New Rules: Bring Originals

In recent months, we have all read much about the thwarting of mortgage lenders' and servicers' efforts to foreclose on defaulted notes when judicial and quasi-judicial officers demand original notes and deeds of trust as evidence of an existing debt.

Initially, borrowers met with some sporatic success by pressing this "show me the note" defense. This defense entails borrowers that are actually in default contesting foreclosure proceedings by arguing that lenders and servicers produce the original note and deed of trust, implying that an authenticated but non-certified copy of both is somehow incompetent evidence of the existence of a debt. And, in the wake of the robo-signing scandal in which some lenders and servicers have been caught using affidavits that were signed in mass and without appropriate review, some courts have embraced the "show me the note" defense.

However, in at least one trial court in North Carolina there now exists a perceived requirement that a foreclosing party's evidence of existence of a debt is insufficient as a matter of law unless it includes the original note and deed of trust. In the particular referenced court, it was not the borrower that raised the issue. Rather, the court did it, suo sponte. This despite an appellate court decision that was brought to the court's attention, holding that an affidavit supporting the existence of a debt and that authenticates copies of the note and deed of trust is sufficient and competent evidence of existence of a debt.

So, for any North Carolina practitioners who read this post, "new rules" may be afoot in North Carolina, and they may stay there for a while, so if the original note and deed of trust are available, it may be a good idea to bring them to any foreclosure hearing or appeal...just in case. However, the problem is that many of these mortgages were bought and sold several times. Some of them were even sliced up and made part of the dreaded securitized mortgages that brought down Bear Stearns, Lehman Bros. and that almost brought down AIG and a slew of other major banks. So, as one might expect, actually putting hands on an original note or deed of trust may be a bit more difficult than it sounds.

Meanwhile, the borrower opposing the foreclosure in the North Carolina court...the one that hasn't paid a penny against the loan since 2009 avoided foreclosure (at least today) and, for now, the lender continues to carry the debt.