Is the absence of the actual Note document a dealbreaker?

17 Replies

So I’ve come across a gentleman who has recorded several second position liens on various properties but can not locate the actual notes. It’s my understanding that this isn’t unheard of but looking for some direction on if it’s out of the question to get involved with? I realize there are many factors that play into the value of the situation but I’m not clear on a missing note is a deal breaker. Thanks in advance for sharing. Bob

Definitely a deal breaker. The mortgage just secures the note. If you can't find the note, the mortgage secures nothing. There's so much case law about this exact topic. 

For me, it depends. Which signature do I need? If a doc is missing that requires the borrowers signature, I'm not going to buy it. If an assignment is missing, but I can get it replaced or substituted with a missing doc affidavit, I might. What you want to do is be prepared for the borrower to demand the originals. I'm having that happen to me currently. Usually, it starts with a question and answer phase where they ask if you have the originals. Then they can request them if the court process gets to the extreme stages. So make sure you have all the originals from the borrower.

If the missing docs are recorded at the county, that makes it easy. I've lost some docs in the mail, but once it gets recorded with the county, I'm not that worried about it. If it isn't recorded, then I would look to see that the entity that originated the doc is still around to see if they can replace it. If they aren't around, things get more complicated, but not impossible.

So there is my risk factor level.

Borrowers signature needed? Won't buy it.

Doc recorded with county? Will buy it.

Doc not recorded, entity still exists. Might buy it. Depends on the deal.

Doc recorded, entity is gone. Probably won't. Depends on the deal.

If they are recorded...can he or you get a copy from the county clerk?

Originally posted by @Bruce Lynn :

If they are recorded...can he or you get a copy from the county clerk?

 If it's a recorded document then yes, you can get an official copy from the clerk. But notes themselves are typically not recorded.

How do you know the terms of the agreement to repay without the note?

If I lost a note and the buyer stopped paying I would try to get them to acknowledge the debt by offering them to rework work the loan.  If they agree get them to sign a new note.

Notes are Never recorded.

@Wayne Brooks   we typically never record a note.. not that they cant be but never seen it done.

@Jessica Zolotorofe   I have had this happen over the years and did ok we just did a lost note affidavit and created a new one.. no big deal still got title insurance.

but NO note no lost not affidavit no deal of course.

Adding to @Jay Hinrichs comment,  a lost note affidavit works, but I have been strongly advised by one of my attorneys that a copy of the note is also required.  I have closed on a number of deals which had copy only (no original) along with a LNA. 

@Jay Hinrichs   Yep, lost note affidavits were the norm here during foreclosure bonanza.  But these were typically assignments cases, and involved all institutional lenders.  In the OP'x case of an assumed small private lender/assignee I don't know if it would be an easier or a harder hurdle. I'm guessing local jurisdictions and practices in the court system would play a role.

@Mike Hartzog @Wayne Brooks   ya guys just  speaking of my personal notes that I have lost  LOL  and I do have pretty strong relationships with my closers ... might not be that easy with one off no relationship folks I just bring that up as an option were a note is lost and NOT ALL is lost there are other avenues.. but of course its best to have all originals..

Ok dumb question but the term note confuses me. I just looked up myself for example online and saw a Warranty Deed upon purchase and then a mortgage. On the mortgage it says “This debt is evidenced by Borrower’s note dated the same date as this Security Instrument (“Note”).....

I don’t see anything else recorded. So where would the note be?

(By the way this is on a property I no longer own and don’t have a mortgage now where I live either so I’m just asking to learn)

Thank you!

@Robert Beryl   notes are not recorded.. they are held in a file with the beneficiary.. at least they were suppose to be... but as we know this led to lots of lost instruments and then attorneys suing to keep people in their homes because the banks could not produce the originals.. so when you buy a note you want to make sure you get the original and put it in the vault..

on the fractionalize one you did you want to make sure someone is holding that note you trust.. and at least get a copy.. when we did this routinely in CA.. as a HML we held on to the Note for the benefit of all our clients...

@Jay Hinrichs as always thanks. I will have to call tomorrow, I see in my emails a Written Loan Agreement, and a title policy but nothing that says “note”.

@Jay Hinrichs actually I just checked again and there was a link and I found the copy of the Promissory Note.

I’m glad I slowed down and didn’t go crazy submitting bids. I can see there is a learning curve and I’d rather learn like this not by actually buying something I have no idea what I’m doing.

Thanks again!

Hey @Robert Beryl it's good that you're learning this stuff but I hope you're also getting a professional collateral review as part of your formal due diligence once you have an accepted bid.  I wouldn't trust myself to catch everything.

Hi @Gail Greenberg , yes thanks definitely I have a law firm I’m going to be using. Plus I’ll be looking myself as Scott suggested.

The first one I did went so fast it was over before I knew it. And I just checked online where It’s stored and saw an “Adjustable Rate Note”.

Thanks again

I have successfully collected and even foreclosed on a DOT without being able to produce the note. Here is an article that might shed some light on the process.

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