At the beginning of the foreclosure crisis, the "show me the note" movement began. If the party attempting to foreclose on your home is not your original lender, demanding to see the original note is an essential tactic and a valid defense to foreclosure. If the party attempting to foreclose on your home is your original lender, you still want to demand that the original note be produced for inspection. What's the big deal about the original note? Only the original note can be enforced against a borrower. Notes are negotiable instruments. A negotiable instrument is a type of financial document that can be transferred from one party to another.
This transfer generally involves signing it (indorsement) and then delivering the original to the new owner. Other examples of a negotiable instrument would be a personal check or a twenty dollar bill. No bank will cash a photocopy of a check, and nobody in their right mind would give someone two tens for a photocopied twenty. This is because only the original document has any value. The same goes for notes associated with home loans. When you are being sued by a party that is not your original lender, the stakes are even higher. The plaintiff must demonstrate more than mere possession of the original note.
The original note is payable only to one party - the original lender. In order to be enforceable by anyone else, the note must bear indorsements that either name a new party as the payee of the note or that make whomever holds the original note the payee. These are known as special and blank indorsements. If you indorse the back of your paycheck, you have just created a blank indorsement. By indorsing the check and not naming a specific payee, your indorsement converts the check to what is known as "bearer paper."
If you drop your check on the ground, whoever finds it can cash it. If, instead, you indorse the back of your paycheck and write, "Pay to the order of Bob Smith," then only Bob Smith can cash the check because it is now specifically payable to him. This type of indorsement is sometimes referred to as "order paper" because it is payable to the order of the named individual. As with the original note, a photocopy of a note with indorsements is insufficient. The original document must bear the indorsements in order for the indorsements to be valid. Additionally, even if the note is indorsed, it must still be delivered to the new owner, otherwise, the indorsements have no true effect. This process is known as negotiation.
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