Three Things a Lender Must Prove to Establish Chain of Title

Three Things a Lender Must Prove to Establish Chain of Title

As the housing bubble inflated, promissory notes were sold or re-assigned at a frenzied pace. A promissory note, the sole legal instrument proving that a lender is entitled to receive repayment of a loan, is a critical piece of evidence during foreclosure proceedings.

When the housing bubble began to burst in the last quarter of 2005, many homeowners who were served with foreclosure lawsuits were surprised to learn that the lender seeking to foreclose on their house could not produce the original note as evidence in court. Many times, a foreclosure lawsuit will state that a note is not lost, but rather, destroyed.

Another lost note strategy employed by lenders might be that the note was transferred by its lawful owner to someone else. Many of these notes carried a blank endorsement, sort of like writing a blank check. Anyone holding the note could be the lawful owner.

Whether the note was lost or destroyed or assigned, Florida statutes require that a lender pass a three-point legal challenge in order to re-establish the validity of a lost, missing or destroyed promissory note.

Basically, the lender has to prove the following three elements:

  • The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred.
  • The loss of possession was not the result of a transfer by the person or a lawful seizure.
  • 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.

If a lender is able to re-establish a lost note, it will have the same effect as the original.

The key to attacking a lost note claim is aggressive and thorough questioning of witnesses and narrowing the passage through which evidence can be introduced. For example, if a lender produces a witness who claims to have no knowledge of when or even if the note was lost; neither can that witness testify that the note was lawfully assigned to someone else.

An experienced foreclosure attorney who is familiar with the Florida rules of evidence can challenge the three-part test to re-establish the validity of a lost note.   The attorney may be able to exclude evidence from being introduced that will re-establish the validity of the missing or destroyed notes.

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