Banking Law Update: Bank Required To Show It Has “Original” Note To Foreclose

The Wisconsin Court of Appeals recently ruled against a bank seeking to foreclose a residential mortgage, serving as a reminder to financial institutions to make sure they have their paperwork in order before they go to court. In Bank of America v. Yahn, Appeal No. 2015AP936 (Wis. Ct. App. Dec. 17, 2015), the Yahns obtained a loan from a mortgage company identified on the paperwork as Residential Finance Corporation. Bank of America, however, brought the foreclosure action, stating that the promissory note evidencing the loan had been endorsed to it (apparently via secondary market sale or servicing agreement) and that the loan had fallen into default.

After the Yahns objected to the foreclosure, the bank requested summary judgment (a legal short-cut to obtain judgment without having to go through a costly and time-consuming court trial), arguing that the borrowers had raised no valid defense worthy of trial. In response, the borrowers argued in part that Bank of America was not entitled to a judgment because it had failed to prove it had possession of the Residential Finance Corporation promissory note. They denied that the copy of the note included in the bank’s court complaint was a “true copy” of the original note.

The appeals court agreed with the Yahns, finding that a foreclosing bank must prove it has the right to enforce the mortgage note that is in default. When attempting to foreclose a note endorsed in blank, the bank must show that it has possession of the original note itself. Here, Bank of America offered an affidavit from a bank employee stating that the bank “has possession of the promissory note” attached to the foreclosure complaint but did not directly address the borrowers claim that the attachment wasn’t a “true copy of the note.” The bank affidavit lacked any clear statement to certify that the copy of the note attached to the complaint was indeed an authentic copy of the original note and that said original was in fact in its possession.

The appeals court, therefore, ruled that the case must go forward to trial, at which point the bank could offer courtroom testimony to clarify the matter or perhaps bring the original document to court. Assuming the bank does possess the original document, it appears poor legal drafting of the banker’s affidavit may have doomed the bank’s summary judgment in this case, likely resulting in substantial attorney fees and years of delay.

Bosshard Parke Ltd. has a long tradition of providing able representation to both debtors and creditors in financial transactions. For more information on this and other banking topics, please contact Andrew Bosshard.