"Produce The Note" Success Story Featured In Media Report Describing Foreclosure Scandal As "Clash Over Who Gets Stuck With $1.1 Trillion In Loss"

In Boca Raton, Florida, BusinessWeek reports:

• In 2002, a Boca Raton (Fla.) accountant named Joseph Lents was accused of securities law violations by the Securities and Exchange Commission. Lents, who was chief executive officer of a now-defunct voice-recognition software company, had sold shares in the publicly traded company without filing the proper forms. Facing a little over $100,000 in fines and fees, and with his assets frozen by the SEC, Lents stopped making payments on his $1.5 million mortgage.

• The loan servicer, Washington Mutual, tried to foreclose on his home in 2003 but was never able to produce Lents' promissory note, so the state circuit court for Palm Beach County dismissed the case. Next, the buyer of the loan, DLJ Mortgage Capital, stepped in with another foreclosure proceeding. DLJ claimed to have lost the promissory note in interoffice mail. Lents was dubious: "When you say you lose a $1.5 million negotiable instrument—that doesn't happen." DLJ claimed that its word was as good as paper. But at least in Palm Beach County, paper still rules. If his mortgage holder couldn't prove it held his mortgage, it couldn't foreclose.

• Eight years after defaulting, Lents still hasn't made a payment or been forced out of his house. DLJ, whose parent, Credit Suisse, declined to comment for this story, still hasn't proved its ownership to the satisfaction of the court. Lents' debt has grown to about $2.5 million, including unpaid taxes, interest, and penalties. As the stalemate grinds on, Lents has the comfort of knowing he's no longer alone. When he began demanding to see the I.O.U., he says, "I was looked upon like I had leprosy. Now, I have probably 20 to 30 people a month come to me" asking for advice. Lents is irked when people accuse him of exploiting a loophole. "It's not a loophole," he says. "It's the law."(1)

• The Lents Defense, as it might be called, doesn't work everywhere.(2) Thousands of Floridians have lost their homes in lightning-fast "rocket dockets." In 27 other states, judges don't even review foreclosures, making it harder for homeowners to fight back. Now, though, allegations of carelessness and outright fraud in foreclosures has become so widespread that attorneys general in all 50 states are investigating. So are the feds.

For more, see Mortgage Mess: Shredding the Dream (The foreclosure crisis isn't just about lost documents. It's about trust—and a clash over who gets stuck with $1.1 trillion in losses).

(1) Lents' story has also been reported in a February, 2008 Bloomberg News article. See Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish.

(2) Not only that, but a "produce the note" victory by another Boca Raton, Florida homeowner in State St. Bank & Trust Co. v. Lord, 851 So. 2d 790 (Fla. App. Ct. 4th Dist., 2003) (litigation in which the losing lender was represented by the foreclosure mill, Law Office of David J. Stern) led to a change in the applicable statute (section 673.3091, Florida Statutes - Enforcement of lost, destroyed, or stolen instrument) (no doubt lobbied for by the financial industry) to make it easier to foreclose in Florida without having physical possession of the promissory note.

The 1999 version of Sec. 673.3091(1)(a), Florida Statutes (the statute at the time State St. Bank was originally filed in a Palm Beach County Circuit Court) read as follows:

• (1) A person not in possession of an instrument is entitled to enforce the instrument if:
  
  (a) The person was in possession of the instrument and entitled to enforce it when loss of possession occurred.

The 2004 version of Sec. 673.3091(1)(a), Florida Statutes (after the change in the statute), read (and now read - see current section 673.3091, Florida Statutes) as follows:

• (1) A person not in possession of an instrument is entitled to enforce the instrument if:
  
  (a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred.

By the way, the Florida Bankers Association appears to tacitly acknowledge their role in lobbying for the statutory change arising out of the State St. Bank case (at pages 4 thru 6 of their comments to the Florida Supreme Court made in connection with Emergency Rule and Form Proposals of the Supreme Court Task Force on Residential Mortgage Foreclosure Cases), when it "confesses" that it is common for lenders to deliberately destroy the promissory notes not long after the real estate closing, after converting them into electronic form. See also Naked Capitalism: FUBAR Mortgage Behavior: Florida Banks Destroyed Notes; Others Never Transferred Them.