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Real Property • Security Interests in Real Estate
PROP#210
Legal Definition
To be a holder in due course of the note, the following must be met: (1) note must be negotiable; (2) original note indorsed; (3) original note delivered to transferee; and (4) taken in good faith and value paid.
Plain English Explanation
Being a "holder in due course" has some benefits to it (which we will talk about in another card), and in order to unlock those benefits, certain elements must be established:
(1) The note they received must be "negotiable," which doesn't mean you get to haggle over the details. Ironically, "negotiable" in this context means that it must contain clear terms, such as it being payable to either the person holding it ("the bearer") or specifically to a named party. Additionally, it has to contain a promise to pay a specific amount of money.
(2) The note must be indorsed, which means the original document must be personally signed by the person named in the note as being the payee (i.e., the person who has the right to collect). In other words, the person with the right to collect on the note is signing over their right to someone else.
(3) The original note (no photocopies) must be delivered to the new party.
(4) The person taking the note must have a good faith belief that the note is in good status (meaning the debtor isn't late on payments or plans on breaking their promise to pay), and they must pay for the note they are receiving.
(1) The note they received must be "negotiable," which doesn't mean you get to haggle over the details. Ironically, "negotiable" in this context means that it must contain clear terms, such as it being payable to either the person holding it ("the bearer") or specifically to a named party. Additionally, it has to contain a promise to pay a specific amount of money.
(2) The note must be indorsed, which means the original document must be personally signed by the person named in the note as being the payee (i.e., the person who has the right to collect). In other words, the person with the right to collect on the note is signing over their right to someone else.
(3) The original note (no photocopies) must be delivered to the new party.
(4) The person taking the note must have a good faith belief that the note is in good status (meaning the debtor isn't late on payments or plans on breaking their promise to pay), and they must pay for the note they are receiving.
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