A mortgage consists of two parts: the mortgage and the promissory note.
The mortgage contains the deed of trust which transfers legal title to
a property to the borrower and secures the loan. The promissory note contains
the promise to repay the loan, as well as the names of the borrowers,
the property address, the interest rate, the amount of the loan, and the
term of the loan. Unlike the mortgage, the promissory note is not recorded
in a county’s land records.
In order to foreclose on a property, a mortgage servicer or bank must show
that it has standing. Mortgage servicers prove that they have standing
by attaching the original, signed promissory note to the foreclosure complaint.
When a mortgage is transferred from servicer to servicer, the physical
promissory note may be misplaced. Without the original, it is more difficult
for a mortgage servicer to establish the elements of a successful foreclosure
case. As a result, loan servicers are now attempting to bypass this problem
and reduce their overall amount of paperwork by creating and storing these
documents online. Many borrowers now sign promissory notes electronically,
rather than on paper with a pen and ink. These “e-notes” must
still be stored with the mortgage servicer, and must be saved in such
a way that it is clear that the e-note is the original document.
As e-notes become more common, courts have had to rule on whether these
electronic documents meet all of the requirements of a promissory note
under existing case law. Recently, the Fourth District Court of Appeal
(4th DCA) upheld a ruling that allowed a mortgage loan service to initiate
foreclosure proceedings against borrowers on the basis of a mortgage loan
evidenced by an electronic note.
In the case of
Rivera v. Wells Fargo Bank, NA, the borrowers executed an electronic promissory note (e-note), meaning
that they signed the document with an electronic signature. When signing
the promissory note electronically, the borrowers confirmed that they
agreed to the terms and acknowledged that the e-note would be authenticated,
stored, and transferred using electronic means. They also agreed that
the electronic signatures would make the e-note valid and enforceable,
like any other signature made with pen and ink.
In 2010, the bank filed a complaint to foreclose on the mortgage after
the borrowers defaulted. The bank attached a copy of the mortgage to the
complaint, and eventually attached a copy of the e-note. The borrowers
lost their foreclosure case, and appealed to the 4th DCA.
On appeal, the borrowers made several arguments against the use of an e-note
in a foreclosure case. These arguments included that the bank could not
prove that it owned the note, that the electronic transfer requirements
were not met, and that the mortgage servicer could not prove that the
e-note contained the borrowers’ signatures.
The 4th DCA disagreed with the borrowers. First, it held that under the Uniform
Electronic Transaction Act, an e-note qualifies as a transferable record
that could be bought and sold by mortgage loan servicers. Additionally,
the court noted that the e-note was stored in such a manner that an authoritative
copy of the e-note existed that was unique, identifiable, and unalterable.
As a result, the court found the fact that the foreclosing bank had control
over the original e-note file to be equivalent to the bank having control
over an original, hard copy promissory note.
Additionally, the court ruled against the borrowers in finding that the
bank did not have a duty to prove that the borrowers signed the note.
Instead, the borrowers were required under Florida law to submit evidence
that they had
not signed the note or that the signatures were forgeries. Since they had not
done this, the bank was no obligation to prove that they had electronically
signed the promissory note.
The case highlights the intersection of technology and the law. While e-notes
are relatively new, the 4th DCA clearly intends to find these electronic files sufficient for a foreclosure
case when they meet the same criteria as the paper documents.
If you are facing foreclosure, it is important to seek help early. At Loan
Lawyers, our Florida foreclosure defense attorneys will work with your
lender to pursue alternatives to foreclosure and help you protect your home.
To schedule your free, confidential consultation with Loan Lawyers, contact
our office today by calling (888) FIGHT-13 (344-4813).