Understanding Standing: Why Demanding To See The Original Note Can Help Save Your Home

By Nosheen Rathore, Esq.

In the current foreclosure crisis, it is common to see banks other than the original lender of the loan foreclosing upon borrowers. For this reason, it is important for borrowers to review the complaint and ensure that the plaintiff has standing to bring forth the suit.

To establish standing when bringing forth a foreclosure suit, a lender must have suffered an injury in fact for which a judicial decision may provide a redress or remedy. [1]Further, standing requires that the party requesting relief (or the lender in a foreclosure context) must possess a personal claim, status, or right that is capable of being affected by the grant of such relief. [2] Whether the lender has standing to sue is determined from the allegations contained within the complaint. [3] Standing is a jurisdictional requirement which must be continuous throughout the foreclosure suit. [4] In other words, a lender must have proper standing when it files a suit against a defendant and may not retroactively establish its standing to sue. [5]
Section 1504 of The Illinois Mortgage Foreclosure Law ("IMFL") establishes that only "the legal holder of the indebtedness, a pledgee, an agent, or the trustee under a trust deed...." may file foreclosure. [6] If the lender asserts a right to foreclose within its initial complaint, then the records must affirmatively show the capacity in which the lender is suing. [7] The lender must provide adequate proof that it holds legal title from which no other party can recover at the time that it filed its complaint. [8] In order to verify whether a lender has proper standing, the first step is to review the allegations of the complaint and the attached mortgage and promissory note.

The most important document to review is the promissory note, which evidences the borrower's obligation to the lender. In order to verify proper standing, a borrower must understand how a promissory note is transferred between banks. The standard promissory note in a foreclosure action is a negotiable instrument under the Illinois Uniform Commercial Code ("IUCC") . A negotiable instrument is an unconditional promise to pay a fixed amount of money . [9] The IUCC states the following in regards to enforceability of a negotiable instrument: A "person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3‑309 or 3‑418(d)." [10]

The term "holder," with respect to a negotiable instrument, is defined as the person in possession if the instrument is payable to bearer [11] or, in the case of an instrument payable to an identified person, the identified person if that person is in possession. [12] A person can become a holder when a negotiable instrument is either issued to that person, or as the result of a subsequent negotiation that occurs after issuance. [13] Furthermore, when a negotiable instrument is first issued, there must also be a delivery of the instrument, meaning an initial voluntary transfer of possession. [14]

As a negotiable instrument, the subject mortgage is negotiated either by assignment or indorsement. [15] Either way, negotiation always requires a change in possession of the instrument because nobody can become the holder of a negotiable instrument without possessing the instrument either directly or through an agent. [16] Ordinarily, a promissory note is transferred by negotiation, which is effected by delivery alone in the case of a bearer instrument or by indorsement plus delivery in the case of an order instrument. [17] In both instances, possession of the promissory note is a necessity of being a holder of the note. [18]

Therefore, to verify if the suing plaintiff in the foreclosure case is the proper party, a borrower must review the chain of title of the subject foreclosure suit and make sure that the plaintiff has possession of the promissory note. If a promissory note has been properly transferred, the indorsements on a promissory note will establish a chain of ownership leading from the lending bank to the foreclosing bank. However, if the plaintiff cannot show a proper chain of title or produce the original note, the court may dismiss the foreclosure suit for failure to verify that it is the proper party to bring forth the foreclosure suit.

[1] P & S Grain, LLC v. County of Williamson, 399 Ill. App. 3d 836, 842 (5th Dist. 2010).

[2] Id. at 844.

[3] Id.

[4] Italia Foods, Inc. v. Sun Tours, Inc., 399 Ill. App. 3d 1038, 1069 (2nd Dist. 2010).

[5] Id.

[6] See 735 ILCS 5/15-1504(a)(3)(N).

[7] Bayview Loan Servicing, LLC v. Nelson, 382 Ill. App. 3d 1184, 1188 (5th Dist. 2008).

[8] Ray v. Moll, 336 Ill. App. 360, 364 (4th Dist. 1949).

[9] See 810 ILCS 5/3-104(a).

[10] See 810 ILCS 5/3-301.

[11] A negotiable instrument is payable to bearer if it is not indorsed (i.e. signed) to a specific entity.

[12] See 810 ILCS 5/1-201.

[13] See 810 ILCS 5/3-201, Official Comment 1.

[14] See 810 ILCS 5/3-105(a).

[15] See 810 ILCS 5/3-201, See also Lewis v. Palmer, 20 Ill. App. 3d 237, 240 (4th Dist. 1974).

[16] See 810 ILCS 5/3-201, Official Comment 1.

[17] See generally 810 ILCS 5/3-205.

[18] Id.