[Pilsner]

The language "I promise to pay to the order of..." in the promissory note means that you have promised to pay the money to the lender, or whomever the lender assigns the promissory note to. In the olden days, the lender would assign the promissory note by signing it on the bottom, or on the back, "Pay to (subsequent holder's name) John Lender" When the note was finally paid off, the holder would mark it "PAID" and return it to the borrower. If the loan was secured by a lien on real property, by for instance a Deed of Trust, the lender would also record a written assignment of the lien to the subsequent holder of the note.

There is beginning to be a stink over foreclosures by Real Estate Trusts who purchased large bundles of home mortgages. Judges are requiring that the trust actually prove that: (1) there is a promissory note, (2) the promissory note has been duly assigned, in writing to the Real Estate Trust, and (3) the deed of trust has been duly assigned, in writing recorded in the real property records, to the Real Estate Trust.

That is all basic stuff. I mean the kind of nuts and bolts commercial paper (loans) and real property (liens) law you get as a second year law student, or as an on-the-job trained clerk, checking real estate records for a title company.

But apparently it is all a mystery to the high finance geniuses who have been bundling thousands of home mortgages together. Rather than go through the trouble actually physically assigning the thousands of notes and liens to the Real Estate Trust, then recording those assignments in the real property records, many of them have just "assigned" the notes to Real Estate Trusts via the internal book keeping of the lender. So long as every body pays on time, that works great. Saves time. Saves money. Its more efficient. Increases the bottom line.

But what does the Real Estate Trust do when they are not paid, and a foreclosure in order? They wander into court with a computer printout that says they are owed money, and are astounded that a judge won't take a person's home away without proof that the homeowner really owes the money, that they owe it to the Real Estate Trust, and not somebody else, and that the Real Estate Trust actually has a valid lien that can be foreclosed.

What if the promissory note was never assigned to the Real Estate Trust? Or what if it was assigned to three other Real Estate Trusts, all of whom want to foreclose? Where is the promissory note? Has the promissory note been paid off? Who is the recorded lien holder?

Those questions are easy answer if the original promissory note, with an assignment to the Real Estate Trust, and a written assignment to the lien, are produced in court. Without them, Judges are, very properly, telling Real Estate Trusts to pound sand. I think the bundling and selling of mortgages as book keeping transactions, without actually transferring promissory notes and liens, is going to turn out to be about as effective a cost saving strategy as never changing your motor oil, but just keeping it topped up. It will save a little money for a short while, and cost a lot of money in the long term.

[CatoRenasci]

Your post reminds me of the famous story about the associate at Burlingham, Underwood & Lord, a major New York law firm with a primarily maritime practice back in the early 1980s, who mistakenly filled out (or didn't catch the paralegal's mistake, it's not clear) $99,000.00 as the amount of a ship mortgage on a UCC-1 Financing Statement, when the amount should have been $99,000,000.00. As a result, Prudential (the lender) was only secured to the extent of $99k instead of $99 million, and lost a bundle. BU&L ended up (I can't recall if it was settled or went to trial, but it was the talk of the bar) settling a major malpractice claim. Too bad, they were good people.