The ongoing saga of New Hampshire homeowners Michael Dillon and Jennifer Kresge and their tenacious battle against the alleged predatory mortgage servicing company formerly known as Fairbanks Capital Corporation
, now known as Select Portfolio Servicing, Inc.
"), and five other financial institutions is continuing in a New Hampshire court.
A complaint was filed by Dillon alleging, among other things, fraud, intentional misrepresentation, conspiracy, unfair collection practices, unfair and deceptive commercial practices, and violation of the Federal Truth In Lending Act, all in connection with alleged abusive mortgage servicing tactics used in the servicing of Dillon's home mortgage. Attorney Walter L. Maroney
, of the New Hampshire, Massachusetts, and Maine law firm Gallagher, Callahan & Gartrell, P.C.
, represents Dillon and Kresge.
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One allegation in the Dillon lawsuit that caught my eye (and should catch the eye of any attorney who represents and defends homeowners being sued in a foreclosure action) is "Avoidance of Note". Apparently, Mr. Dillon requested evidence that the defendants have actual possession of the promissory note
that Dillon signed when he borrowed the money against his house. The Defendants, according to the complaint,
- [h]ave been unable or unwilling to provide Mr. Dillon with evidence that they hold the original of the Note secured by the Mortgage.
The complaint then goes on to state that
- "[i]n the absence of an ability to show that it possesses the original of the Note, neither [the mortgage lenders] ha[ve] a right to enforce the same; nor [do Select or the collection attorney] have any right or capacity to seek to enforce the same on their behalf."
It is my understanding that a mortgage lender generally cannot bring an action to foreclose on a mortgage loan without first either (a)
having possession of the original promissory note, signed by the borrower, that they are trying to collect on; or if the note has been lost, destroyed or stolen, (b)
bringing legal action to re-establish the lost, destroyed or stolen instrument, which may not be as easy as it sounds. Further, inasmuch as the promissory note typically used in a residential mortgage loan transaction is in such a form that it is legally treated as a "negotiable instrument", the maker of the note (the debtor) is, as a matter of law, entitled to the return of his original note upon full payment. Accordingly, a mortgage lender's failure to present the original note for payment in a foreclosure action is an issue that should always be raised (and pressed) by counsel for a homeowner.
For examples of cases where a mortgage lender was not entitled to foreclose on its mortgage because it didn't have possession of the original note, see State St. Bank & Trust Co. v. Lord
, 851 So. 2d 790; (Fla. App. Ct. 4th Dist., 2003), and the cases cited therein.
Given all the turmoil in the subprime mortgage lending industry, with mortgage loans being bought and sold numerous times before ending up in a mortgage pool collateralizing mortgaged-backed securities - then going into default, the increase in foreclosures, and the number of subprime lenders going out of business (and, in the process, dumping their subprime loans at a discount to others - see Frmont Unloads $4 Billion in Whole Loans
), it seems to me that there is a significant potential for a large number of foreclosing mortgage lenders who are going to have fits trying to find, much less produce, the actual original promissory note in a foreclosure action. However, unless the homeowner (and legal counsel) know enough to make the demand for the original note (and insist on the original note being produced), either before or after the foreclosure action commences, the situation will end up as nothing more than a lost opportunity for the homeowner to (at least attempt to) effectively defend against a foreclosure action.Addendum:
To read a court order from a Pinellas County, Florida trial court ruling that a certain mortgage servicer "lacked standing" to bring foreclosure actions on behalf of the actual mortgage holders whose loans the mortgage servicer was servicing, (and, accordingly, dismissed twenty foreclosure actions that the mortgage servicer had brought on their behalf), see in re Mortgage Electronic Registration Systems, Inc.
(MERS), available online courtesy of Mortgage Servicing Fraud .org
, at msfraud.org