Question 1

What is a holder in due course?

Accepted Answer

A holder in due course (HDC) is a person who acquires a negotiable instrument (such as a promissory note) for value, in good faith, and without notice that it is overdue, has been dishonored, or is subject to any claim or defense. Under Florida's Uniform Commercial Code (§673.3021), HDC status provides the holder with special protections: the HDC takes the instrument free of most defenses that the maker could assert against the original payee (such as failure of consideration, fraud in the inducement, or breach of contract). This "super-priority" status encourages the free transferability of commercial paper.

Question 2

How does holder in due course status affect Florida real estate?

Accepted Answer

HDC status affects real estate through: mortgage note transfers (when a mortgage note is sold to a secondary market investor, the investor may qualify as an HDC), foreclosure defense (a borrower's defenses against the original lender may not be available against an HDC), assignment of rents (a tenant's defenses against the original landlord may not apply to an HDC of the lease assignment), and construction liens (a subcontractor's lien claim may be affected by the general contractor's negotiation of the payment instrument). In Florida foreclosure litigation, HDC status is frequently litigated when the note has been transferred multiple times through the secondary mortgage market.

Question 3

What defenses can be raised against a holder in due course?

Accepted Answer

Only "real defenses" can be raised against an HDC (§673.3051(2)): infancy (the maker was a minor), duress (physical force or threats of immediate harm), lack of legal capacity (the maker was legally incompetent), illegality (the transaction is void under law), fraud in the factum (the maker was tricked about the nature of the instrument itself, not just the underlying transaction), discharge in bankruptcy, and alteration of the instrument. "Personal defenses" that cannot be raised against an HDC include: failure of consideration, fraud in the inducement, breach of contract, and unauthorized completion of an incomplete instrument.

Holder in Due Course

Holder in Due Course

Requirements

Real Estate Impact

Defenses Against HDC

Related Terms

Barnes Walker Real Estate

Ready to Get Started?