As if Florida hasn’t had more than its fair share of foreclosure troubles over the last few years, a new scam is popping up causing more trouble for homeowners. Some homeowners who have attempted to resolve their debts through deed in lieu of foreclosure transactions are finding that their debt cancellation letters are falsified or non-existent.
Where Is The Note?
When a mortgage is secured there are two important documents that are provided to homeowners. The first is a promissory note, or IOU, that states the borrower is liable for the mortgage debt. The second is a lien against the property, also called a deed of trust, which grants the lender rights to the property in the event of borrower default on the loan. When a deed in lieu of foreclosure transaction takes place, the lender provides the borrower with a letter explaining the promissory note has been “paid in full”, thereby cancelling the note of the debt.
What has been happening in Florida is what is termed a “zombie note”, whereby the borrower’s note is being referred to as satisfied rather than cancelled. While this may not seem like an important difference, having a letter of mortgage satisfaction versus debt cancellation is a big deal in future dealings. For one, these satisfied notes can then be sold to third parties who turn around and sue the homeowner for failure to pay the debt. It all boils down the accuracy of the paperwork, which can lead to misrepresented mortgage debts, unlawful collections and lawsuits.