Legal Definitions - approved indorsed note

Approved Indorsed Note

An approved indorsed note refers to a promissory note—a formal written promise to pay a specific sum of money to a named person or entity on demand or at a future date—that has undergone two key processes:

• Indorsed: This means the original payee (the person or entity to whom the note is payable) has signed the back of the note, typically to transfer ownership or rights to another party. This signature, known as an indorsement, effectively assigns the promise of payment to the new holder.
• Approved: This signifies that the indorsement, and often the underlying note itself, has received official validation or acceptance from a relevant authority. This approval could come from a financial institution, a regulatory body, or another party involved in the transaction, confirming the legitimacy of the transfer and often the creditworthiness or legal standing of the note. The "approved" status adds a layer of security and recognition, making the note a more reliable instrument for specific financial or legal purposes.

In essence, it's a validated and transferable promise of payment.

• Example 1: Transferring Mortgage Debt

  A regional bank, "First Community Bank," originates a mortgage loan for a homeowner. The loan is documented by a promissory note, where the homeowner promises to pay First Community Bank. Later, First Community Bank decides to sell a portfolio of these mortgage loans to a larger national bank, "Global Finance Corp." To transfer the homeowner's payment obligation, First Community Bank indorses the original promissory note over to Global Finance Corp. This indorsement is then approved by a mortgage servicing agency, which verifies that the transfer complies with all regulatory requirements and that Global Finance Corp is the legitimate new holder of the debt. This makes it an approved indorsed note, allowing Global Finance Corp to legally collect payments from the homeowner.

• Example 2: Using a Client's Debt as Collateral

  A small manufacturing company, "Precision Parts Inc.," is owed a significant sum by a major client, "MegaCorp," documented by a promissory note. Precision Parts Inc. needs a short-term loan from "Lender Solutions LLC" to cover operational costs. As collateral for this loan, Precision Parts Inc. indorses the promissory note from MegaCorp over to Lender Solutions LLC. Before granting the loan, Lender Solutions LLC's legal department conducts due diligence and formally approves the indorsed note, confirming MegaCorp's financial stability and the note's enforceability. This approved indorsed note provides Lender Solutions LLC with a secure claim on MegaCorp's payment if Precision Parts Inc. defaults on its loan.

• Example 3: Government-Backed Educational Loans

  A student takes out an educational loan from "Campus Credit Union," which is partially guaranteed by a government program. The student signs a promissory note promising repayment to Campus Credit Union. If Campus Credit Union later decides to sell this loan to a larger financial entity, "EduInvest Group," it would indorse the promissory note to EduInvest Group. For the government guarantee to remain valid and transfer with the loan, the relevant government agency must formally approve this indorsement, ensuring that EduInvest Group meets all criteria for holding government-backed loans. Once approved, EduInvest Group holds an approved indorsed note, complete with the government guarantee.