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Here in Florida, we have a snowball that just keeps rolling along, getting bigger and bigger: the national spotlight is finally noticing a big problem that Florida real estate attorneys representing Florida home owners in things like foreclosure defense and short sale counseling have known for a long time:  it’s not just bad real estate title documentation when the lenders try to foreclose that’s the problem.

There’s also the problem of improper and illegal loan documentation in sales and transfers of homes that have been the subject of foreclosure.  That’s right: there is a lot more mess to clean up than gets talked about in the news.

1.  The Zombie Note

Long ago, before all this mess began, when someone in Florida sold their home and paid off that mortgage, they got a cancelled mortgage note.  That’s not happening now.

Today, widespread illegality exists in how Florida home loans are handled.  All too often, what is being handed out is something entitled a “satisfaction” of the mortgage which to a layman may sound just fine, but this is not the same as a cancelled note document under state law.  That note that exists in tandem with the lien upon the property, the mortgage, needs to be dealt with, to be cancelled.  Until that happens, it’s just hanging there in limbo – as what is now being labeled the “zombie note.”

2.  Real Estate Law and Contract Law are Two Different Ballgames

Remember (see our earlier post), both real estate law and contract law apply to home loans.  Mortgage liens tie the home under real estate law to the loan from the bank, allowing the bank to take the real property if the note isn’t paid in full.  Notes exist under contract law and legally create the obligation to pay a certain amount of money over time at a set amount of interest to the lender in exchange for the loan of a certain sum of money.  Notes and mortgage liens are two very different things under Florida law. And, satisfaction of the mortgage lien doesn’t do a thing for the note.

Time and again, foreclosure defense attorneys see their clients being offered settlements that offer to satisfy the mortgage but are silent about the note.  Do the lenders and their counsel realize that without documentation that there is specific cancellation (or a specific satisfaction) of the note itself, then all that is happening is the lien is being resolved and there’s a zombie note surviving the deal?  One has to assume they do.

The reality is that under Florida law, without a specific document signed by the duly authorized representatives of the proper lender cancelling that debt and its note there still exists a legal right for that debt or note to be collected.   Dismissing the foreclosure action with prejudice and forking over a document that states “satisfaction of mortgage” does not legally terminate the debt.

It’s still there under Florida contract law.  Consider the language of Florida Statute 697.02:

697.02 Nature of a mortgage.—A mortgage shall be held to be a specific lien on the property therein described, and not a conveyance of the legal title or of the right of possession.

Why do this?

The satisfaction of mortgage paperwork under Florida real estate law helps the banks and their mortgage servicers because it helps them get clear title to the real estate so they can move forward and sell that real property and move on down the road.  And that’s what they care about — getting past the glut of foreclosures and foreclosure properties that they are burdened with right now.

The reality is that a lawsuit based upon that note is left open-ended.  The zombie note is setting there.

Larry’s Tip

Sure, there are those (like bank representatives) that will argue this is no big deal — they have dismissed their lawsuit against the homeowner with prejudice and issued a “satisfaction of mortgage” and that’s that.  They’re not going to sue the Florida man or woman again.

That’s not the worry.

As an American Bankruptcy Institute scholar named Jack Williams has been noted in news coverage on this issue, there’s already a map to follow made back in the 1980s for collection agencies and their kindred spirits to use:  buying RTC (Resolution Trust Corporation) notes up and then suing on them.

Williams believes that these zombie notes could be bought, say in a big bunch for pennies on the dollar just like the RTC roadmap sets out, and then the Florida homeowner who thought the foreclosure was long behind him could be served with a new lawsuit brought by some sort of note-suing machine, demanding payment on that zombie note.

Would there be arguments and defenses to be made to these suits?  Of course.  A foreclosure defense real estate attorney experienced in Florida law would fight hard for his client against these sorts of lawsuits.  However, it doesn’t mean that they would be frivolous and false under Florida law.  They wouldn’t be: the living note properly transferred to the buyer of the note would be a valid basis for a brand new lawsuit.

It would be easier – and the right thing to do – if notes were being cancelled as they should be.  This is not happening.  Which is one more reason that savvy and smart Floridians are getting real estate lawyers to help them deal with all this mess.  Because “mess” is exactly what they’re facing.

If you have questions or comments, please feel free to Chat with Larry in the comments below, at or (954) 458-8655.

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