The Myth of the Missing Note

True or false? If your lender loses the original note on your loan, it can’t foreclose. The answer is: FALSE! That’s a myth, most of the time.

For the lender the note is the most important paper you sign at a real estate closing. Why? Because, if you don’t make your mortgage payments, the lender can’t foreclose without it. What? Didn’t I just say that’s a myth? Yea, I did, but let me explain..
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The basic rule is that a lender can’t foreclose without the note, but there are exceptions to the rule. The law allows a lender who’s lost the note to foreclose in two situations.

First way: If the lender can re-establish the note, then it can foreclose. To re-establish a lost note, the lender has be able to prove the time of and manner in which the note was lost, and the lender has to prove all of the terms of the note (the amount of the loan, the length of the loan, the amount of the interest rate, the type of interest rate – fixed or adjustable, etc.).

Most times, it’s going to be impossible for the lender to prove both the time of and manner in which (how) it lost the note. In order to prove all of the terms of the note, the lender has to have a copy of the original signed note. Re-establishing the note, then, can be a tough road for the lender to travel down.

The second way, is for the lender to ask the court to enforce the lost note. This is easier for the lender to do because the lender doesn’t have to first re-establish it. All the lender has to do is show that the note was lost (they do this by saying it was lost – they don’t have to prove the time of and manner in which it was lost), and that they have a copy of the original signed note (to prove the terms of the note).

What it boils down to is this: If the lender loses the note, but doesn’t have a complete copy of it, they’re screwed. If they have a complete copy of the original signed note, then they’re not.