Many homeowners in New York, and elsewhere in the United States, secure lines of credit by using the excess equity in their homes as collateral. These lines of credit agreements become second mortgages on the borrower’s home and are available as and when needed by the homeowner. Unlike the loans involved with the homeowner’s first mortgage, however, equity credit lines do not require the homeowner to sign a promissory note, only what is commonly known as a credit line agreement.
As with first mortgages, banks often sell these equity line mortgages on the secondary mortgage market. When a bank sells a first mortgage it assigns the first mortgage and then as part of the assignment it is also required to indorse the promissory note to the purchaser of the first mortgage. The indorsement can be accomplished by either an allonge (a form of assignment) which must be attached to the promissory note or by affixing the indorsement language directly on the body of the promissory note. But when a bank assigns the equity credit line agreement does the bank have to indorse the agreement or attach an allonge to the equity credit line agreement? The answer to that question depends on whether the equity credit line agreement is a negotiable instrument.
Section 3-104 of New York’s Uniform Commercial Code states as follows:
(1) Any writing to be a negotiable instrument within this Article must
(a) be signed by the maker or drawer; and
(b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and
(c) be payable on demand or at a definite time; and
(d) be payable to order or to bearer. Continue reading