Wednesday, July 17, 2013

What happens when a lender can’t produce the original note?

Unfornately, Judges are allowing this. They look at the paperwork adn say is this your signature and its over, they don't care if its the legal papers or not, or that they are all in order, especially here in VT.Like he said, we can proffer the note. Its not his problem anymore, after that. Thing is its now time to start charging Judges that do this. Its a crime.

A growing number of homeowners around the country are using a foreclosure defense that may help them retain their homes. It’s called “Produce the Note” (as also being jointly advocated by Terry Smiljanich and The Consumer Warning Network) and we want you to know this is not a mere technicality that should be treated lightly by mortgage lenders or by the Courts.

Everyone needs to understand the importance of this issue. When a lender can’t produce the original note, allowing a foreclosure to proceed puts the homeowner at risk of owing that debt again to another party in the future. Therefore, great caution must be taken before a judge can allow someone who can’t produce the original note to cash in on your home.

What if Your Lender CAN’T Produce the Note?

So, what happens when the lender tells the Court it can’t produce the original note, because it is lost? Let’s start with the basics. If a lender wants to foreclose on a property, it has to be able to show that it is, in fact, the appropriate person to whom the money is owed. That right to foreclose belongs ONLY to the person who has legitimate POSSESSION OF THE ORIGINAL NOTE - not a copy, not an electronic entry, but the original note itself with the original signature of the person(s) who allegedly owes the money along with appropriate raised notary seal and signature. So, if you are faced with a foreclosure, you have every right to demand that the person or entity trying to take your property, first prove to the Court that they have the legal right do to so in the first place by proving they have legal possession of the original promissory note.

In my opinion, an original mortgage note is much like legal tender and should be guarded and protected as such by the person holding such an asset. Loosing an original mortgage note is like loosing a $100 bill or a gift card or a lottery ticket. What if I scratched that million dollar ticket and just stuck it somewhere and misplaced it? Do you think I could just show up at lottery headquarters and claim my prize without having the winning ticket? The same principle applies to the person or entity claiming to be the legal holder of an original mortgage note. He who holds the note holds the key.

What the Lender Must Do

What often happens, however, is that the lender claims it doesn’t have the original note, because that note has been lost or destroyed. If the lender is making such a claim, the law requires the lender to prove all of the following under the “Uniform Commercial Code”, which is a set of laws governing commercial transactions that many states have adopted. It contains a specific provision on this subject (Section 3-309) which states that a person can enforce a promissory note without having the original, BUT only under certain limited circumstances.

1. The person or entity has to swear and attest that it no longer has the original note;
2. The person or entity has to prove that it was properly in possession of the note and was entitled to enforce it WHEN it lost possession of the note;
3. The person or entity has to prove it didn’t “lose” possession simply because it transferred the note to someone else (i.e., it’s not really lost); and
4. The person or entity has to prove that it cannot produce the original note because the instrument was destroyed or its whereabouts cannot be determined or it was stolen by someone who had no right to it.

All of these matters have to be definitively proven by the person or entity trying to foreclose on the property. It is not the obligation of the borrower to prove or disprove any of this. The borrower can challenge the right of the person or entity trying to foreclose and demand proof.

The Court’s Important Role

It is up to the Court to determine whether the lender has satisfactorily proven why it no longer can produce the original note. The Court also has to be satisfied that when the original note was lost, the person trying to foreclose on the property had possession of the note at the time it was lost. Until the Court has been satisfied of all of this, the foreclosure cannot proceed.

It is also important for the Court itself to understand that this issue is not merely a “technicality” and the judge should not be satisfied with anything less than full proof of this issue. The Court itself needs to appreciate the fact that if it should agree that an original note has been legitimately lost (and allows the foreclosure to proceed) it is the borrower who is still at risk.

Why? Because incredibly, even if a Court has found that the original note is lost and the foreclosure sale is finalized, if someone later turns up with the original note and proves that it is the proper holder of the note, and not the person who foreclosed on the property, the original borrower is STILL LIABLE.
That’s right. Someone took your home and the Court allowed it because it believed that the lender proved that the note was lost and it was the proper party. Then someone legitimate shows up in the future with the actual note and you still owe that person the money even though your property was taken with the blessing of the Court. Trust me, this is a very serious issue regarding post foreclosures and post pre-foreclosure short-sales. It has happened to three of our own clients! These homeowners had the need to sell their property by means of a negotiated short-sale (so they could avoid a foreclosure) only to find out that the entity claiming to have the legal right and authority to enter into such negotiations and accept such settlements sold their note to another entity and weren’t even aware of it. Several months later, the newly assigned lenders (now claiming to be the rightful owners of our client’s original notes) have since come forward and have also filed suite seeking to recover their entire outstanding principle balances owed to them (prior to the homeowners closing their short-sale transactions with the wrong note holders).
How fair is that?!?! It’s not! And that’s why homeowners need to start fighting back when someone is trying to take their home by foreclosure, especially since an overwhelming percentage of mortgages granted over the last 3 to 5 years have been packaged into securities and re-sold and re-assigned numerous times since the inception of the borrower's original note and mortgage. In some states, homeowners have better than a 50/50 chance of being successful in defending themselves against a completed foreclosure. Why wouldn’t anyone who owns a home do everything in their power to protect and defend it?

All the Best,

Rick D. Misitano, Senior Paralegal
Law Offices of James M. Bosco & Associates
Methuen Executive Park
240 Pleasant Street
Methuen, Massachusetts 01844
Phone: (978) 687-8804
Fax: (978) 687-8872


  1. Bear in mind that in non-judicial foreclosure states such as California, Washington, and Idaho, where the lender does not have to sue the homeowner to foreclose but can instead do it outside of the court process, that the Deed of Trust Act in each state allows the foreclosing trustee to proceed with the sale of the home without having to produce the original note. Ugh! It is up to the homeowner to initiate a lawsuit requesting inspection of the original note. Tricky stuff. I would expect that a lawsuit seeking Declaratory Relief from the judge that the bank is not entitled to enforce the Note or to foreclose would be enough, but it seems that these have to be perfect or they get thrown out. Still figuring out what it takes to be "perfect" to request a Declaratory Judgment from a court related to non-possession of the Note.

    Also, very important, the promissory note must meet the requirements of a "negotiable instrument" in your state. In Washington state, for instance, this is under RCW 62A.3-104 if you'd like to google it as an example. Then use keywords from this statute and google the comparable section for your own state. Short version is this: Does your promissory note say "Pay to the Order of" on it? Does it list a dollar amount? This is likely a negotiable instrument. On the other hand, if you have a home equity line of credit, sometimes these do not list a dollar amount, or are worded more like a credit card agreement. If it does not meet the "negotiable instrument" definition then the lenders may not be required to have physical possession of the original. If it is not a "negotiable instrument" then they can try to have the note considered as a regular ol' contract, in which case a copy of a contract is generally enough to prove a debt. It is with "negotiable instruments" where the note becomes a one-of-a-kind object, and "the right to payment is reified in the instrument itself." Sorta like cash. You lose a $100 bill, that's it, you can't get that $100 back usually (unless you have insurance, etc. but that's another story outside this analogy :). You lose the original "negotiable instrument" (note) than you can't get paid either.

    Check the Florida Bankers Association's official remarks to the Florida Supreme Court, in which they state that it is an industry standard for banks to scan the negotiable instrument (note) and then destroy it, for convenience and not having to store the original objects. Guess what: doesn't comply with the law. They don't break the law by shredding a note, but they basically just ruined their own chances to get money from it. They don't want us to know that they don't have the original - try asking with a Qualified Written Request to inspect the original note and you will get an amazing amount of resistance. In a case out of Washington state, McDonald v. IndyMac (I think), the bank got caught admitting that they were endorsing multiple copies of the negotiable instruments and trying to pass each copy off as a the real "original" - that's like counterfeiting money. (continued)

  2. So the short version is this: If you're in a state that has a Deed of Trust Act, you're likely hosed because the foreclosing trustee is not required to produce the original note to prove their right to foreclose. They just have to produce paperwork in line with the sale requirements. It's up to the homeowner to bring a separate lawsuit to try and dismantle their cover-up of the lack of physical possession, and that takes a different strategy that I haven't seen successfully pulled off yet (but it could happen at any second as both sides get smarter and more precise based on all these recent court rulings :)

    The Washington statute related to "Person Entitled to Enforce" a negotiable instrument is googlable under "RCW 62A.3-301" and the "Enforcement of Lost, Destroyed or Stolen Instrument" is googlable under "RCW 62A.3-309." I include Washington state's here so that you can google specific phrases and keywords from it to find the corresponding version in your own state - it may be exactly the same, or it may be different, so take care! :)

    States tend to have similar versions, but note that Washington's 3-309 is an older version (the D.C. case of Joslin v. Robinson Broadcasting in 1996 was a turning point that caused the Uniform Commercial Code committee to quickly change the Code, and then only some of the states adopted the post-Joslin version - which version does your state have?) in which the party claiming the right to enforce must prove that they had physical possession at the time that the negotiable instrument was lost. Other states have a different version in which the party claiming the right to enforce need only show that they acquired rights directly or indirectly from the party that had physical possession before that.

    That's a bit of a slippery slope, so make sure you read your state's equivalent to Washington state's RCW 62A.3-309 related to proving up lost negotiable instruments. Also crucial is whether or not your lender has a "lost note affidavit" stating that they possessed it when they lost it, or whether someone they claim to have bought or been assigned the loan from had this "lost note affidavit" which serves as a stand-in for possession of the original note itself. (continued)

  3. Lastly, bear in mind that banks/lenders stubbornly refuse to understand that "original Note" means original, paper, one-of-a-kind object that has an ink signature on it. Many banks/lenders, whether intentionally or not, repeatedly choose to understand "original" Note to mean a COPY of the Note as it looked shortly after origination of the loan. That is not at all the same as the original PAPER Note as it appears now, with possible stamped endorsements showing who the new proper party entitled to enforce the loan is.

    Great cases to read:

    State Street v. Lord (Florida)
    Joslin v. Robinson Broadccasting

    But make sure that your own state's version of the "Enforcement of Lost, Stolen or Destroyed Instrument" is exactly the same as Washington state's RCW 62A.3-309 (Google it to make a direct comparison to your own state's).

    Side note: If your loan is a Washington Mutual Bank loan that Chase is now trying to enforce, be aware that if there is any "lost note affidavit" from the FDIC as Receiver of Washington Mutual Bank, that this is likely false. According to Freedom of Information Act request responses from the FDIC, the FDIC never took any accounting of what Washington Mutual Bank had on the exact date that it closed on September 25, 2008 and therefore the FDIC would not have had time to identify missing negotiable instruments/notes in order to issue any "lost note affidavits" related to your loan.

    Also ask to see a copy of the note - if it has a rubber stamped "endorsement in blank" on it with a rubber stamped Cynthia Riley or other signature, this may be a problem for the bank/lender. (continued)

  4. Email if there are questions on Washington Mutual Bank loans that Chase is now claiming that it purchased from the FDIC. Through a court case it appears the "Affidavit of the FDIC" signed October 2, 2008 by Robert Schoppe stating that Chase acquired the Washington Mutual Bank loans and loan commitments "by operation of law" is legally incorrect and that the FDIC never identified what Washington Mutual Bank loans or assets that were purported to have been sold through the Purchase and Assumption Agreement between the FDIC and Chase.

    In short, the Deed of Trust Act in non-judicial foreclosure states makes it much tougher for homeowners to overcome the missing negotiable instrument/note issues because the foreclosure law doesn't require them to prove they have possession of the original note prior to foreclosure. But keep eyes open for new ways to argue this and bring lawsuits to out this widespread issue of missing negotiable instruments. The bank doesn't want you to know they likely don't have possession of yours :)

    - (end)

  5. Natalie.. Thank you so much for this . I will write you soon and explain mine.. its very complicated.

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  7. Make sure to read the article of Washington Mutual and Chase , to undo this puzzle.