What happens when a lender loses a mortgage note?
The Consequences of a Lost Mortgage Note
We have seen many cases where a lender will misplace, destroy, or lose a mortgage note. This means when a foreclosure proceeding commences, they cannot produce the note to show that they are entitled to enforce the note, or foreclose it. So what happens as a result in this type of situation?
What is a Mortgage Note?
The first thing that is important to understand what is a mortgage note. Most real estate purchases involve a mortgage transaction. A mortgage has two documents: a note and a mortgage. The note is a promise to repay the money at a future day, and should NOT be recorded.
On the other hand, the mortgage is a security instrument, which states if the borrower fails to make payments, the lender can take the property via foreclosure. In Florida, the law states that Florida is a lien theory state, meaning that the lender has NO ownership interest in the property until foreclosure.
Can a lender foreclosure if they have lost the Mortgage Note?
In some cases, a lender will lose the note during or before a foreclosure proceeding. When a lender cannot produce a note, then they are not able to prove when they took ownership or assignment of the note. A court may dismiss the case as a result.
Florida Statute provides that when a person, who is not in possession of an instrument, is entitled to enforce the instrument if the person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, the person can’t reasonably obtain possession of the instrument because its whereabouts cannot be determined. If a person is seeking enforcement of a lost instrument, the terms of the instrument and the person’s right of enforcement must be proved.
Does the Best Evidence Rule apply to Lost Mortgage Notes?
Florida Law recognizes an evidentiary rule called the best evidence rule. Under this law, when a writing is offered as evidence a copy or secondary document will not be admitted in its place unless an adequate explanation is offered for the absence of the original. Therefore, it’s necessary that the lender has the original mortgage note, or if not have a good explanation why they are producing a copy.
Case Dismissed for Lost Note
When a court dismisses a foreclosure action due to a lost note, the court will dismiss the case without prejudice. This means that the lender still has another opportunity to bring the case again once the note is located. Therefore, a lender can still foreclose the mortgage once they find the note.
Talk to an Experienced Real Estate Lawyer
Our firm has been serving real estate clients for over thirty years. We understand the consequences of losing a mortgage note, and what defenses you can make in response. Take advantage today of one our Free Case Evaluations.