"Produce the Note" Defense in Foreclosure

In the "produce the note defense," the homeowner demands that the foreclosing bank demonstrate that it has the legal right to foreclose.

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If you are a homeowner facing foreclosure and you think that the foreclosing party does not actually own your loan, you may be able to use the produce the note defense to fight the foreclosure. Read on to learn more about this type of defense, why it is important, and find out if there is a produce the note law in your state.

Understanding Promissory Notes

When you took out your loan, you signed both a mortgage (or deed of trust) and a promissory note. (Learn more in our article What's the difference between a mortgage and a promissory note?)

Homebuyers sometimes think of the mortgage (or deed of trust) as the contract they are signing with the bank to borrow money to purchase a house, but it is actually the promissory note that contains the promise to repay the amount borrowed. The owner of the note is the only party that has the legal right to collect the debt (and foreclose on the property) if you don't make payments.

(To learn the ins and outs of the foreclosure process, and foreclosure procedures in your state, visit our Foreclosure Center.)

The Produce the Note Defense

In the "produce the note" defense, the homeowner demands that the foreclosing bank produce the original note (or prove in some other way that it is the true owner of the note) to demonstrate it has the legal right to foreclose. (Some courts allow a copy of the note to suffice.)

Producing the note can be difficult for banks because they don’t typically retain possession of a loan for its full term. In many cases, the debt is sold among different banks and investors -- sometimes over and over again. Every so often, the new owner of the loan does not get the proper paperwork to show they own the note and mortgage.

The goal with the produce the note defense is to make certain that the bank or entity that is foreclosing is, in fact, the owner of the debt. You are well within your rights to compel the foreclosing party to prove that they have the legal right to foreclose on your home if you believe that there is any uncertainty in this matter.

How to Make the Foreclosing Party Produce the Note

How you use the produce the note defense depends on whether your foreclosure is judicial or nonjudicial.

Judicial foreclosure. In a judicial foreclosure, the bank files a lawsuit in state court. You will receive a foreclosure complaint, petition, or similar document, along with a summons. In this type of foreclosure, you can request that the bank produce the note as part of that lawsuit. (To learn more, read our article How to Fight a Foreclosure in Court: Judicial Foreclosure.)

Nonjudicial foreclosure. With a nonjudicial foreclosure, the bank can foreclose without going to court. This means that you'll need to file your own lawsuit to bring up this issue. (To learn more, read our article How to Fight a Foreclosure in Court: Nonjudicial Foreclosure.)

For more information about the difference between judicial and nonjudicial foreclosures, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)

Why Producing the Note is Important

If you have reason to believe that the bank that is foreclosing on your home is not the actual owner of loan and you do not challenge it, the court will not examine this issue. Or in the case of a nonjudicial foreclosure, the foreclosure will simply proceed.

Banks must be forced to prove they have the right to foreclose. The complex structure of mortgage-backed securities sometimes makes it difficult to figure out who actually holds the actual note, and therefore is entitled to foreclose. If you don’t question it, no one else will question it for you. You can be certain that the foreclosing party won’t bring up this issue!

Additionally, if an improper party (one that is not in possession of the note) forecloses, then it is possible that another bank, which may have purchased your loan somewhere along the way, will also try to collect the same debt from you at some later date.

Lost Note Affidavits

If the note has been lost, destroyed, or is otherwise unavailable, the foreclosing party will frequently use a “lost note affidavit” to try to avoid the problem of not having the original note. This is a sworn legal statement in which the bank states the note is lost (or destroyed, or something similar), but that it is the true and rightful owner of the note and thus has the right to foreclose.

In many cases, the court will find this sufficient and allow the foreclosure to proceed. Unfortunately, it can sometimes be an uphill battle for homeowners to use a produce the note defense. However, not all courts are willing to accept a bank’s excuses. Whether a lost note affidavit will suffice in allowing the lender to proceed with a foreclosure in your case depends on your situation, your jurisdiction, and the court.

Florida State Law Forces Banks to Produce the Note

Recently, Florida passed a law that requires banks to produce the note at the time of the foreclosure.

Starting July 1, 2013, a plaintiff (the bank) in Florida must prove its right to foreclose by filing additional items along with the complaint, including:

  • a certification that the plaintiff is in possession of the original promissory note, or
  • if the note has been lost, a lost note affidavit with a clear chain of all endorsements, transfers, or assignments of the promissory note. (Learn more about endorsements and assignments.)

For more articles on foreclosure in Florida, including programs to help homeowners avoid foreclosure, visit our Florida Foreclosure Law Center.

Proposed Federal Law

In early 2013, Rep. Marcy Kaptur, an Ohio Democrat, sponsored a bill in the U.S. House of Representatives called the “Produce the Note Act of 2013” (H.R. 190), which would prohibit a party from starting a residential foreclosure action (judicial or nonjudicial) unless the foreclosing party identifies:

  • the actual holder of the mortgage note
  • the originating mortgage bank and all subsequent assignees, and
  • all other parties who have an interest in the real estate, mortgage, or its proceeds.

Though it is probably unlikely that this bill will pass, you can keep tabs on it at http://beta.congress.gov/bill/113th-congress/house-bill/190.

When to Hire an Attorney

Any given foreclosure or legal situation has many potential claims and defenses, and you may be setting yourself up for frustration if you rely solely on a produce the note defense. You may also be missing other legal claims that you could bring as a defense to the foreclosure action. It is recommended that you seek the advice of local counsel or a legal aid organization to explore all possible defenses that may be available in your particular situation.

To learn more about different foreclosure defenses, see our Fighting Foreclosure in Court area.

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