Assignment Of Mortgage Without Recourse Endorsement

What does 'Without Recourse' mean

Without recourse is a phrase that has several meanings. In a general sense, without recourse pertains to when the buyer of a promissory note or other negotiable instrument assumes the risk of default. Without recourse can also refer to a financing arrangement where the dealer's maximum possible liability is limited to warranties pertaining to the quality of an installment contract.

BREAKING DOWN 'Without Recourse'

Without Recourse Financing

Financing can be extended with or without recourse. Under financing with recourse, in the event that the lender cannot collect on its payment from the party ultimately responsible for payment of the financial obligation, the lender can go back to the borrower to seek payment on the amount due. For example, if a bank finances an exporter by providing immediate payment, but is unable to collect the money owed on the due date from the importer, the bank can go back to the exporter to claim its due.

On the other hand, without recourse financing means that the lender takes the risk of non-payment by the obligor. The borrower or exporter assumes no liability in the event that the importer defaults or is forced into bankruptcy. The lender takes these risks directly, and cannot seek payment or seize assets for any party not specified in the debt contract.

Sales Without Recourse

Without recourse means without subsequent liability.  A sales agreement entered into by a buyer and seller spells out the rights and responsibilities of both parties by indicating whether the sale is with or without recourse. A sale that is with recourse means that the seller bears responsibility for the sold asset if it turns out to be defective or does not perform as expected. The buyer has the right to seek recourse form the seller in the event that the item s/he purchased is subpar. The seller, in turn, is obligated to offer a replacement of equal value or provide a refund.

Sales without recourse means that the buyer accepts the risk associated with purchasing an item. The buyer has no recourse against the seller if the asset purchased does not work as expected. The liability of the asset is accepted by the buyer, and the seller is not obligated to compensate the buyer for any damages, defects, or performance issues of the sold asset.

Without Recourse in Banking

The term ‘without recourse’ disclaims any liability to the subsequent holder of a negotiable financial instrument. The holder assumes the risk of non-payment of the financial instrument, such as a check, promissory note, or any financial instrument that could result in a liability. A signed check that is endorsed with the words ‘without recourse’ releases the endorser from any liability should the check bounce due to insufficient funds.

For example, say Alice makes out a check to Bob. The payee, Bob, decides to pay off his debt to Maggie by endorsing the check which involves writing his name on the back exactly as it appears on the front of the check. Once the back of the check is signed, it becomes negotiable and allows for the transfer of money ordered by the check. In addition, Bob adds “without recourse” on the back of the check. The endorser, Bob, will not assume any responsibility for paying the check if it is returned for insufficient funds. If Alice’s bank refuses to pay Maggie’s bank the check amount due to insufficient funds in Alice’s account, Maggie cannot demand payment from Bob.

Without Recourse in Secondary Market for Loans

Another meaning of this term applies in the secondary market. In this case, the seller of loans, certificates of deposit (CDs), or securities is no longer required to indemnify the investor for any losses suffered. In other words, the seller is under no obligation to reimburse the investor for any losses suffered. Without recourse also applies to asset-based lending agreements where the lender is prohibited from charging back unpaid invoices caused by the debtor's inability to pay.

Sometimes assignees of promissory notes, or foreclosure counsel asked to enforce assigned notes, will see within the chain of title to the note an allonge (or assignment) that is signed by the assignor but that fails to identify the name of an assignee.  This is referred to as an endorsement “in blank.”  Can the note still be enforced?  You bet.

Note holder.  A promissory note is a negotiable instrument governed by Article 3 of the Uniform Commercial Code.  Indiana Code § 26-1-3.1-301 provides that a negotiable instrument may be enforced by “the holder of the instrument.”  The “holder” of the instrument is “the person in possession of a negotiable instrument that is payable either to bearer or to an identified person if the identified person is in possession of the instrument.”  I.C. § 26-1-1-201(20)(A).  Under Indiana law, to demonstrate that it is entitled to enforce a note, an assignee need only establish (1) possession of the note and (2) that the note is payable to the assignee.    

Possession.  But how can a note be payable to the assignee if the assignee is not identified?  By operation of law.  I.C. § 26-1-3.1-205(b) is the provision in the UCC that permits blank endorsements:  “when endorsed in blank, an instrument becomes payable to bearer and may be negotiated  by transfer of possession alone….”  If a note is endorsed in blank, the note is payable to the bearer.  I.C. § 26-1-1-201(5)(B) defines a “bearer” as one in possession of the note endorsed in blank.  In short, possession of the promissory note is the key here. 

Like a check.  If an assignee has possession of a note, and even if the note is not specifically endorsed to the assignee, the assignee meets the requirements to be the “holder” of and “person entitled to enforce” the note under Indiana law.  See also, Egbert v. Egbert, 80 N.E.2d 104 (Ind. 1948)   Contrary to borrowers’ arguments – really, misunderstanding of the law - nothing more is needed to establish standing to enforce an assigned note.  Think of it this way - a promissory note and a check are basically the same.  Most of your parents probably taught you at some point that, once you endorse a check, anyone can cash it. 

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