Archive for December 12th, 2011

Releasing Original Notes After Settlement

I came across a motion and Order today that was all too familiar.  A foreclosure lawsuit had settled, and the bank’s lawyers asked the Court, ex parte and without hearing, to return the original Note/Mortgage to them.   

This type of request is all too common and sometimes, quite frankly, it makes sense.  For instance, when a foreclosure lawsuit settles via a loan modification, or when the bank voluntarily dismisses its lawsuit on its own (without a settlement), the Note/Mortgage should be returned to the Plaintiff or its counsel.  After all, the homeowner is, at least in theory, still indebted under those documents, so the bank may need them in the future.  

What troubles me, though, is when I see banks’ lawyers requesting that these documents be returned after a foreclosure lawsuit has been resolved via a short sale and deficiency waiver.  In this circumstance, I see no reason why the Note/Mortgage should be returned.  After all, the homeowner owes no more money under the Note/Mortgage, and the property has been sold to a third-party.  So why do these documents need to be returned? 

Frankly, returning the original Note/Mortgage after a short sale is a recipe for disaster, as it invites inappropriate claims that monies are still owed when the debts have all been extinguished.  Why enable a third party to take the position that monies are still owed when the debt has been settled/paid? 

Upon encountering this situation today, I drafted an Emergency Objection to the return of the original Note/Mortgage.  This objection doesn’t have any fancy legal arguments or case law, it simply notes that the bank should have to explain, at a duly-noticed hearing, why it should be entitled to the return of these documents.  If/when such a hearing takes place, I can make appropriate objections on behalf of my clients. 

The situation here is bigger than this one case.  Everyone should realize that it’s not a good thing for original promissory Notes to be floating around in the stream of commerce when the homeowner’s obligations thereunder have been extinguished.  This is not something that judges should allow, especially ex parte, and it’s not something that homeowners or their attorneys should accept without argument. 

Quite simply, it’s past time that we stop allowing these original Notes and Mortgages to be returned to banks and their lawyers ex parte.

Mark Stopa

Posted in Main | 2 Comments »