Foreclosure Offense and Defense: Basic Rules, Discovery, Affirmative Defenses and Audits

I found an excellent article by an excellent writer I would like to share with you. It underscores the importance of the requiring the lender to prove the original note, the ownership of the note and mortgage and the alleged non-payment. There is much more. If you are involved in a foreclosure or you are an attorney representing someone in foreclosure this is a must read article. see also

Affirmative Defenses and Procedure

You Can Stop Foreclosure

and Put the Lender on the Defense.

 Does the Lender have the “Original” Note in Hand?

by: Kenneth M DeLashmutt


Step One: Answer the Foreclosure Lawsuit

Foreclosure Filing Schedule:

You receive a Summons and Complaint…

(The plaintiff–bank, lender or other creditor–starts the foreclosure by having a marshal serve the defendant–owner or borrower–with a Summons and Complaint.) You can check the foreclosure rules in your State. Click on the following link:

Within 2 days of the Return Date on the Summons…

File an Appearance

Within 15 days of the Return Date on the Summons…

File and send an Answer.  Be sure to put a certification of service at the end of your answer, and that you have sent your Answer to everyone who has Appeared in the case.  You will need to sign the certification separately from your signature on the Answer.

If you choose foreclosure by sale, file a Motion for Foreclosure by Sale


Step Two: The Lender Must Prove Existence of the Note.  


To recover on a promissory note, the plaintiff (the Lender in the case of foreclosure) must prove:(1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note in due course; and (4) that a certain balance is due and owing on the note.


Trial court erred when it did not proceed to take testimony before it entered default judgment (see definition below) for the plaintiff; the unsworn statement of plaintiff’s (plaintiff is the lender) attorney could not support default judgment rendered.” 


It is also true, in mortgage foreclosures, prove up of the claim requires presentment of the “ORIGINAL” promissory note and general account and ledger statement. Claim of damages, to be admissible as evidence, must incorporate records such as a general ledger and accounting of an alleged unpaid promissory note, the person responsible for preparing and maintaining the account general ledger must provide a complete accounting which must be sworn to and dated by the person who maintained the ledger. 


To recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note in due course; and (4) that a certain balance is due and owing on the note.

1) the existence of the note in question

2) If the “ORIGINAL” note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then your defense is as follows:

3) the “named” Plaintiff is not the ‘holder in due course” of the note and only an agent or nominee for the true beneficial owners and holders in due course;

4) there may be fraud upon the court in that the named Plaintiff may not have ANY interest to the note and that the supposedly lost note is not lost, but may have been intentionally destroyed due to missing assignments on the note which may have made it void and a legal nullity, thus they have exploited key and vital evidence;

5) there is no proof that the named Plaintiff ever held the note or took possession of the note and thus has no claim or right to bringing about the foreclosure;

6) there is no proof, without the note, that a proper chain of assignments took place and that the lien positions were properly perfected;

7) other unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners to the note and must be identified and brought before the court;

8) there may be several unnamed and disclosed real parties in interest may have a claim to the note and be the rightful beneficial owners of the note;

9) that the party sued signed the note

10) If the “ORIGINAL” note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then you need to notify me and also put on affirmative defenses that:

11) the note in question is not the note you signed and executed in ink and only the one you signed in ink that presumably contains your fingerprints can be relied upon by your handwriting analysis expert;

12) in an electronic age, it is a simple matter to place someone’s signature or image upon a document and that it is very difficult to imagine such a valuable negotiable instrument being lost or missing without a nefarious motive.

13) that the plaintiff is the owner or holder of the note in due course;

14) If the “ORIGINAL” note you signed in ink that contains your signature is claimed to be lost, stolen, missing and/or destroyed, then you need put on affirmative defenses that:

a) the mortgage industry, investors, and GSE’s such as Fannie Mae, Freddie Mac, and FHLBs etc. have a requirement that the last endorsement to them be undated and “blank” leaving the payee line blank and making the negotiable instrument a sort of “bearer bond” and instrument. as such, any party finding or stealing the note can place their name on the payee line, claim ownership of the note, and sell the note to others who may make a demand upon you in the future. as such, you require money to be deposited in an escrow account or with the court in an amount equal to the amount claimed owed on the note, until such missing note is found or upon your death. notes have a life of their own…

b) if the note was destroyed or lost intentionally (the industry maintains this practice) then they may be trying to hide the beneficial owners and shield them from any assignee liability arising from the actions of the servicer who they hire, supervise and most importantly authorize to foreclose upon you. without the note, since subsequent endorsements are not recorded to avoid payment of taxes and t hide true and real beneficial interests, there is no possible way to determine who ever held a rightful interest in the note and who you may have claims or counter claims against and who should be presently before the court as a real party in interest.

c) Furthermore, if there are missing assignments of the original note and the assignment went from Lender A to Lender B to Lender D without an intervening assignment from Lender B to Lender C and From Lender C to Lender D, then the note may be void and a legal nullity in your state.

d) It is industry practice to not name the GSE, investor, or real party in interest in foreclosure and to use as a front for the Plaintiff:

i) The very original lender who may or may not even be in business any more or sold their interest in the note long ago, only to have a claim made upon them for repurchase;

ii) A Servicer of even “special servicer” who is acting as an agent for the investors, GSE’s or real party in interest, but has no beneficial ownership in the note since they are only being paid to collect and foreclosure by the real parties in interest

iii) A “nominee” such as MERS who has no legal authority to foreclose upon you and do business in your state and who according to their own written documents and verbal assurances never hold the note or own “any” beneficial interest in the note!!!!!

e) Notes are pledged, sold, bifurcated, and traded in various derivative transactions like bubblegum baseball cards and their transfers, sales, pledges etc. Are not publicly recorded. As such, only possession of the actual original note can prove the actual owner and holder in due course of the note and who you can make an offer of payment to for purchase of the note by yourself, another family member or partner. You have a right to know the rightful owner of the note so an offer for payment of the note at a discount and at fair market value can be made. If the note has been pledged and encumbered, then that party must be made aware of the foreclosure and your right to negotiate with them a payment and release of the note by you, other lien holders or private parties;

f) Notes are traded often and you need to inspect the physical note to see who the real prior parties were that held and endorsed your note since you may have counter and cross claims against them and need to bring them before the court for the action, since they may have improperly inflated your principal balance, amount owed or escrow account by not applying your payments correctly; adding fees not legally owed by you to the principal balance; miscalculating the interest and not properly amortizing your loan; fraudulent selling your loan or misreporting you on your credit report.

g) Federal Circuit Courts have ruled that the only way to prove the perfection of any security [including promissory note] is by actual possession of the security. Current or prior possession must be proved up.

(h) that a certain balance is due and owing on the note.

15) You must have the master transaction histories and general ledgers for the account since a “dump,” “summary,” or redacted record cannot be relied upon to determine the rightful amounts owed by having a complete audit of your account. In order to conduct a proper audit, master records and all prior records must be compiled, reviewed, analyzed, and reconciled. In is not you responsibility to prove each payment was made. It is your responsibility to say a payment was made and provide evidence, including your word that it was made. It is the note holder’s duty and responsibility to validate the claims being made on the note and the amount owed. If they have the master records or claim that the records of prior servicers are missing, then there is no rightful way for anyone to prove up the balances and amounts they claim are owed!!!! Furthermore, you must claim:

a) That the principal balance claimed owed, is not owed, and is the wrong amount.

b) That the loan has not been properly credited and amortized;

c) That the current servicer cannot be relied upon to testify and certify that prior amounts, transactions, credits, debits, charges and fees added by prior servicers were indeed proper and correct and that the account they were transferred was properly amortized and credited. As such, the person holding the ledgers at the prior servicer must come and testify as to the amounts owed on the note.

d) dumps and summaries of amounts owed cannot be relied upon and only original ledgers and master records and the keeper of those records cant testify as to the amounts claimed owed and due.


Supporting Case Law


Where the complaining party cannot prove the existence of the note, then there is no note.


See  Pacific Concrete F.C.U. V. Kauanoe,  62 Haw. 334, 614 P.2d 936 (1980), GE Capital Hawaii, Inc. v. Yonenaka  25 P.3d 807, 96 Hawaii 32, (Hawaii App 2001).


Siwooganock Bank in Lancaster NH, in alleged foreclosure suit, failed or refused to produce the actual note which Siwooganock alleges Eva J. Lovejoy owed.  

To recover on a promissory note, the plaintiff must prove: (1) the existence of the note in question; (2) that the party sued signed the note; (3) that the plaintiff is the owner or holder of the note; and (4) that a certain balance is due and owing on the note.  See In Re: SMS Financial LLC. v. Abco Homes, Inc. No.98-50117 February 18, 1999 (5th Circuit Court of Appeals.)


Volume 29 of the New Jersey Practice Series, Chapter 10 Section 123, page 566, emphatically states, “…; and no part payments should be made on the bond or note unless the person to whom payment is made is able to produce the bond or note and the part payments are endorsed thereon. It would seem that the mortgagor would normally have a Common law right to demand production or surrender of the bond or note and mortgage, as the case may be. See Restatement, Contracts S 170(3), (4) (1932); C.J.S. Mortgages S 469,  in Carnegie Bank v, Shalleck 256 N.J. Super 23 (App. Div  1992), the Appellate Division held, “When the underlying mortgage is evidenced by an instrument meeting the criteria for negotiability set forth in N.J.S. 12A:3-104, the holder of the instrument shall be afforded all the rights and protections provided a holder in due course pursuant to N.J.S. 12A:3-302″


Since no one is able to produce the “instrument” there is no competent evidence before the Court that any party is the holder of the alleged note or the true holder in due course. New Jersey common law dictates that the plaintiff prove the existence of the alleged note in question, prove that the party sued signed the alleged note, prove that the plaintiff is the owner and holder of the alleged note, and prove that certain balance is due and owing on any alleged note.  Federal Circuit Courts have ruled that the only way to prove the perfection of any security is by actual possession of the security.


Supporting Case Law


Unequivocally the Court’s rule is that in order to prove the “instrument”, possession is mandatory.


See Matter of Staff Mortg. & Inv. Corp., 550 F.2d 1228 (9th Cir 1977).  “Under the Uniform Commercial Code, the only notice sufficient to inform all interested parties that a security interest in instruments has been perfected is actual possession by the secured party, his agent or bailee.” Bankruptcy Courts have followed the Uniform Commercial Code. In Re Investors & Lenders, Ltd. 165 B.R. 389 (Bankruptcy.D.N.J.1994), “Under the New Jersey Uniform Commercial Code (NJUCC), promissory note is “instrument,” security interest in which must be perfected by possession.


Step Three: Audit Your Closing Documents for TILA Violations, Illegal Kickbacks and Fraud


In order to find for consumer protection law violations you will have to gather and assemble your loan and closing documents and put them in order.


Required Documents for your Audit


To begin the Audit process, put together a package of the following documents:


NOTE: All of the following documents are required.

If you do not have all of the documents DO NOT call your lender unless you have sent the lender the RESPA document the “qualified written request.”


List of loan documents for audit.


*anything that was given to you at the time of signing the loan

*Promissory Note (very important)

*Mortgage or Deed of Trust (very important)

*Application for the loan, if available

*Good Faith Estimate (very important)

*Settlement Statement (very important)

*Right to Cancel/Right to Rescission (very important)



*HUD 1 Statement

*TILA Disclosures (very important)

*RESPA Servicing Disclosures

*Any and all disclosures (very important)


A copy of the current billing statement.


A copy of any notifications from the lender or other party of a change  in where the borrower is to send the payments.  This may be because the lender sold the note (a new assignee), or sold the rights to collecting the payments (a new servicer). 


A copy of any default notices, acceleration papers, or foreclosure paperwork.


A copy of any and all court paperwork if the property is in

foreclosure or there is any court process ongoing that involves this property.  If you do not have this paperwork, it must be obtained from the court files.


What are you looking for?


Now you can audit your closing documents and look for TILA, HOEPA and RESPA violations.


If the answer to any of the following questions is “yes,”

you are most likely a victim of predatory lending practices and may be able to void the mortgage and apply 100% of your payments to principal. And, you may also be able to recover money damages.


Such violations can be used as a defense to a mortgage foreclosure. If there is a violation,


1. Have you repeatedly refinanced your loan? Was the last refinance within the last 3 years? (A common predatory practice is “flipping,” which involves “repeatedly refinancing a mortgage loan without benefit to the borrower, in order to profit from high origination fees, closing costs, points, prepayment penalties and other charges, steadily eroding the borrower’s equity in his or her home.”).


2. Did you increase rather than lower your rate upon refinancing?


3. Are you paying an interest rate in excess of 9.5%?


4. Was the loan obtained to pay for home improvement work that was not done properly, or even at all?


5. Have you had problems with the mortgage company regarding untimely posting of monthly payments? Sudden increases in payments? Adding amounts to your balance for insurance, “property preservation,” or other “advances”? Does your principal balance never seem to go down?


6. Were you charged high closing costs (points and fees) on the mortgage?


7. Did the terms of the mortgage change to your detriment at the last minute before the closing?


8. Did the lender pay money to your mortgage broker (look on your HUD-1 Settlement Statement for a “premium” or “YSP” or “yield spread premium” or “POC”, “Paid Outside of Closing”)?


9. If you have an adjustable rate mortgage, were any adjustments done improperly? Can you even tell if the adjustments were correct or not?


10. Does your loan contain a prepayment penalty?


11. Do you believe you were treated unfairly by your mortgage company? Has correspondence with the mortgage company gone unanswered? (Mortgage companies have a statutory obligation to respond to complaints and requests for explanations of accounts. Often, they don’t. Each failure may entitle you to $1,000. If your claim against the mortgage company may exceed the number of monthly payments you allegedly missed, the mortgage company may not be able to prove that you are in default.)


12. Did all collection letters sent to you by debt collectors comply with the Fair Debt Collection Practices Act? (Up to $1,000 more if they did not.)


13. Did you (or anyone else who has an ownership interest in and lives in the house) receive a “notice of right to cancel” that was not completely filled out?


14. Did you receive your copy of the loan documents at the closing (as opposed to being sent to you later)?


15. Did you sign a document at the closing stating that you were not canceling?


16. Did the closing occur by mail, or at your home, or in another city?


The following is an example of some of the other TILA violations you may find in your closing documents.




Junk charges

(i.e. yield spread premiums and service release fees)


Payment of compensation to mortgage brokers and originators by lenders


Unauthorized servicing charges

(i.e. the imposition of payoff and recording charges)


Improper adjustments of interest on adjustable rate mortgages






Referral fees to mortgage originators.

(i.e. a lender who pays a mortgage broker secret compensation may face liability for inducing the broker to breach his fiduciary or contractual duties, fraud, or commercial bribery)


Failure to disclose the circumstances under which private mortgage insurance (”PMI”) may be terminated.


Underdisclosure of the cost of credit


Excessive escrow deposits


Breach of Fiduciary Duty


You may also find breach of contract claims.


There is a common assumption (among judges, borrowers, and the public) that mortgage companies do not desire to foreclose and acquire real estate. This assumption is no longer well founded.


There are an increasing number of “scavengers” that buy bad debts, including mortgages, for a fraction of face value and attempt to enforce them. Such entities profit by foreclosure. “Mortgage sources confide that some unscrupulous lenders are purposely allowing certain borrowers to fall deeper into a financial hole from which they can’t escape. Why? Because it pushes these consumers into foreclosure, whereupon the lender grabs the house and sells it at a profit.



Kenneth M. DeLashmutt

“Predatory Lending Defense Specialist”




9 Responses

  1. I NEED HELP. I GOT INVOLVED TRYING TO HELP SOMEONE AND IT OUTSIDE MY AREA OF PRACTICE. It is a PRIVATE COMMERICIAL FORECLOSURE. Some of our homeowner affirmative defenses apply but it is different and as usual I want to pull a rabbit out of my hat to save this man’s property but also for sport for good cause. I see the Amended Complaint has attachment that are the basic mortgages, notes, assignments, personal guarantees. They were drafted but the other side and are the most one sided, take advantage of the buyer documents, I have seen. Clearly unconscionable in many parts but still do not have the solve the case. I am filing my answer and affirmatives as I must but ..I have checked the alleged recording of book and pages in Palm Beach County and they are just not there. Nor can I find a deed in any way. I check all names, legal description, property address…nothing comes up.

    My questions are should the original private lender or any one have a deed? I see the as a big problem of subject matter jurisdiction which I believe I raise at anytime, even after an Answer and Affimative Defense such as unclean hands, unconscionable provisions, interference with his tenant/ clients, unjust enrichment…

    Any help from anyone who does this would be greatly appreciated .I can be contacted I NEED TO WIN THIS ONE,

    ( A side note I have done well stalling my own personal foreclosure based on your tips and a few others websites, but this is different. I am an attorney who has practiced mainly criminal law, with a few exceptions for 25 years. Pleased do not hold that against me.)

  2. In 2004 I traded 50% of the future equity in my home for 10 years of house payments. The guy paid the payments for 4 years then just stopped. After looking into the loan he has taken out, I see why he stopped. It’s an 8% interest only loan with prepayment penalty’s issued by New Century Finance Company. He’s quit claimed the house entirely back to me but since the loan is in his name I can’t even get anybody to talk to me. I have a power of attorney regarding the house from him as well as notarized authorization, however the loan servicing company keeps giving me the run around. Now they’re trying to foreclose. He’s just walked away and is totally out of the picture and this loan has fraud written all over it.

  3. Thank you Neil!

    For the “holder in due course” enlightenment.
    I am honored by your attention.
    The best way I can really say THANK YOU
    is to keep re-reading what you said until
    I “get it”.

    I have no legal background. ZILCH. I have
    however been in the small business world
    my entire adult life. That in itself teaches
    you to THINK. So I do. Your efforts here
    must be unimaginably appreciated by an
    unimaginably large number people in
    foreclosure peril. I am one of them.

    I will contribute what I can.

    Thank you again. Not just for your answer,
    but for this entire undertaking.

  4. Deontos: Judges tend to assume that there is a holder in due course and that the debtor is trying tricks to get out of it. So you need to be very careful about how you present your case. Basically the law is that there are presumptions that GROW into evidence. remember that without something admitted in evidence by the judge, it isn’t evidence. And the Judge cannot accept anything in evidence without an evidentiary hearing. But anything can happen if you agree to it. So be careful about expressing any agreement to anything and even more careful about not objecting when the other side offers a document as evidence when you are not even in an evidentiary hearing. And be careful if the attorney on the other side the case starts spouting things like they were true. Failure to object and deny loudly could be construed as acceptance and waiver of evidentiary requirements. So here is the way it grows.

    A document is a negotiable instrument if it is signed by an obligor and it contains an unconditional promise to pay a sum of money specifically stated in the note to a specific person by a specific date. This document is a negotiable instrument that is the virtual equivalent of cash. But it isn’t the actual obligation of the obligor. It is merely evidence of the obligation. If it were otherwise then you could borrow $10 from your friend, write it down on a note, and then if he loses the note you don’t owe the money? Of course not. But he has a more difficult time proving the obligation without the note because the note was virtually all the evidence he had.

    So the note is often confused with the obligation itself because in most cases there is a distinction without a difference. Now there is a difference. Securitization of the notes made the difference. So now the normal presumptions must be examined: that the possessor of the note is a “holder” and that the “holder” of the note is a “holder in due course”. You cannot even take it for granted that the note is negotiable because it probably is not.

  5. October 15th, 2009 at 9:47 am:

    “Pro Se Court appearance this morning.

    …………The judge assumed there was a holder in due course status………………”


    I’m trying to learn as much as I can here
    at livinglies and I have a LONG way to go.

    I know you must be busy.

    Please…. What does the statement
    above MEAN?

    Does it mean you can pursue
    them NO FURTHER to prove
    they have the actual note?

    Thank you

  6. I have a duplex rental property, which I paid cash and renovated in 2003. In 2004, I applied for and received an equity line of credit from Wells Fargo for $80,000. Market value was $105,000. In July 2005, I applied for a refinance with a mortgage broker who locked me into a 30 year, 6.25% fixed loan for $108,000 with National City Morgage. $80,000 was sent to Wells Fargo to pay off the Equity Line of Credit and it left me with a $108,000 first.

    Some time later, I applied for a loan on another property with a different bank and they inquired as to what the $80,000 line of credit was for. I told them I didn’t have one, so they sent me the information and I called Wells Fargo. After several phone calls, I finally spoke with a rep and they told me they received the $80,000, but the loan was never closed. I spent several more days trying to track down what happened and they finally surmised that it had something to do with a $500 early cancellation fee that wasn’t paid, so they didn’t give a satisfaction for the loan and it was still open. They offered to close it for me if I paid them $500. My point to them was the payoff that was sent to the title company was sent to Wells with instructions to payoff the loan and issue a satisfaction. Wells did not do that. I refused to pay the $500 and have since used the $80,000 for other ventures.

    What, if any, liability does Wells Fargo, the title co., or National City have in this situation? At the time, I had read that Wells Fargo’s actions opened them up to damages to of up to $100/day for not closing a loan and issuing a satisfaction. When I spoke to an attorney about their liability for not following the closing instructions, my attorney said the State of Wisconsin has never made a bank pay that. Do you think in this atmosphere, they may be forced to pay that fine to me?

    At this point, I still believe Wells is considered first position and National City is 2nd. The property is now only worth $90-105k. I have assets and I am not behind in payments, however I would like to know if I have a case for damages or rescission.

    Addt’l info: At closing, in July of 2005, the mortgage company raised my document fees because they had to move the closing for their own benefit and I believe the rate was incorrect.

  7. Neil, FYI, whoever wrote this took from my work product. I wrote much of this, except for a few changes here and there, almost a decade ago!


  8. I’m a victim of mortgage fraud by my now x-wife and her business partner who is also the lender that funded the loan, and owns the title company. All the signatures on the loan documents were forged by her ,including the notary’s signature. Now the lender wants to foreclose on my property. Can he foreclose on a forge mortgage that he himself is part responsible.The original loan was for 175K ,and was paid- off from the refinance of 290K. She has admitted to the forgery in the divorce deposition. The lender was deposed ,and when he was asked about the forgery he stated that she told him that she signs for me on all documents and he went ahead and funded the loan. Now he wants to foreclose on my homestead ,based on the original note of 175k that was paid-off from the forge mortgage that he himself funded.Is this
    enforceable .Can I sue for damages ,and have the entire forged lien removed from my property,if yes what do I need to do .I don’t have much money to hire an attorney. I need help . The lender wants me to sign over the house to him or do a short sale.

  9. […] livinglies wrote an interesting post today on Foreclosure Offense and Defense: Basic Rules, Discovery …. Here’s a quick excerpt: […]

Contribute to the discussion!

%d bloggers like this: