Feb 26, 2009

The "Produce The Note" myth

It seems lots of folks are abuzz about the 3 magical words that they think will help get someone out of foreclosure. They seem to believe the words 'produce the note' are like a 'get out of jail free' card.

Supposedly, a homeowner facing foreclosure can demand that the lender produce the note - the original mortgage note that the homeowner signed when they purchased their property. The idea is that the loan has probably changed hands several times and the lender can't get their hands on a copy of the note. And if they can't prove that you signed a note, then you don't owe them money, right? Wrong.
If you signed a note and bought a house - no magical words are going to make that debt just disappear. Anyone facing foreclosure may try this tactic to delay the process but, at best, it will buy them a little time. They should be very aware of the consequences and the costs.
First, they WILL find the note. It was filed with the deed in the county or city where the property is located. An electronic copy probably exists and it isn't that hard to find. It may take a while, but they will find it. And guess who they are going to charge for the cost of researching the documents? You.
And the extra time you are buying will be expensive. Monthly service charges and fines will continue to accrue. These can add 10% to your unpaid balance in just a few months. If you had any hope of escaping foreclosure, it will disappear.
The people trying this tactic become squatters in their homes. If they have no intention of paying the note, then they figure they can at least get another month or two of free living. What they don't realize is that they are ruining their credit even more. For example, instead of showing bad debt of their $200,000 home loan, they'll show a longer history of non-payment of $250,000 in bad debts. I'm not sure how quickly the finance industry will be to look past those bad debts. Already, we're seeing the rates for home insurance and car insurance differ based on a customer's credit scores.
I predict that credit scores will start having a bigger impact on our lives. Everyone from potential employers to credit card companies look at credit scores as an indicator of risk and reliability. In the long run, a low score will cost you more than a house payment.
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1 comment:

Ju said...

Nice post. I like the part about produce-the-note. I live in Tampa and know one person he helped, and it actually worked. Well it did not work like some of the newspapers reporting, but they did get new terms that were very favorable and they were able to avoid foreclosure. It really varries by situation and probably the laws of your state on how far this goes. This site has all the videos they have done. Watch all the videos here: