Courts have generally held that in order to have the right to foreclose, a party must be the “holder” of the subject promissory note. This in turn begs the question; “Who is a ‘holder’ of a note?” As a general rule, a holder is the person who has physical possession of the original signed instrument. In other words, a manufactured or duplicate copy of the note is not good enough – the foreclosing party must have the original note in its possession. This being the law, it is absolutely essential for a foreclosing party to prove it has the original note in its possession in order to obtain a foreclosure order.
This principle gave birth to the fraudulent practice of “robo signing”, a generic term used to describe the use of false or manufactured documents by banks in foreclosure proceedings because the originals were lost or destroyed. With the advent of private loan securitization in 1999, a process whereby a mortgage loan is transferred a number of times before ending up in a loan pool, and the housing market crash of 2008, an event giving rise to millions of foreclosures, without question thousands, if not millions of original foreclosure documents were lost or destroyed. Thus the need to recreate them has arose. It is therefore safe to say that many Americans have lost their homes to foreclosure based upon the use of fraudulent documents. As the courts have to wrangle with the legal issues presented by the use of such false documents, the law has evolved, and safeguards are beginning to be erected to protect homeowners from victimization.
And this is the state of affairs we find ourselves in defense of Max in his foreclosure case. The court granted foreclosure on the basis of an affidavit from the bank’s representative which we claim is totally deficient. The basic reason we claim it is deficient is that the witness could not prove that the foreclosing bank had the original promissory note Max signed when he took out the loan in its possession. Did the affidavit contain legally loaded terms such as “personal knowledge”, “business records” and “business record keeping practices”, meant to lead the casual reader to believe everything is in order? Absolutely. In fact, this practice has been used in thousands of foreclosures across the Country in the past five years.
However, the law has now reached the state where it is necessary to peel away the layer of the onion, by inquiring further into what the basis of the witnesses’ knowledge is which allows him or her to make the allegations contained in such an affidavit. Ohio Courts have already held that the witness must affirmatively show how he or she has direct knowledge of the record keeping practices of the foreclosing bank sufficient to establish the bank has the original note in its possession. Courts have further held that the witness must have inspected the original promissory note and compared it with the copy attached to the complaint. The precedent should help us get Max’s foreclosure order reversed, as the affidavit used to gain it failed to meet these criteria. Whether you are in or facing foreclosure, do not forget to get out your onion-peeler.
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Kate Eyster and Lauren McGookey contributed to this article.
Copyright 2013 Daniel L. McGookey