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Does the “Show Me the Note” Defense Work to Stop a Foreclosure?

Posted on May 9, 2012 in Foreclosure - Saving Your Home, Legal, Mortgage Foreclosure Defense

Something we have seen a lot lately at Lakelaw is a failure of banks and their attorneys to follow the rules during foreclosure lawsuits. A typical purchase of property requires that you sign a Mortgage instrument and Promissory Note with your bank. The Mortgage is a basic security agreement that says if you don’t pay, the bank can come get your house; it uses the home and possibly other property as collateral. The Note is an agreement to pay until the borrowed money is repaid in full. After the Mortgage and Note are signed, most people keep a copy of each in their records but don’t look at them again until they have problems paying.

The mortgage holders must follow some simple rules to properly “negotiate” or transfer a Note.  The first rule says there must be an “endorsement” to a person or company and delivery of the Note, or an endorsement “in blank” so whoever holds the Note can enforce it. The endorsement can either be on the Note itself or on a page “affixed” to the Note called an Allonge. This might sound complicated, but these are similar rules for paying someone by a personal check – if you write a check payable to Lakelaw, Lakelaw can stamp or sign the back of the check and deposit it or it can endorse it to another party by writing “Pay to the order of [Name of Party]”.

While these rules seem simple, we are seeing some major issues in our Foreclosure Defense practice.  One mistake we see is that the company foreclosing on a homeowner does not have a properly endorsed Note, and the bank or servicer is not the original lender. If the Note was not endorsed, how did the foreclosing bank get the Note? Another strange thing we see is when the foreclosing bank starts with a Note that is not endorsed, endorsements appear on the Note or a page with endorsement later appears. How did these endorsements get there?   It seems unlikely the bank has two copies of a Note, one unendorsed and the other endorsed. It’s a question that may prevent a judge from granting a judgment to the plaintiff if it’s addressed properly and in a timely fashion.

The disturbing trend of banks not following proper procedure when trying to take away people’s homes should cause a pause and hopefully bring about reforms that will cause lenders and servicers to reevaluate how they do business.  It also should encourage anyone with questions about their mortgage documents in a foreclosure lawsuit to speak to a lawyer immediately to see what defenses and claims they might have.

This post was co-authored by Lakelaw associate Nicholas D. Strom





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