What does “a lost promissory note” mean?

Banks require buyers to have all their paperwork organized and ready. They require numerous amounts of information—making sure that buyers have all their ducks in a row. So, banks should really be on top of things and keep their files immaculately, right? Well, in a perfect world—yes. However, sometimes this is not the case!

The Internet is full of rumors of homeowners receiving their house free and clear because the bank lost the right paperwork or promissory note. Are they true? Well, it is possible but not probable due to many factors, including a Florida law that addresses this type of situation.

What is the promissory note? Merriam-Webster defines it aswritten promise to pay at a fixed or determinable future time a sum of money to a specified individual or to bearer.”

How does a bank lose paperwork?

Banks often sell loans to various vendors and companies. It is not unusual to see home loans that change hands numerous times. When the housing market was booming, loans changed hands rapidly. Now we are finding out that some banks were not keeping proper records about these transfers (and a few were involved in scams and frauds).  Therefore, it is not hard to see that losing or misplacing paperwork and promissory notes is quite possible.

What does it matter if they cannot find the promissory note, if they can find other paperwork?

A paper trail is always important. It can help prove that the promissory note exists. But, paperwork can show the loan exists but the promissory note is what shows who owns it and what is owed. If it has changed hands many times it can be difficult to locate. Bottom-line: The promissory note is a key part of proving what is owed to whom.

Would this lost promissory note really allow someone to own their home scot-free or allow them to stop foreclosure?

Many blogs and commentators say it is possible. (A very reputable source,–Time magazine–ran an interesting piece on this scenario a few years back.) But SmithLaw knows that Florida State Statutes 71.011 allows for missing paperwork of this type to be replaced in Florida cases. That should allow any lost notes to be restored. Found in Title VI Chapter 71, this statute should protect banks that lose promissory notes by allowing them to re-establish them. The statute says: “Any paper, record or file reestablished has the effect of the original.”  This will cause at least a brief delay in a proceeding that required it.  But a total abolishment of the loan? Not likely.

Some of the rumors that say the bank losing the note caused someone to get their home free and clear are exaggerated or are not true. With the foreclosure epidemic America is facing, it is easy for rumors and false hopes to get started. Those who say they got the home simply because the note was lost probably do not understand the intricacies of the situation. It’s possible that a lost note would be one more piece of evidence that puts the nail in the coffin of a foreclosure case, but a lot more would have needed to be missing or wrong before a home was announced free and clear.

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