"Produce the Note" not an Issue for Private Mortgage Note Lenders or Sellers

As the economy recovers from the subprime housing crisis we’re learning more and more about the cavalier way many institutions handled their clients’ mortgages. Despite the pain and frustration this has caused, it’s led to one ironic advantage for desperate homeowners facing foreclosure. In many cases, lenders lost the original promissory note in the rush to repackage and resell mortgages, leaving them with no direct proof they’re actually entitled to foreclose.

The "produce the note" defense rarely seems to get rid of foreclosures, but has been known to delay them. For anyone considering seller financing as a borrower or lender, this situation illustrates the advantages of going with private arrangements. Simply put: You’ll always know where your papers are. In the past, people were sometimes skeptical of seller-held notes because they were considered to be less formal than their bank-held counterparts, but now that we all know that in some cases the banks were more concerned with selling investments than following prudent procedures, the virtues of properly administered seller financing are beginning to shine by comparison.

An honest, intelligent borrower prefers to have access to all relevant documents and when he has it, has a much better grasp on his financial obligations, heading off trouble before it even starts. While the seller is responsible for taking care of any issues with the borrower, he never needs to worry about a third party mangling or losing papers as long as he takes the time to track them. If you choose a borrower responsibly and work with a real estate lawyer, managing a seller-financed mortgage becomes a smooth process. And if the time comes when you need an injection of cash or just want to simplify your finances, you can always sell your note.