Original Notes and Loan Papers: What Does a Lender Need to Foreclose?Bankruptcy AttorneysUpdated on Jun 4, 2018 View more like this | Visit BOHEMIA, NY | Contact Law Office of Ronald D. Weiss, P.C. |
Especially for new homeowners, understanding the precise nature of every mortgage related document you sign throughout the closing process can be difficult. However, even though these original documents are the keys to ownership of your real property, the more a loan interest changes hands, the higher the likelihood that these original documents may be misplaced in the process. Because these original documents prove ownership of the mortgage, and thus the right to initiate the foreclosure process, the rules of evidence in New York State Supreme Court may require production of the original promissory note in order to proceed with foreclosure litigation. Without said note, a borrower in default may be entitled to defend against a foreclosure action for lack of authentic proof that the lender initiating the foreclosure actually owns the mortgage interest. Accordingly, it is essential to understand how and when to demand production of the original mortgage documents throughout the foreclosure litigation process.
Origin of Original Notes and Loan Papers
When you are closing on a home for which you require a mortgage, there are three main documents you should be looking for throughout the process. The first is your actual “mortgage,” also known as a deed of trust or security instrument. This document essentially secures your mortgage by permitting the lender to foreclose on and take possession of the real property interest at issue if you fail to make your mortgage payments as agreed. It is also called a security instrument because the real property is acting as the lender’s “security” should you default on your mortgage loan obligations. The second document, which is often confused with a mortgage, is your “promissory note.” The promissory note is the actual legally binding document by which you, as the borrower, agree to repay your mortgage loan according to the agreed upon terms. The lender keeps the original promissory note until you have fulfilled all obligations, i.e., paid off, your mortgage. A promissory note will generally contain the following information:
The total amount of money borrowed;
Your interest rate (either fixed or adjustable);
The date payments are due;
The length of time for repayment (e.g., 15, 20, or 30-year term);
The place where payment is to be remitted; and
The consequences of late payment.
Certain other forms will be required at a closing, such as the initial escrow disclosure statement and the physical deed to the home, which legally transfers property ownership to the buyer and must be recorded in the jurisdiction where the property is located in order to secure your ownership interest. However, a lender seeking foreclosure need not produce the original escrow disclosure statement or deed in order to secure its interest before New York Courts. Rather, the promissory note and occasionally the mortgage itself are those documents necessary to proceed with a foreclosure action in New York, and it is the lack of such original documents that may preclude a foreclosure action.
Possession of the Original Promissory Note in New York
In accordance with the common law “best evidence rule,” a party seeking to prove the disputed contents of the promissory note, such as the amount owed on said note, must produce the original document because it is the “best evidence” of the terms of the note itself. However, New York Civil Practice Laws and Rules Section 4539 permits reproductions of the original promissory note, such as copies or electronic scans of the note, to be admitted as long as those copies were made in the ordinary course of business and are an exact reflection of the original. However, if a defendant in the action, in this case the borrower, were to challenge the authenticity or accuracy of the copy, the court may order the lender to produce the original promissory note in order to prove it has standing to sue in New York Supreme Court. A court may order such production upon either a motion from the defendant claiming that the plaintiff does not have standing to sue or based on a order to compel discovery of the original note if the defendant is challenging the authenticity of a produced copy. If the lender cannot produce the original, there is a chance the case will be dismissed for lack of standing to sue.
Further, if the lender who initiated the foreclosure action is not the original lender, then the defendant can challenge the so-called “chain of custody” of the promissory note. This means that the lender must produce the chain of documents between itself and the original lender to prove that it indeed is the owner of the note. Again, a defendant can request this information during discovery and, if not produced, request the court compel production of such or dismiss the complaint altogether, again, for lack of standing.
