Seattle Real Estate Blog by David Monroe

Can the “Produce the Note” Strategy Really Stop Foreclosure?

It's the Internet age, and more and more homeowners are searching the Internet to find out how they can save their home if they’re in foreclosure. One strategy I’ve been asked about several times is the “Produce the Note” strategy. Some articles have been written that have led many homeowners to believe that this strategy is the “silver bullet” to delay or stop foreclosure, or even get your mortgage wiped out completely so you own your house free and clear.

The “Produce the Note” strategy requires the lender to prove it has the actual authority to foreclose, by requiring it to produce the original promissory note. The goal is to make certain that the foreclosing lender is, in fact, the owner of the note. There is only one original promissory note for your mortgage that has your signature on it. This is the document that proves that you owe the debt.

During the lending boom, many mortgages were sold off to other lenders or servicer or sliced up and sold to investors as securitized packages on Wall Street. In the frenzy of turning these over as fast as possible to make the most money, many of the new lenders did not get the proper paperwork to show they own the note and mortgage. This is the key to the strategy—Lenders are foreclosing on homeowners, but don’t have the proper paperwork to prove they have a right to foreclose.

Sounds pretty simple--If they can’t produce the original promissory note, then you don’t really owe the debt, right? In Washington State (and other non-judicial foreclosure states), that’s not necessarily the case.

Judicial Foreclosure vs. Non-Judicial Foreclosure

In a judicial foreclosure state, the bank must sue the borrower and go to court in order to foreclose. The “Produce the Note” request is done as part of the lawsuit. Washington is a non-judicial foreclosure state, meaning that the lender doesn’t have to take you to court in order to foreclose. You can request that the bank produce the original note, but they’re likely to disregard the request completely, leaving you with only one other option--File a lawsuit against the lender and request that they produce the original note. This could become very time consuming if you try to do it yourself, or expensive if you use an attorney. I don’t recommend filing a lawsuit without the help of an attorney. Also, this strategy is more effective when your loan has been sold off on the secondary market. If it hasn’t, then your lender most likely has the original note and can easily produce it.

My Own Experience With Lost Promissory Notes

I have been in situations with my own properties where original promissory note was lost. I've worked with notes from private lenders and seller carry-back notes, and these non-institutional lenders sometimes lose the original note. The seller carrying back a note may scan the original note and Deed of Trust into their computer then discard the originals, not realizing that they were supposed to keep them. When the note is being paid off and the lender cannot produce the original note or Deed of Trust, the escrow company just has them sign and notarize an "Indemnification of Lost Deed of Trust and Original Note". Then everything is fine.


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Authored by David Monroe, Realtor and Pre-Foreclosure and Short Sale Specialist.
Access Seattle area short sale help and foreclosure resources including selling in foreclosure, and 8 Ways to Avoid or Stop Foreclosure.

Copyright (c) 2009 by David Monroe (Home4Investment Team at Keller Williams Seattle Metro West).
Can the "Produce the Note" Strategy Really Stop Foreclosure?

Comment balloon 11 commentsDavid Monroe • October 06 2009 02:02PM

Comments

Wow, I have never heard of such a thing.  Thank you for the blog.  I work a bunch of Short Sales here in Texas. Keep up the good work.

 

Posted by Ben de Anda (RE/MAX Cross Country) about 9 years ago

Hi David,  There is a lot of information on this strategy but I'm curious whether or not it has proven effective.

Posted by Bill Gillhespy, Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos (16 Sunview Blvd) about 9 years ago

Dear Mr. Monroe and all;

You wrote that "the escrow company just has them sign and notarize an 'Indemnification of Lost Deed of Trust and Original Note'. Then everything is fine".  Unfortunately you appear to be mistaken and misinformed on this point, because that is the whole issue at hand: That the courts are NOT ALLOWING copies, scanned images, notarized ANYTHING as proof of ownership unless hapless owners or attorneys are allowing it.  The law is clear that a WET INK ORIGINAL of the NOTE that the borrowers put their pen to at closing is the ONLY accepted instrument of proof that connects the mortgage deed of trust to the note.  In their rush to rubberstamp transfers of ownership to multiple owners, multiple times, they committed illegal transfer violations, and they are now at great risk of EVER being able to claim the right to foreclose at ANY TIME - EVER.  That is the big story that came out of recent cases where judges are holding servicers and lenders to the letter of the law.

As for being in a non-judicial state, the only difference in the eventual outcome of such a demand (Produce the original note) is that you must PROACTIVELY do so upon being foreclosed upon.  If you are complacent, then you will be ushered through and your home will be sold.  Your attorney must file a discovery motion to force the foreclosing entity to PROVE that they have legal standing AT THE TIME THE FORECLOSURE WAS INITIATED, to do so.  MOST of the time, they do not.

There is copious amount of new information surfacing daily on this forum: www.loansafe.org  It's a goldmine of information, current and up to date.

I'm on Twitter: @socialapocalyps

Posted by TB98629 about 9 years ago

TB98629 - I'll address a couple points that you commented on:

1.  You mentioned that courts are not allowing "...ANYTHING as proof of ownership" other than the wet ink original of the note that the borrowers signed.  I agree with that and didn't state anything to the contrary on my original post.  To clarify the last paragraph of my post, the "Indemnification of Lost Deed of Trust and Original Note" is a way for the lender to say, "I'm the owner of the note, but since I can't produce proof, I will indemnify the borrower (compensate the borrower for damage or loss sustained and secure against future anticipated loss or liability) if someone else produces proof that they're the rightful owner of the note."  I referred to the document in reference to paying off a note, not contesting a foreclosure.  However, attorneys with experience in this area that I've consulted with have told me that courts in Washington State HAVE allowed similar documentation (probably the indemnification plus additional evidence such as assignment documents) to allow a foreclosure to continue when a lender can't produce the original note.

2.  While the only difference in using this strategy in a non-judicial foreclosure state is that you must proactively make the demand, this is actually a huge difference.  You would need to retain an attorney and file a lawsuit against the lender.  This can be very expensive, and since the outcome could be that the lender actually does produce the original note, you could be taking a big financial risk.

I specialize in short sales, and the majority of people I work with are in foreclosure.  I use an attorney to negotiate my short sales and I'm always open to strategies that benefit the seller/borrower.  The general consensus of attorneys I've spoken to is that a forensic loan audit followed with a lawsuit would have better odds of a beneficial outcome in Washington State than than filing a lawsuit and demanding that the lender produce the original note.  However, most sellers I work with are unable to pay the legal fees associated with filing any kind of lawsuit against the lender.

Posted by David Monroe, Short Sale Real Estate Agent (Keller Williams Realty) about 9 years ago

In Nevada, if they produce a copy of the note, what happens if they produce a blank document (no signature) showing the transfer of the deed of trust. Doesn't that mean that the party to whom the deed has been transferred has no right to foreclose?

Posted by coffe3 almost 9 years ago

In truth, there is no evidence or statistical data to support claims that forensic loan audits -- even if performed by a licensed, legitimate and trained auditor, mortgage professional or lawyer -- will help homeowners get loan modifications or provide any other foreclosure relief.

Posted by Marty and Laurie Gale, Utah Realty | 801-205-3500 | UtahRealtyPlace.com (Utah Realty ) over 8 years ago

What if they do produce a copy of the note not a certified copy just a plain copy

thank you

ramona New York

Posted by rae over 8 years ago

in Canada we have the Bills of exchange Act....Mortgages are covered under that enactment...Section 152.3 seems pertinint as well

These definitions should help

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Bills of Exchange Act -- CHAPTER B-4 ******************************************************************************** * File : B-4.TXT * * Updated to : April 30, 1999 * * * * Note: This consolidation is not an official version of the law. Also, * * because this file is text-only, it does not contain formatting or graphics. * ******************************************************************************** Bills of Exchange Act CHAPTER B-4 An Act relating to bills of exchange, cheques and promissory notes SHORT TITLE Short title 1. This Act may be cited as the Bills of Exchange Act. R.S., c. B-5, s. 1. INTERPRETATION Definitions

 

2. In this Act,

 

"acceptance" means an acceptance completed by delivery or notification;

 

"action" includes counter-claim and set-off;

 

 "bank" means an incorporated bank or savings bank carrying

 

on business in Canada;

 

"bearer" means the person in possession of a bill or note that is payable to bearer;

 

"bill"

 

"bill" means bill of exchange;

 

"defence" includes counter-claim; "

 

"delivery" means transfer of possession, actual or constructive, from one person to another; "endorsement"

ou "endorsement" means an endorsement completed by delivery;

 

"holder"

"holder" means the payee or endorsee of a bill or note who is in possession of it, or the bearer thereof;

 

"issue"»

"issue" means the first delivery of a bill or note, complete in form, to a person who takes it as a holder;

 

 "non-business days"

"non-business days" means days directed by this Act to be observed as legal holidays or non-juridical days, and any other day is a business day;

 

 

"note" ««billet»»

 

"note" means promissory note;

 

"value" Version anglaise seulement

 

"value" means valuable consideration. R.S., c. B-5, s.

 

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Payment for honour under protest

152. (1) Where a bill has been protested for non-payment, any person may intervene and pay it under protest for the honour of any party liable thereon or for the honour of the person for whose account the bill is drawn. If more than one offer

 (2) Where two or more persons offer to pay a bill for the honour of different parties, the person whose payment will discharge most parties to the bill has the preference. Refusal to receive payment

(3) Where the holder of a bill refuses to receive payment under protest, he loses his right of recourse against any party who would have been discharged by that payment. Entitled to bill

(4) The payer for honour, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonour, is entitled to receive both the bill itself and the protest. Liability for refusing

(5) Where the holder does not on demand in a case described in subsection (4) deliver up the bill and protest, he is liable to the payer for honour in damages. R.S., c. B-5,

Posted by minister Belanger about 8 years ago

The decision to pursue short sales rather than REOs was validated yet again in the past week, with the one two punch of the moratorium on Trustee Sales (no new inventory) coupled with the freeze on closing REO transactions that were already in contract with a Buyer (no closing, no revenue).  It can't be a pretty picture for large REO teams with a large fixed overhead - and who knows when things will start moving again?

Posted by Tony and Suzanne Marriott, Associate Brokers, Serving Scottsdale, Phoenix and Maricopa County AZ (BVO Luxury Group @ Keller Williams Arizona Realty) about 8 years ago

The advantage seems to go back and forth between short sales and REOs.  One month, legislation or new bank/investor policies hurt the short sale market, then the next month something happens that hurts the REO market.

Posted by David Monroe, Short Sale Real Estate Agent (Keller Williams Realty) about 8 years ago
The answer is no!
Posted by Storm over 4 years ago

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