Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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James
See the red print. This is an interesting section of the UCC.

Section 3-305. Defenses and Claims in Recoupment.
(a) Except as stated in subsection (b), the right to enforce the obligation of a party to pay an instrument is subject to the following:

(1) a defense of the obligor based on (i) infancy of the obligor to the extent it is a defense to a simple contract, (ii) duress, lack of legal capacity, or illegality of the transaction which, under other law, nullifies the obligation of the obligor, (iii) fraud that induced the
obligor to sign the instrument with neither knowledge nor reasonable opportunity to learn of its character or its essential terms, or (iv) discharge of the obligor in insolvency proceedings;
(2) a defense of the obligor stated in another section of this Article or a defense of the obligor that would be available if the person entitled to enforce the instrument were enforcing a right to payment under a simple contract; and
(3) a claim in recoupment of the obligor against the original payee of the instrument if the claim arose from the transaction that gave rise to the instrument; but the claim of the obligor may be asserted against a transferee of the instrument only to reduce the amount owing on the instrument at the time the action is brought.
(b) The right of a holder in due course to enforce the obligation of a party to pay the instrument is subject to defenses of the obligor stated in subsection (a)(1), but it is not subject to defenses of the obligor stated in subsection (a)(2) or claims in recoupment stated in (a)(3) against a person other than the holder.
(c) Except as stated in subsection (d), in an action to enforce the obligation of a party to pay the instrument, the obligor may not assert against the person entitled to enforce the instrument a defense, claim in recoupment, or claim to the instrument (Section 3-306) of another person, but the other person’s claim to the instrument may be asserted by the obligor if the other person is joined in the action and personally asserts the claim against the person entitled to enforce the instrument. An obligor is not obliged to pay the instrument if the person seeking enforcement of the instrument does not have rights of a holder in due course and the obligor proves that the instrument is a lost or stolen instrument.

Would a lost note affidavit prove for the plaintiff that the note is lost and the obligor is not obligated to pay, as long as the servicer has no rights of a holder in due course? Or are all servicers holders in due course?
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Moose
James wrote:
...
Would a lost note affidavit prove for the plaintiff that the note is lost and the obligor is not obligated to pay, as long as the servicer has no rights of a holder in due course? Or are all servicers holders in due course?


James, this isn't legal advice but the servicer may or may not be the holder in due course. They could be acting on behalf of the holder (a Trustee, for example) or they may have acquired the note (or claimed they did). Some "special servicers" like EMC buy "non-performing" notes and mortgages specifically for the purpose of foreclosing and in some of those cases they do not pay the full amount and are simply trying to cash in on the difference.

Moose

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James
The servicer says in the complaint that it is the holder of the note and mortgage. It's a FNMA loan.

Thanks for your help.

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Jay_Son
James,

A servicer can be a "holder" of the note, and thus the "person entitled to enforce," without being the owner.  See UCC § 3-301; UCC § 1-201(b)(21)(A).
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Anon.

Is a photo copy considered enough to be "holder" of the note?  Is there a provision in the UCC that covers photo copies of negotiable instruments?

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Jay_Son
The following is my product, but you must know that I am not an attorney, and this is not legal advice - seek an attorney's advice.  The answer to your question is highlighted.
 

Generally, a mortgage note is a negotiable instrument subject to the provisions of Uniform Commercial Code (“UCC”) Article 3.[1]  To possess the authority to enforce a negotiable instrument (here, the note), a person must demonstrate that it is the “person entitled to enforce” the note.  UCC § 3-301.  Obtaining “person entitled to enforce” status under UCC § 3-301 requires being (i) a “holder” of the note; (ii) a non-holder in possession who has the rights of a holder; or (iii) a person not in possession who is entitled to enforce, and pursuant to UCC § 3-309, at one time had been in possession, but cannot now reasonably obtain possession. 

A “holder” is a person in possession of a note that is either made payable to that person, or made payable to the bearer of the note.  UCC § 1-201(b)(21)(A).  A “non-holder in possession” is a person in possession of the note by transfer,[2] rather than negotiation. 

The main difference between a “negotiation” and a “transfer” under Article 3 is whether the note was endorsed.  If the note is properly endorsed by the assignor, it’s a negotiation, and the assignee is deemed a “holder” once the assignee obtains possession of the note.  UCC § 3-201.  If it is not endorsed, all rights in the note can still be assigned, including the right to enforce, but the assignee must prove the purpose of the delivery in order to obtain “person entitled to enforce” status.  UCC 3-203(b).  Thus, a “non-holder” can acquire “person entitled to enforce” status only after demonstrating a “…voluntary transfer of possession.”  UCC § 1-201(b)(15). 

Therefore, being a "person entitle to enforce" by transfer requires that the assignor have rights in the note; that value be given; and that either the assignor execute a note-sale agreement or the assignee take possession of the note pursuant to a note-sale agreement.  UCC § 9-203(b)(1-3) (the same rules apply to transactions where rights to payment are sold and transactions in which a payment right is secured by collateral).  


[1] A negotiable instrument is a promise to pay a fixed amount of money that: is payable to bearer or order at the time it is issued; is payable on demand or at a definite time; and, does not require anything from the maker other than payment.  UCC § 3-104(a).

[2] Or as a successor in interest, e.g., subrogee, administrator of a decedent’s estate, etc.

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