The Judge said if you can't prove you own the loan/mortgage, then you don't get any money! The October 25th edition of the New York Times reported on a very important legal case brought in the Bankruptcy Court for the Southern District of New York. Attorney David Shaev had filed a Chapter 13 bankruptcy (repayment plan) for clients facing imminent foreclosure. In the process he discovered that no entity could prove it owned the loan on his clients' home. Judge Robert D. Drain then determined that the lack of proof of ownership by anyone of the loan meant the homeowners did not have to pay "the mortgage" at all. He erased the debt!
The servicer of the loan, PHH Mortgage, was left without any defense. In theory, it was just sending statements and collecting checks for the owner, supposedly U S Bank. Unfortunately for the bank and PHH, there was no proof of who actually was entitled to the monthly payments. It was not a situation where the Promissory Note (the I.O.U. to the Bank) was presented with several parties claiming it was theirs. What is worse, the ownership had been transferred several times, but no one had the assignment (proof of the sale) showing that PHH or U S Bank was the owner - or any other party to the action. You can be certain that the case will be appealed.
THIS IS DIFFERENT from the current street wisdom of "Gee, if they don't have the ORIGINAL note, then I get my house for free". As is often the case, the street is not very wise. In the New York case, no proof of current ownership was provided. No one was questioning whether there was a loan, just the right of U S Bank or PHH to foreclose. Neither one could even show an assignment, the legal document that transfers ownership of a note from one party to another, to either PHH or U S Bank.
If there was an assignment, the issue of the Promissory/Mortgage Note itself would have become an issue. However, even if the original note was lost but a copy could be presented with the assignment, ultimately that would have been good enough , in most states. In litigation there is what is called the "best evidence rule". Simply put, a copy, if it can be authenticated, is acceptable. Authentication would happen in trial or deposition quite simply; the bank's lawyer would ask Mr. Jones, the owner:
"Mr. Jones, do you own the house located at 123 Elm Street, Blackacre, USA?" (in case Mr. Jones wants to lie, the attorney would have a certified copy of the deed and recording information to prove Mr. Jones "owns" the house).
"Mr. Jones, did you ever borrow money to purchase or refinance the house?"
"Mr. Jones, is this a copy of your current mortgage?" (again, the lawyer would have a certified copy, just in case).
"Now, Mr. Jones, would you examine the document I am handing to you and read the title." (unless he cannot read, or it really does state something different, Mr. Jones would answer "Promissory Note" or Mortgage Note" or something similar).
"Mr. Jones, please look at the signature line on the bottom of page 2. Please read aloud the name typed under the signature line" (it will be "Mr. Jones" in this example).
"Do you recognize the signature?"
" Is that your signature?" (meekly "Yes" says Mr. Jones)
"Thank you Mr. Jones" (unsaid, "you have just authenticated the copy as being the note that obligates you to make payments in order to keep you house in Blackacre")
The loss of an original is not the end of the world, or more importantly, the DEBT. The foreclosing Bank not having the right to claim that it owns the note is the end for that proceeding. The right is proven only with the note (or authenticated copy) AND an assignment to the current owner , if there was a sale of the mortgage.
Confusing? Not in principle. The Bank needs to PROVE it owns the mortgage or has been given the right to foreclose by the real owner, and has to PROVE who is the real owner. No proof, no foreclosure (but no free house)!
Author's Copyright by Richard I. Isacoff, Esq, November, 2009
The servicer of the loan, PHH Mortgage, was left without any defense. In theory, it was just sending statements and collecting checks for the owner, supposedly U S Bank. Unfortunately for the bank and PHH, there was no proof of who actually was entitled to the monthly payments. It was not a situation where the Promissory Note (the I.O.U. to the Bank) was presented with several parties claiming it was theirs. What is worse, the ownership had been transferred several times, but no one had the assignment (proof of the sale) showing that PHH or U S Bank was the owner - or any other party to the action. You can be certain that the case will be appealed.
THIS IS DIFFERENT from the current street wisdom of "Gee, if they don't have the ORIGINAL note, then I get my house for free". As is often the case, the street is not very wise. In the New York case, no proof of current ownership was provided. No one was questioning whether there was a loan, just the right of U S Bank or PHH to foreclose. Neither one could even show an assignment, the legal document that transfers ownership of a note from one party to another, to either PHH or U S Bank.
If there was an assignment, the issue of the Promissory/Mortgage Note itself would have become an issue. However, even if the original note was lost but a copy could be presented with the assignment, ultimately that would have been good enough , in most states. In litigation there is what is called the "best evidence rule". Simply put, a copy, if it can be authenticated, is acceptable. Authentication would happen in trial or deposition quite simply; the bank's lawyer would ask Mr. Jones, the owner:
"Mr. Jones, do you own the house located at 123 Elm Street, Blackacre, USA?" (in case Mr. Jones wants to lie, the attorney would have a certified copy of the deed and recording information to prove Mr. Jones "owns" the house).
"Mr. Jones, did you ever borrow money to purchase or refinance the house?"
"Mr. Jones, is this a copy of your current mortgage?" (again, the lawyer would have a certified copy, just in case).
"Now, Mr. Jones, would you examine the document I am handing to you and read the title." (unless he cannot read, or it really does state something different, Mr. Jones would answer "Promissory Note" or Mortgage Note" or something similar).
"Mr. Jones, please look at the signature line on the bottom of page 2. Please read aloud the name typed under the signature line" (it will be "Mr. Jones" in this example).
"Do you recognize the signature?"
" Is that your signature?" (meekly "Yes" says Mr. Jones)
"Thank you Mr. Jones" (unsaid, "you have just authenticated the copy as being the note that obligates you to make payments in order to keep you house in Blackacre")
The loss of an original is not the end of the world, or more importantly, the DEBT. The foreclosing Bank not having the right to claim that it owns the note is the end for that proceeding. The right is proven only with the note (or authenticated copy) AND an assignment to the current owner , if there was a sale of the mortgage.
Confusing? Not in principle. The Bank needs to PROVE it owns the mortgage or has been given the right to foreclose by the real owner, and has to PROVE who is the real owner. No proof, no foreclosure (but no free house)!
Author's Copyright by Richard I. Isacoff, Esq, November, 2009
Photo Credit: http://www.ebaumsworld.com/pictures/view/80793502/
rii@isacofflaw.com
http://www.isacofflaw.com/
2 comments:
Interesting post, Richard. In the instance where there is a proof of current ownership, however, the question is not so much whether there is an enforceable mortgage so much as who would get payment on sale of the house.
Sure, you can't foreclose now. But if you can't prove to whom the debt is currently owed, does that not leave the homeowner (and, potentially, the new lender in the case of a sale) in a bind? Can't pay off a mortgage when there is no proof of who owns it at all.
Is a copy truly best evidence? Here, I'd say that it isn't. Rather, it's the result of a system that plays fast and loose with simple document storage rules. Lose a single Note, I can see the "best evidence" argument holding some water. But if you "lose" thousands of them as a result of being too cheap to keep them in storage then there's good reason to penalize the purported mortgagee.
Richard,
You may be interested in this guide that I was invited to present to a group of attorneys yesterday in Clearwater FL...
It talks about broken chains of title and fraudulent assignments that are being fabricated by the servicers.
http://www.scribd.com/doc/20916919/Foreclosure-Fraud-Guide-to-Looking-up-Public-Records-for-Fraud
4closureFraud
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