To discuss this option with a Raleigh civil litigation attorney, call Maginnis Law at 919.526.0450, email us at or send a confidential email using our contact page.

Nearly all residential mortgages include a power of sale provision that allows the holder of the note to use a relatively informal procedure to foreclose on the home. To meet the burden of showing the right to foreclose, the party must show: “(1) a valid debt exists and the foreclosing party is the holder of the debt; (2) the debtor has defaulted on the debt; (3) the instrument evidencing the debt permits foreclosure; and (4) proper notice has been provided to all entitled parties.” The prong here that can sometimes help homeowners is that the foreclosing party must show that they are the “holder” of the debt. This means that if they are someone other than the party to whom the note was issued, they must prove that it was validly negotiated down the line and that they are the sole party with a right to foreclose.

To establish “negotiation,” the foreclosing party must show the note was “indorsed.” To indorse a note, the transferor must place an authorized signature on the note or attach an “allonge.” During the mortgage crisis, many lenders would either just use a company stamp with no one in particular’s name or simply create an allonge but never physically attach it to the note. The lack of an authorized party’s name or title on the indorsement was recently held by the North Carolina Court of Appeals to be defective. This meant that the foreclosing party relying upon that indorsement could not foreclose without further evidence of authorization by a specific officer or agent of the mortgage company. A defective indorsement or nonattached allonge can be crucial to keeping your home because Court’s require strict adherence to the rules required to show that one is a holder.

If you are a mortgagor and are being foreclosed upon, contact the civil lawyers of Maginnis Law. We may be able to assist you in preventing foreclosure and there may also be other remedies available to you. For instance, we have recently filed unfair debt collection violation claims against a lender in a case where the allonge was never attached to the note. Defending the foreclosure actions and filing your own claims may assist you in working out an agreeable settlement with the current transferee of the note.

To speak with the Raleigh civil attorneys of Maginnis Law, contact the firm at 919.526.0450. We regularly assist clients in Raleigh, Durham, Cary, Chapel Hill, Apex, Fayetteville, Greensboro, and the surrounding areas. Send the details of your case through our online submission page.