IN RE Baroni: California Court Holds That HELOCS Are Not Negotiable Instruments Under the UCC

IN RE Baroni: California Court Holds That HELOCS Are Not Negotiable Instruments Under the UCC

From the Opinion…

The HELOC Is Not a Negotiable Instrument Section 104.3104 of Nevada’s Uniform Commercial Code provides that, among other things, “‘negotiable instrument’ means an unconditional promise or order to pay a fixed amount of money.” Nev. Rev. Stat. Ann. § 104.3104(1). Neither of the parties has cited to any Nevada authorities dealing with the issue of whether a note evidencing a line of credit qualifies as a negotiable instrument under section 104.3104, and the Court has not located any relevant Nevada authority either.

Courts applying other states’ versions of UCC § 3-104 have held that lines of credit or revolving loans are not negotiable instruments as they fail the “fixed amount” requirement. Am First Fed. v. Gordon, 2015 WL 3798210 (Conn. Super. Ct. May 26, 2015); Heritage Bank v. Bruha, 812 N.W.2d 260 (2012); Yin v. Society Nat’l Bank Ind., 665 N.E.2d 58 (1996); Resolution Trust Corp. v. Oaks Apts. Joint Venture, 966 F.2d 995 (5th Cir. 1992); Cadle Co. v. Richardson, 597 So. 2d 1052 (1992). Under the terms of the HELOC, the obligee promises to lend Baroni money “from time to time” upon her request, up to a credit limit of $134,998.00, and Baroni promises to pay “when and as due, all loans made under this Agreement” pursuant to periodic monthly statements. The HELOC, however, does not state “a fixed amount of money” that Baroni is required to pay and the revolving nature of the agreement demonstrates Baroni would owe different amounts at different points in time depending upon her requests for loans and payments on account of those loans. Therefore, the HELOC does not qualify as a negotiable instrument within the meaning of section 104.3104.2 Because the HELOC is not a negotiable instrument, section 104.3205 does not apply to the HELOC. Nev. Rev. Stat. § 104.3205.3 Defendants Acknowledge BONYM Is Not the Owner of the HELOC Defendants concede that BONYM, as indenture trustee, is not the owner of the HELOC and that the Trust owns the HELOC. However, as Defendants correctly point out, this determination does not necessarily result in disallowance of the Green Tree POC as BONYM may be able to establish the right to enforce the HELOC as a pledgee under Article 9, or as the holder or assignee of a bearer instrument at common law.

Full details below…



IN RE Baroni: Motion for Summary Judgment

IN RE Baroni: Order on Motion for Summary Judgment




2 Responses to “IN RE Baroni: California Court Holds That HELOCS Are Not Negotiable Instruments Under the UCC”
  1. William Peterson says:

    A good determination on a HELOC not qualifying as a negotiable instrument under 3-104.

    The court apparently didn’t care for the attempted exercise of Baroni’s TILA rescission rights, expressing on pages 9-10 of the August 18, 2016, order:

    “Baroni’s Rescission Claim Is Time-Barred

    Even if Baroni had alleged a rescission claim in her Third Amended Complaint, and even if
    she were not precluded from asserting a post-confirmation rescission claim, Baroni’s Truth-in-
    Lending-Act claim for rescission of the 2005 line of credit memorialized by the HELOC, based on
    notices of rescission dated in 2015, is time-barred. 15 U.S.C. § 1635(f); Beach v. Ocwen Fed.
    Bank, 523 U.S. 410, 413 (1998) (“The Act provides, however, that the borrower’s right of
    rescission ‘shall expire three years after the date of consummation of the transaction or upon the
    sale of the property, whichever occurs first,’ even if the required disclosures have never been made. § 1635(f). The Act gives a borrower no express permission to assert the right of rescission as an affirmative defense after the expiration of the 3-year period”); Major v., Inc., 5:15-cv-02592-CAS(DTBx), 2016 WL 2904969, *2 (C.D. Cal. May 16, 2016) (notice of rescission
    dated in 2015 was untimely where loan transaction was consummated in 2006).”

    Post Jesinowksi some have put forward a “consumation” argument, insisting that TILA rescission be viewed in light of a particular interpretation of consumation. Baroni’s counsel, in the August 11, 2015, motion pleaded rescission, and this consumation aspect, rather well. Still the court disagreed.

  2. oracleowl4u says:

    Thanks so much for sharing this case. I referred to it in my dispute and debt validation letter to Bank of America NA and Trustee Corps who is threatening to foreclose on the 2nd. It was very timely that you shared this case!

Leave a Reply