In this post, I explain why it matters that banksters produce the note before they are allowed to foreclose. One of the tricks played on the courts by banksters is the “lost note affidavit”. Here’s my translation from legalese: Your honor, my client really really really owns this note, it just can’t find it right now. Or the dog ate it. Or its kid brother threw it in the trash and its mom dumped garbage on it and you just can’t read it but here’s a copy, really (cue Seth and Amy, no link because nbc.com loads really slowly). Lawyers tell these stories to the courts because the Uniform Commercial Code has a provision that allows them to foreclose even when they can’t find the right pieces of paper: UCC § 3-309.

§ 3-309. ENFORCEMENT OF LOST, DESTROYED, OR STOLEN INSTRUMENT.
(a) A person not in possession of an instrument is entitled to enforce the instrument if:
(1) the person seeking to enforce the instrument
(A) was entitled to enforce it the instrument when loss of possession occurred, or
(B) has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred;
(2) the loss of possession was not the result of a transfer by the person or a lawful seizure; and
(3) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
(b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, Section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.

Subsection (a) explains which note losers are entitled to prove that they have enforceable rights despite their incompetence at basic record keeping. It includes people who buy non-existent pieces of paper from others, a group which should be laughed out of court as examples of financial Darwinian selection.

Subsection (b) says that the note loser has to prove the exact terms of the note, which ought not be a problem. A note loser trying to foreclose should be able to come up with a copy of the note. There are several cases where the note loser couldn’t even find a copy of the instrument, and they were not allowed to proceed.

The key point is that the note loser has to prove that it has the right to enforce the instrument. It isn’t enough to say “I have the right to enforce the instrument.” There has to be proof of that right. The copy might show the entire chain of transfers, concluding with the note loser, which would constitute proof. In the case of real estate mortgages in securitizations, most likely it won’t. Instead, it may have the first endorsement, and all the others are in blank, and it may be that there is no first endorsement. That will be a real problem where the mortgage originator is out of business.

That means proof by means of documents, which in turn means that there is going to be expensive and time-consuming discovery, requests for production of documents, and then depositions. In those cases, settling makes more sense than litigating.

There is an Oklahoma bankruptcy case on a credit card obligation. The note loser found an assignment in bulk of credit card obligations, but could not produce the attachment showing that the specific debt was transferred. In cases like that, courts hold that there was no proof of right to enforce and they do not permit the note loser to proceed.

Paper matters, even if it only means lengthy and expensive proof.