Legal Definitions - close-connectedness doctrine

The close-connectedness doctrine is a legal principle used by some courts to prevent an assignee of a negotiable note from being considered a holder-in-due-course if they are too closely connected to the original holder-mortgagee.

For example, if a mortgage company assigns a note to a subsidiary or affiliate company, the assignee may not be considered a holder-in-due-course under the close-connectedness doctrine. This is because the assignee is too closely connected to the original holder-mortgagee.

The purpose of the close-connectedness doctrine is to prevent collusion or fraud between the original holder-mortgagee and the assignee, which could harm the interests of the borrower or other parties involved in the transaction.