Long island foreclousre attorneys seeinking to defend Suffolk County and Nassau County homeowners fromm foreclosure have an arsenal of defenses to dismiss or at least delay lenders’ foreclosure proceedings, but is “produce the note” one of them? Throughout the nation there have been issues as to whether the lender has any of the original documents, whether it be the note or the mortgage. Many of these mortgages were packaged into security pools for investors and changed hands very rapidly, sometimes without the original note or mortgage.
Homeowners have an arsenal of defenses to dismiss or at least delay lenders’ foreclosure proceedings, but is “produce the note” one of them? Throughout the nation there have been issues as to whether the lender has any of the original documents, whether it be the note, mortgage, or mortgage assignment. Many of these mortgages were packaged into security pools for investors and changed hands very rapidly, sometimes without the original note, mortgage, or assignment.
Produce the note emerged as one of the most promising defenses to a home owner. This defense was successful in the beginning due in part to borrowers beginning to inquire and demand documentation such as the original note, mortgage, and mortgage assignments. Many of these borrowers were stunned when most of their lenders, who sold mortgages on the secondary market, did not have all or any of the properly signed documentation. A majority of these initial cases were dismissed if and until the lender could present the proper documentation evidencing it has a valid interest in the property. It is important to note that not all judges will dismiss foreclosure proceedings based off this defense; however, borrowers who contest the lender’s ability to foreclose stand at a much better advantage than the borrower who idly sits by and fails to inquire.
Produce the original note defense has been around and argued for the better part of a century. Depending upon the judge, produce the note has had different effects on mortgage foreclosure actions. In rare circumstances, some courts throughout the nation have handed down harsh orders against lenders who are unable to show they have a valid interest in the subject property being foreclosed upon.
Notably, in Wells Fargo Bank National Association v. Byrd the court dismissed a foreclosure action due to the lender’s failure to proffer the proper documentation showing it had a valid interest in the property. The borrower’s objections in this case required Wells Fargo to produce a valid mortgage assignment, which it did not have. The court dismissed the foreclosure action with prejudice and required that the law firm present all documents showing its client, the lender, had proper standing to sue in future foreclosure suits. On appeal, the court’s order was modified; the modified order dismissed the initial suit without prejudice and retracted the order that the law firm proffer all documentation pre-suit.
On another note, Judge Boyko, a United States District Judge in Ohio, dismissed fourteen cases due to the lenders’ failure to present valid documentation showing it was the note-holder. In each of the fourteen cases none of the lenders could present sufficient documentation stating their present interest as the note-holder. “[N]one of the Assignments show the named Plaintiff to be the owner of the rights, title and interest under the Mortgage at issue as of the date of the Foreclosure Complaint.” The assignments merely show intent to convey the mortgage rights rather than evidencing the lenders were the actual holders prior to commencing suit. The court held that the assignments, in conjunction with the affidavits, which merely state the lender is the actual note-holder, warrant dismissal without prejudice of all fourteen foreclosure cases.
Generally, in a majority of cases courts allow a lender to maintain a foreclosure action when a lender can provide a copy of the note. Absent any genuine issue as to a note’s validity, photocopies of notes are sufficient to maintain foreclosure proceedings.
In New York, a plaintiff seeking “summary judgment on its claim for foreclosure and sale establishes its prima facie case for such relief by production of copies the mortgage, the unpaid note, and evidence of a default under the terms thereof”. Thus, pursuant to New York case law, a “produce the note” defense may not be effective at stopping or even stalling a foreclosure if valid copies of the note and mortgage are submitted within the complaint.
On a further note, lenders may even be excused from producing a note copy when they can present a lost note affidavit to the court. Most often when a lender is unable to locate the note or a copy it will create a lost note affidavit. Pursuant to The Uniform Commercial Code (UCC) §3-804, a lender may avoid producing the original note or copy by presenting a lost note affidavit. However, the burden upon explaining why the original note cannot be produced is upon the foreclosing lender. In order for a plaintiff to craft a valid lost note affidavit it must state it is in fact the owner, an explanation of why the note was lost, and the reasonable steps taken attempting to locate its whereabouts.
Although not all lost note affidavits will save a lender, lost note affidavits merely stating that the plaintiff or its servicing agent simply could not locate the note is insufficient to establish the lender’s prima facie case for an entitlement to foreclose.
Courts in New York have dismissed foreclosing plaintiff’s lawsuits where there is an insufficiently crafted lost note affidavit that does not explain why the original could not be produced. Specifically, the court in EMC Mortgage v. Gass dismissed a foreclosure action due to the many deficiencies in the lost note affidavit. The court noted that the lost note affidavit merely stated that “to the best of [the affiant’s] knowledge and belief the Note . . . was in the [c]orporation’s possession but said note was subsequently lost or destroyed.” The affidavit did not explain why the original was lost, or why the indorsement was on the allonge but not the actual note. The affidavit in the court’s view was insufficient to explain the deficiencies in the note and how it was lost. Thus, the court concluded that the lender failed to satisfy its standing requirement to foreclose.
When there is a legitimate question as to whether the lender holds the original note then there may be a valid defense to require that lender to produce the same. In New York, if there is no documentation to prove ownership, or an inexistent or insufficiently stated lost note affidavit, then there may be a potential deficiency in the lender’s ability to foreclose. There are many times where these deficiencies are inadvertently missed, or even worse masked, and the lender proceeds to foreclosure.
On a specific note, a bankruptcy court in New York went as far to expunge an entire mortgage due to standing issues. Judge Drain, a bankruptcy court judge for the Southern District of New York, extinguished a mortgage in a Chapter 13 bankruptcy case due to the lender’s inability to show a valid interest in the property. The judge was concerned with the deficiencies in the affirmation presented by the affiant because there was no explanation or supporting documentation to address the gap in the chain of mortgage assignments. The affiant merely, without any supporting documents or explanation, claimed there was a proper chain of title from the originating lender to the present note-holder.
At a subsequent hearing the judge continued to express his concern that the affiant’s affirmation was contradictory. “Ms. Johnson’s affidavit, which is the primary affidavit upon which the claimant relies, is self-contradictory and contradicts the proof of claim and the documents itself. I do not accept her as the custodian of documents that she’s referring to or that she attaches. In support, the judge noted that Ms. Johnson appears to be an officer of two distinct corporations, according to the affidavit and supporting documents. Furthermore, her signature stamp on the affidavit is ambiguous and odd due in part to its isolated location on the affidavit. As the judge noted, the debtor raised sufficient standing issues which required explanation.
The lender failed to rebut those duly raised issues, and thus failed to meet its burden to establish it is in fact the legal holder of the note and mortgage. The lender should have presented the affiant for examination at the hearing because it was apparent that these issues could only be resolved with her testimony and explanation.
The Court stated, “I mean I think that I have a more than 50 percent doubt that if the Debtor paid this claim, it would be paying the wrong person. That’s the problem. And that’s because the claimant has not shown an assignment of a mortgage.” In a subsequent order the judge expunged the entire mortgage debt due to the lender’s inability to timely present the lost documents or furnish adequate explanations as to why they were lost.
Unfortunately, most times for homeowners, a copy of the mortgage note will be sufficient to maintain a judgment for foreclosure and sale. If there is a legitimate issue with a copy of the note or lost note affidavit then the homeowner may always bring a motion to compel; however, the motion may not be based merely on conclusory statements and must include an explanation as to why copies are insufficient. Thus, absent a genuine issue with the sufficiency of a lost note affidavit or copy of the note, a lender may maintain its action to foreclosure and sale.
As an aside, if the borrower is unsuccessful in pursuing produce the note defense then it is important to note the borrower’s potential liability if the note is ever found to be in possession of the actual note holder. A lender who argues it is the note holder, through parole or secondary evidence, is required to provide the borrower with a written undertaking twice the amount of the note. Pursuant to New York General Business Law § 394-a (2), a lender must provide the borrower a written undertaking with at least two sureties that it will indemnify and cover all costs and expenses if there is a claim by any other person on account of the note.
Although N.Y. Gen. Bus. Law § 394-a (2) will not stop a foreclosure, it is important that a borrower should demand this written undertaking and hold onto it. The undisputed fact is that lenders have transferred these mortgages dozens of times very rapidly, and unfortunately, it is not improbable that another individual in the foreseeable future may claim interest in the note. A written undertaking may help a borrower avoid any of these further costs and expenses in defending a subsequent suit on the same note.
As discussed, produce the note defense is only successful in the most limited circumstances. In New York, lenders who produce copies of the note, mortgage, and proof of default have a prima facie case to foreclose and the burden to rebut that action falls upon the borrower. Moreover, lenders may produce a lost note affidavit in lieu of the original promissory note or a copy thereof. The lost note affidavit may be sufficient if it adequately explains why the note was lost, its terms, ownership, and that reasonable measures were taken to locate the original note. However, borrowers may contest the lost note affidavit if the supporting affirmation merely presents conclusory statements and offers no real explanation as to the circumstances or events that causing the lender the inability to present the original.
Thus, in only the most limited set of circumstances will a borrower be successful in a produce the note defense. The borrower must attest to specific facts and present evidence showing that there is a genuine issue with a note copy in order to force the foreclosing plaintiff to produce the original. If a lender produces a lost note affidavit in lieu of an original note or copy thereof then borrowers may attack the lost note affidavit’s validity instead. Generally, if lenders have a clear copy of the note, or a lost not affidavit, then they are entitled to proceed in a foreclosure action.
It is important to note that a true victory of a produce the note defense is more likely to be recognized at the negotiating table. If a borrower is able to put pressure on the lender to produce the original note then this may change the negotiating environment. A strong produce the note defense may cause an otherwise stubborn and unwilling lender into a friendly negotiator. Also, the produce the note defense will likely afford the borrower more time to strategize ways to stall or dismiss a foreclosure proceeding. Either way, a borrower who pursues a produce the note defense has absolutely nothing to lose.