If the bank lost the note, will I get my house for free?

Welcome to the first installment of the Florida Foreclosure Defense Blog.   This Blog is brought to you by the law firm of Shuster & Saben, LLC, a firm with offices in Miami, Florida and Plantation, Florida that defends or is available to defend Florida homeowners in Dade, Broward, Palm Beach, Collier, Lee, St. Lucie, Indian River, Brevard, and Orange counties.  In the weeks ahead we will discuss the foreclosure crisis, what is happening in defended foreclosure cases, common questions about the foreclosure process, the origins of this crisis and potential solutions to the problem.  The opinions expressed herein are purely those of the blog authors and are not meant as legal advice. Homeowners who have been served with a foreclosure should consult and attorney and if they are indigent, unemployed, or qualify for legal aid, are likely to be able to obtain legal assistance for free or at nominal cost.

For our first topic I address the question often presented by potential clients:  If the Bank Lost the Note will I get my house for free?

Homeowners who have received their homes for free have reached the status of Urban Myth on the Internet.  Does it happen in the real world?  It does, but it does not occur that often.  In Florida Statute 71.011 provides for the Reestablishment of papers, records, and files in limited circumstances.  The statue in pertinent part provides as follows:

71.011 Reestablishment of papers, records, and files.--All papers, written or printed, of any kind whatsoever, and the records and files of any official, court or public office, may be reestablished in the manner hereinafter provided.

(1)  WHO MAY REESTABLISH.--Any person interested in the paper, file or record to be reestablished may reestablish it.

(2)  VENUE.--If reestablishment is sought of a record or file, venue is in the county where the record or file existed before its loss or destruction. If it is a private paper, venue is in the county where any person affected thereby lives or if such persons are nonresidents of the state, then in any county in which the person seeking the reestablishment desires.

(3)  REMEDY CONCURRENT.--Nothing herein shall prevent the reestablishment of lost papers, records and files at common law or in equity in the usual manner.

(4)  EFFECT.--

(a)  Any paper, record or file reestablished has the effect of the original. A private paper has such effect immediately on recording the judgment reestablishing it, but a reestablished record does not have that effect until recorded and a reestablished paper or file of any official, court or public officer does not have that effect until a certified copy is filed with the official or in the court or public office where the original belonged. A certified copy of any reestablished paper, the original of which is required or authorized by law to be recorded, may be recorded.

(b)  When any deed forming a link in a chain of title to land in this state has been placed on the proper record without having been acknowledged or proven for record and has thereafter been lost or destroyed, certified copies of the record of the deed as so recorded may be received as evidence to reestablish the deed if the deed has been so recorded for 20 years.

(5)  COMPLAINT.--A person desiring to establish any paper, record or file, except when otherwise provided, shall file a complaint in chancery setting forth that the paper, record or file has been lost or destroyed and is not in the custody or control of the petitioner, the time and manner of loss or destruction, that a copy attached is a substantial copy of that lost or destroyed, that the persons named in the complaint are the only persons known to plaintiff who are interested for or against such reestablishment. 

Our law firm has found that in over 50% of the foreclosure cases we are defending the lender has included a count to "reestablish" a "lost" note.  I think this statute was designed to protect the bank that 50 promissory notes in their vault on Monday, gets hit by a category 4 Hurricane on Tuesday, and takes diligent action to reestablish the notes as soon as the hurricane has past.  From time to time banks make mistakes and this statute could prevent a forfeiture from a clerical error.  In the foreclosure cases we are seeing it is a stretch to say the banks lost the note.  It appears readily apparent that the mortgage brokers who were selling their loans before the ink was dry on the closing real estate closing documents, and the banks forgot the meaning of the word "underwriting" were in such a hurry to write loans, bundle the loans  and sell the loans, that nobody was bothering to take physical possession of the note.  When the loan changes hands three of four times and the fourth holder of the loan says they lost the note, how can they lose something that they never had.  Many times the lender who brought the foreclosure action has no idea which bank lost the note.  

In the real world if the foreclosure complaint has a count to reestablish the note, the bank will have a much more difficult time in the foreclosure cases.  When a bank realizes that it does not have the evidence it needs to prevail and that obtaining such evidence may take years the bank is often amenable to settlement under terms very favorable to the homeowner.  While every case is different when faced with the possibility of losing banks offered homeowners settlements that cut the loan balance in half and reduce the interest rate to 4%.  

While some judges rulings, like the one below (Not our firms case) have set the bar to reestablish a note quite low others have held the banks feet to the fire.  An example of a case where the bank was allowed to reestablish the note follows:

 GLENDALE FEDERAL BANK, FEDERAL SAVINGS BANK, Plaintiff, v. PHILIP L. FRYBERGH; LAKEVIEW VILLAGE II, INC., a dissolved Florida corporation; SUMNER E. ROBINSON, Trustee of the Duncan Florida National Trust Dated 11 July, 1989, SEARS, ROEBUCK AND CO., a New York corporation; WASTE MANAGEMENT INC. OF FLORIDA, Successor by Merger to Southern Sanitation Service; and CAUSEWAY LUMBER COMPANY, INC., Defendants. 17th Judicial Circuit for Broward County, Civil Division. Case No. 93-25033-06. March 2, 1994. Geoffrey D. Cohen, Judge. Robert W. Lee, Smith & Hiatt, P.A., Ft. Lauderdale, for Glendale Federal Bank. Robert A. Arabian, Tamarac, for Frybergh and Lakeview.

PARTIAL SUMMARY JUDGMENT

AS TO COUNT I (LOST NOTE) AND

SECOND AFFIRMATIVE DEFENSE

IN FAVOR OF PLAINTIFF

THIS ACTION came before the Court on motion of the Plaintiff for the entry of a Partial Summary Final Judgment As to Count I (Lost Note) and Second Affirmative Defense, and after consideration thereof and the Court being duly advised in the premises and otherwise,

IT IS ADJUDGED THAT:

1. Plaintiff has established that it owns and holds a promissory note and mortgage, copies of which were attached to Plaintiff's Complaint in this action. The original note has been lost and is not in the custody or control of Glendale. The note has not been paid or otherwise satisfied, assigned or transferred. In Florida, the right to reestablish lost instruments is recognized both by common law and by statute. The destruction or unintentional loss of an instrument does not change the rights or obligations of the parties to the instrument. Florida Real Property Practice III §8.3 (2d ed. 1976). Upon establishing that the instrument has been destroyed, lost or stolen, an interested party is entitled to a judgment reestablishing the instrument. Fla. Stat. §71.011. Accordingly, the note is hereby re-established and the copy of the lost note attached hereto shall stand in place and in stead of the original promissory note. If the original note is ever located, Plaintiff shall immediately deliver it to the Court for cancellation.

2. In Defendant's Second Affirmative Defense, Defendant alleges that Glendale neglected to give Defendants written notice of default and an opportunity to cure before accelerating the note and mortgage. Glendale has, however, established that proper notice was given to Defendants as set forth in the affidavits previously filed with this Court. Evidence of a routine practice of an organization is admissible to prove the conduct of the organization on a particular occasion was in conformity with the routine practice. Florida East Coast Properties v. Coastal Construction Products, Inc., 553 So. 2d 705, 706 (Fla. 3d DCA 1989). The rule is that, when something is mailed by a business, it is presumed that the ordinary course of business was followed in mailing it, and that the mail was received by the addressee. Allstate Insurance Co. v. Eckert, 472 So. 2d 807, 809 (Fla. 4th DCA 1985); Brown v. Giffen Industries, Inc., 281 So. 2d 897, 900 (Fla. 1973). Glendale's affidavits establish that the ordinary course of business was followed in sending its notice of default and acceleration. Accordingly, judgment is hereby entered in favor of Plaintiff as to Defendants' Second Affirmative Defense.

Returning to the initial client question of If the bank lost the note will I get the house for free?  When this question is asked in a first meeting the best answer we can give is MAYBE.  Our firm is a firm of litigators and we fight foreclosures with the goal of getting the case dismissed.   On day one we will not know what cards are in the banks hand.  During the period the case is pending the lost note could be found.  What we do know is that the homeowners position will be stronger if the bank has the added burden of reestablishing the note.  If the bank or the banks lawyers make a mistake, which happens quite frequently we will attempt of capitalize on the mistake.  Many foreclosure cases settle and thus even if the homeowner does not get their house for free a resolution that keeps the homeowner in their home and drastically reduces their loan balance and interest rate is outcome worth working for.