Seller's last assignment on 1st position note not recorded?

[Bob Malecki]

I'm working with a seller on FCI Exchange who has not recorded his assignment and says: "We don't record our position until it is under contract. FCI can record our assignment at time of close." This does not seem right, shouldn't the assignment, made earlier this year be recorded for this seller to have the right to sell the note? What am I missing?

[Dion DePaoli]

I see, so it's not that you sent in too many, it is that you were concerned about priority. Note AOM's do not have a priority function like the actual security instrument.

Some general ideas for the readers. An Assignment (AOM) is not the same as a Security Instrument (Mortgage/DOT) in body of law. In most cases, ownership is perfected upon actual possession of the instrument (Promissory Note in our case). Priority of ownership of the same instrument is established upon possession, sometimes referred to as Automatic (what happens at point of sale). Once you hold the actual promissory note, you "Automatically" have priority to all other claims. Ergo, priority by possession.

Note, point of sale happens when both sides deliver their perspective item. Funds or file.

The recording, sometimes referred to as Filing as contrast to Automatic, on an AOM helps to defend against other 'potential or previous' Assignees claims to the instrument. However, we still can fall back on possession as giving priority. And in most cases, that is where the argument ends. Even if you have an AOM recorded before me giving you priority in Filing, I have Automatic priority by possession and trump your claim.

And if that wasn't confusing for the kids at home. To say it another way, there 'can' be a total to two pieces which affect ownership and priority. Having actual possession of the note is the piece with the most power. This is what makes Lost Notes briefly concerning, amongst some other ideas. Just because you have an assignment does not necessarily mean you have priority in rights. With an assignment in addition to possession, you sit with both pieces in a strong place that can survive most (if not all [I don't know of any]) challenges.

None of that is an effort to say, do not worry about intervening assignments. Since a True Sale can be treated differently than a mere Assignment for Security (like if I used the note as collateral for other financing), they do both bare importance.

That said, what this does do is help keep our heads straight when it comes to time to cure any intervening assignment. Recording several intervening assignments at the same time is less of a worry if you have possession. This is important to understand, because if you happen to purchase a loan with some broken chains of assignments or perhaps assignments held in file not of record, while it is important to always be systematic when possible, sometimes that may be impossible. Where AOM 1 is of record, AOM 2 is in file and AOM 3 is of record. You will not go back and do any type of correcting for AOM 2 to be before AOM 3. Generally speaking, there should be no need. As such, we can apply the same idea to pulling your hair out over priority of filing like in the case above. Even if the clerk recorded #2 AOM before AOM #1, it would have meant much, provided the note was held in possession.

In the event you actually did need to establish this, you would simply note on the assignment itself the desired affects of the instrument. This takes the priority given explicitly by the recorder's time stamp to be that of what is contained in the instrument while perfecting the same.