Archive for February 23rd, 2012

Return of Original Note/Mortgage – After a Settlement

Any attorney who represents homeowners facing foreclosure has seen it.  A homeowner settles a case on his/her own via a short sale, deed in lieu of foreclosure, or loan modification.  Contemporaneously, the plaintiff’s attorney voluntarily dismisses the case and, in doing so, procures an ex parte Order directing the Clerk to return the original Note and Mortgage to plaintiff’s counsel.

I saw this in a case recently, and it really rubbed me the wrong way.  Not the settlement – that was fine.  (Great, actually.  Any time a client gets a satisfactory resolution, it’s a great feeling.)  But the return of the original Note and Mortgage to Plaintiff’s counsel, ex parte, without notice and without hearing … why?  Why does the plaintiff need the original Note and Mortgage when the case has settled, the house has been sold, and the bank forgave any deficiency?  Why should the original Note be floating around in the stream of commerce, creating the potential for someone to take the position the debt was still outstanding?

As I explained in this written Objection and cover letter to the Court, I suppose I could understand if the settlement was a loan modification and the homeowner remained indebted (to someone, if not the Plaintiff) under the Note and Mortgage.  After all, in that circumstance, there could be a scenario where a bank needed the original Note to collect on the remaining debt.  That said, why does the Plaintiff need the Note and Mortgage back when the property was sold at a short sale and the homeowner’s liability under the Note and Mortgage is extinguished?  And why should this relief be granted ex parte, without notice, and without a hearing?

My concern is far greater than this one case.  I’ve seen this issue far too often, and I see it as an industry-wide problem.  Any time there’s a short sale or deed in lieu with a deficiency waiver, there should be no need for the original Note and Mortgage to be returned to the Plaintiff, yet we all see that happen in virtually every settlement.  Why?  Is there something nefarious going on here?

I’m pleased to say a Pinellas County Court shares my concerns, as the Hon. Amy Williams just entered this Order vacating her prior Order and directing Plaintiff’s counsel to set a hearing and explain to the Court why it needs the Original Note and Mortgage to be returned when the home was sold and the homeowner’s liability under the Note/Mortgage have been extinguished.

This is an issue everyone should be pushing.  No, it’s not the biggest problem in foreclosure cases, but until we get answers, it may be symptomatic of a greater problem.  For instance, if the Plaintiff wants the original Note returned because it wants to assert (to anyone, not necessarily just the homeowner) the debt remains outstanding, then that’s an enormous problem/fraud of epic proportions.  And if the Plaintiff isn’t trying to assert money is owed, then why does it want/need the Note and Mortgage?

Mark Stopa

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