Produce the Note
I get asked a lot of questions about the produce the note argument as it relates to foreclosures.
In order for a party to foreclose on a property, that party must have standing to be a party to the legal action.
The term standing means:
Standing or locus standi is the term for ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party’s participation in the case.
(Excerpted from Wikipedia.com)
In terms of a foreclosure, this means that before your property can be foreclosed upon, the party who is actually foreclosing must be the party with standing. The proper party to foreclose is the actual owner of the Note to your property.
Sounds simple, right? Unfortunately, it isn’t. The party who actually owns the note isn’t usually the party who is actually foreclosing.
What’s really scary about this situation is that a borrower might scramble to make up the arrearage to get out of foreclosure, and another party can still come after the borrower to foreclose because they actually own the note!
During the real estate boom of 2001 – 2007, when a loan closed, the Note and the Deed of Trust were recorded with the original lender that in many cases, was only acting as the lender at the table (“table funding”).
The mortgage would be recorded with the Mortgage Electronic Registration System (“MERS”) which served as the lending industry’s way around properly recording the ownership chain of mortgages at the county recorder’s level.
Once the loan closed, the servicing rights (the right to collect payments) were sold and the actual mortgage itself was packaged up with other mortgages and sold to investors as part of a mortgage backed security.
In most cases, borrowers will never know who the true owner of their note actually is, because the chain of assignment was never properly recorded at the county recorder’s office where the property is located. Banks are the only institutions that have access to the MERS database.
MERS is typically added as a “beneficiary” under the Deed of Trust to a property. It’s interesting how the lending industry got away with this. MERS is an electronic database!
According to the MERS website, “MERS remains the nominal mortgagee no matter how many times servicing is traded.” MERS website also maintains that it is nothing more than a computer system designed by the mortgage industry (and capitalized by investors from the mortgage industry) to protect them from having to pay recording fees so that the entity that owns any mortgage loan is available.
MERS entire business operation is premised on the wholesale and ever changing sale or transfer of “servicing rights.” MERS does not own the loans, rather they are acting as a “nominee” for whomever might or might not say that it owns the note at any given time. Further, since MERS never obtains possession of the Promissory Note which secures the Deed of Trust, it cannot ever have the right to enforce the terms of the Deed of Trust, since that right is reserved to the owner and holder of the secured instrument, the Promissory Note.
So how can MERS foreclose on the property since it’s an electronic database and a nominee for the owner of the note? It cannot, because MERS doesn’t have standing.
So what does this mean for the borrower? It means that there’s a very good chance that the foreclosing party will not be able to produce a copy of the original note to your property. During the real estate boom, lenders were in such a hurry to make loans so that they could be repackaged and sold that many times, they failed to maintain the proper chain of assignment.
This presents an opportunity for you, the borrower. If you’re in foreclosure, ask the lender to produce the note! This argument is working well in states like Florida, which is a judicial foreclosure state.
If you live in a non-judicial foreclosure state, such as Arizona, the lender will typically use a trustee’s sale to take your property, which means they won’t actually file a lawsuit against you to take your home away. This makes it harder to make the prove the note argument because there is no lawsuit pending where you can go to court and ask the lender to prove they own the note.
If you live in a non-judicial foreclosure state, you must file a lawsuit against the lender to stop the foreclosure. This problematic because many times, if a homeowner is in foreclosure, they cannot afford to hire an attorney to represent them. This is why the produce the note argument isn’t working well in Arizona, which is where I live.
If you have the resources to challenge the lender, I’d suggest you get a loan audit to look for TILA and RESPA violations. If violations are found, you can file a lawsuit against the lender for those violations AND as part of the lawsuit, your attorney should ask the lender to produce the original note.
If this is done correctly, and your lawyer is competent, the lender will be forced to prove they own the note as part of the discovery phase of a lawsuit.
If the lender cannot demonstrate that they actually own the note, the debt becomes unsecured, just like credit card debt. If the lender cannot prove that it owns the original Note during litigation, your attorney will likely petition the court for a “quiet title action” which means they will ask the judge to wipe away the note.
Don’t get your hopes up about this possibility. You’ll need to have the correct fact pattern, a good attorney (which, here in Arizona they seem to be few and far between when it comes to this area of law), a stomach for uncertainty and a budget for litigation.
You might be able to make the produce the note argument outside of filing a lawsuit, but the purported lender will probably just send you a copy of what was recorded at closing. As we’ve established, in most cases, the original lender is no longer the actual lender.
If you live in a judicial foreclosure state, by all means, go to court and request that the foreclosing party PRODUCE THE NOTE!
If you live in a non-judicial foreclosure state, consult with a competent attorney who has experience in foreclosure defense on the best way to proceed in your circumstances.
Produce the Note Stop Foreclosure – FOX News Video
Produce the Note Stop Foreclosure – FOX News Video. This topic is getting a lot of air time on all the major news networks. If you are facing foreclosure please get our Free ebook which explains how you can stop foreclosure using a loan audits.
Good Morning America Explores Produce the Note
Has the Produce the Note legal challenge worked for anyone? If so, and you feel like sharing, please let us know what Lender and state.
Or is this simply a stall tactic?
We want to know your opinion.
Watch other Produce the Note Videos Here.
Stop Foreclosure Now! Stay in Your Home
Fight Foreclosure Produce The Note (Video)
Consumer Warning Network Posted this short video on Produce the note as a method to fight Foreclosure:
Details Posted with the Video: One of the last ways you can fight foreclosure is to make them produce the note. In many cases the note is sitting in a warehouse somewhere and nobody knows or cares where it is.
Check out their Youtube channel for more info:
