L.

Scott Gould
Attorney and Counselor at Law
25 Hunts Point Road
Cape Elizabeth, Maine 04107
207 799 9799 . Email sgould@maine.rr.com

April 11, 2011

Senator David R. Hastings, III, Esq. Co-Chair,

and Representative Joan M. Nass, Co-Chair,
Committee on Judiciary,
c/o Legislative Information,
100 State House Station, Augusta, Maine 04333

Dear Senator Hastings and Representative Nass:

I write in support of LD 145, an Act to Clarify and Streamline Foreclosure Proceedings. 1

I am a retired law professor who has taught Negotiable Instruments for more than two decades,
including several years at the University of Maine School of Law. I am also a member of Maine
Attorneys Saving Homes (MASH), a joint project of Pine Tree Legal Assistance and the Maine
Volunteer Lawyers Project that assists homeowners to find pro bono counsel in foreclosure
actions.

Almost without exception, mortgage foreclosure suits are brought by plaintiffs against
borrowers who have breached the conditions of a promissory note. Mortgages and promissory
notes are sometimes said to travel together, because the mortgage is security for a borrower's
promise to pay a debt. LD 145 promises to insure that a plaintiff who maintains an action to
foreclose a mortgage is also the party entitled to enforce the note.

The reason it is important for a plaintiff to prove entitlement to enforce a promissory note is
that negotiable instruments differ from virtually any other kind of written evidence of debt. This
is because instruments are like substitutes for money: their value is wrapped up in the instruments
themselves. If the maker of a promissory note (or the drawer of an ordinary check) pays a person
who is not entitled to enforce it, the maker or drawer is still liable to the one who is.

For centuries, Anglo-American law has protected persons who are obligated on negotiable
instruments by requiring payees to exhibit the instruments on demand when they seek payment.
Once an instrument is paid, it is ordinarily returned to the obligor or marked as paid, so that no one
else can enforce it.

For a payee to prove its right to obtain payment of an instrument, it must either be a
"holder" of the instrument, or be one who has the rights of a holder. A person must have
possession of an instrument to be a holder. In addition, if the instrument is issued or indorsed to a
particular person (an "order" instrument), only that person can be its holder.

1 This letter supports the comprehensive amendment to the original version of LD 145 that the sponsor will be
presenting to the Judiciary Committee and that has been circulated to representatives of Maine lending institutions,
regulators, and other interested parties.
Senator David Hastings and Representative Joan Nass
April 11, 2011 Page Two

Section 1 of LD 145 reinforces the foregoing right of obligors to demand production of

promissory notes when a foreclosure proceeding is maintained. It does not alter long-established
rights. On the other hand, the section provides vital protections for homeowners, through counsel
fees and other remedies, when plaintiffs either do not or cannot prove their entitlement to enforce
the instruments on which they are bringing suit. The need for Section 1 is amply demonstrated by
the flood of foreclosure actions brought in Maine and across the nation in which plaintiffs lack the
right to enforce the underlying notes.

The reason to enact Section 2 of LD 145 is even more compelling. The vast majority of
homeowners in foreclosure cannot afford legal counsel. Of these, few if any will be aware of the
law of negotiable instruments. In requiring the court, before entry of judgment, to examine the
original mortgage and any indorsements, Section 2 protects not only the homeowner who made the
note, but also the true holder, from the possibility that a judgment and subsequent eviction and
foreclosure sale will be made in error.

Finally, LD 145 should not hinder the collection process for mortgagees. For example, a
Maine lender that has kept the borrower's mortgage should have no difficulty producing the
original. The legislation will likewise continue to protect holders that cannot produce original
instruments because of loss, theft, or destruction. It also anticipates changes in technology by
permitting the use of electronic records (10 M.R.S.A. §9416).

Enactment of LD 145 will provide important protections for homeowners in the process of
foreclosure, and it will do so by measures consistent with well-established law. I urge you to
support the legislation.

Sincerely yours,

L. Scott Gould