Note Assignment (Allonge) And Mortgage Deemed Valid In Recent Opinion
December 19, 2014
Buchanan v. HSBC, 993 N.E.2d 275 (Ind. Ct. App. 2013) is another decision shooting down a borrower’s defenses to an Indiana mortgage foreclosure action. In Buchanan, the borrower contested the validity of both the promissory note and the mortgage.
Assignment defects. The borrower attacked the legitimacy of the assignment of the promissory note from the original lender to the plaintiff/current lender. The borrower asserted that (1) the note did not include an endorsement and (2) the allonge was not dated.
Allonge application. The Indiana Court of Appeals first cited to the definition of an “allonge” by referring to Black’s Law Dictionary. An allonge is a paper “attached to a negotiable instrument [a promissory note] for the purpose of receiving further endorsements when the original is filled.” The Buchanan Court noted that it was unnecessary to use an allonge because the note did not contain any endorsements (and thus was not “filled”). Nevertheless, the Court concluded that “we are not aware of any reason to prohibit the use of an allonge in this case.” In my experience, the use of an allonge, regardless of whether there have been any endorsements, is a common and accepted practice.
Allonge okay. The lender pointed out that the allonge to the subject promissory note was endorsed in blank – a concept about which I discussed on 10/17/14. Endorsing in blank is a non-issue. The Court also concluded that the lender’s failure to produce a dated allonge was immaterial. There is no authority that the lack of a date on an allonge renders it invalid. (The lender submitted an affidavit showing the year of the transfer of the note. So, even though there was no date certain in the allonge, there was evidence as to when the transfer occurred.)
Mortgage acknowledgement. The borrower contended that the subject mortgage “lacked the requisite acknowledgement” and thus was unenforceable. Ind. Code § 32-29-1-5(d) requires Indiana mortgages to be “dated and signed, sealed, and acknowledged by the grantor . . . ,” among other things. The borrower’s argument was that the notary public did not have any authority in Indiana but was limited in its commission to Kentucky. Indeed there is Indiana case law providing that a notary public’s official activities are limited to the political subdivision for which it is appointed and commissioned and, furthermore, that acts outside of the territorial limits are void. The Court in Buchanan bypassed the borrower’s argument, stating “we need not decide whether the mortgage was properly acknowledged.” The Court’s reasoning was that the borrower did not deny that he executed the mortgage and note when he purchased the subject real estate. Moreover, Indiana case law provides that an “unacknowledged instrument is binding between parties and their privies,” meaning that, as between the borrower and the lender, the notarial acknowledgement was insignificant, according to the Court.
Upheld. The Indiana Court of Appeals affirmed the trial court’s findings that the lender was the holder of the subject note and that the mortgage was valid despite an allegedly defective acknowledgement.