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FUBAR Mortgage Behavior: Florida Banks Destroyed Notes

This is highly entertaining, because the excuse is “oh we destroyed the note, so our standard practice is to use a lost note affidavit.” If this was really as widespread as the Florida Bankers Association suggests, they are in a whole heap of trouble, because in most (if not all) jurisdictions, original notes with proper wet ink endorsements are required. And in states that are serious about proper procedure (South Carolina, for instance), judges are not going to have much sympathy with the use of a lost note affidavit when the note was destroyed. But while it is clear the notes weren’t handled properly, I’m not certain that this electronic scanning story is accurate either (meaning it isn’t standard practice in mortgage land). In plenty of cases, plaintiffs come up with collateral files with hard copies of documents in them, albeit including suspiciously helpful ones that appear miraculously at the last minute. At least in private label deals (meaning non Freddie and Fannie), it appears instead that the notes are back with the originator, never endorsed as required in the pooling and servicing agreement, and are transferred out when needed. We provided a report that suggests all the notes from Countrywide deals are still with Countrywide, even though it securitized 96% of the mortgages it originated. We got even stronger confirmation over the weekend.

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