If you’re involved in a note transaction, the original note is your first concern. Whether you’re selling or buying a note with a balance due, or releasing a note after it’s paid off, you must have the original. A copy or facsimile will not do.
These points apply whether you’re dealing with a seller-financed real estate note, a business note or a divorce lien note.
Why the original note goes missing
You may believe the note is in a known location, but people are often surprised to discover that what they thought was the original is only a copy. Sometimes the original is missing without even a copy available.
There are useful techniques for locating a lost note, and with them you have a good chance of finding it. You have to become a detective. This can be a long and frustrating chore, so it pays to plan an orderly approach in advance.
Many people don’t realize how important the original is, and they may panic when they find out it’s missing. Your first task is to look in the likely places.
The most likely places to look
- The note owner. In many cases, the person who receives the payments (or got paid off) has the note somewhere but has misplaced it. The owner can search the home thoroughly: the garage, the basement, under the bed, the closet, the desk drawer, the family Bible, the attic or anywhere else they usually put papers. If it doesn’t turn up at home, they can check their safe deposit box, their place of business or any storage they use.
- The servicing agent. If a professional servicing agent has been collecting the payments, ask them. The agent may be a title insurance company, an escrow company, a lawyer, a real estate broker or any type of servicing or collection company. Some servicing agents insist on holding the note, while others don’t want the liability and refuse to keep it. Asking isn’t foolproof, but it frequently produces results.
- The original property closer. Contact whoever did the paperwork to close the sale of the property. The closer is usually the first person to have possession of the note, and it may still be in their file. If it isn’t, there may be correspondence showing where, and to whom, it was delivered, which gives you a new trail to follow. If the closer is out of business, check with the state licensing authority for a contact name and address for the old files.
- The divorce lawyers. For a divorce lien note, contact the lawyers who handled the case. One of them may have the original.
Follow the paper trail
- The note owner’s lender. Did the note owner ever use the note as collateral for a loan, or sell a certain number of payments to another party? If so, the note is likely still with that lender. If money is still owed, the lender won’t surrender the note until the loan is paid off. Even if the loan has been repaid, the lender may have forgotten to return the note and may still have it on file.
- The security document. The deed of trust or mortgage is recorded with an address showing where to send it after recording. That address can be an important clue.
- Failed transactions. The note owner may have tried to sell the note or borrow against it before, and the deal fell through. Whoever handled that sale or loan may never have returned the note.
- Multiple owners. If the note has several owners, they may have forgotten which of them holds the original. Be sure to ask all of them.
A checklist of people to ask
The number of people who might have the original note can be exasperating. To simplify your search, here is a checklist of key people to ask:
- The note owner’s or the payor’s lawyer
- The note owner’s ex-spouse, ex-partner or ex-guardian
- Parents, accountants and anyone else with control over the owner’s affairs
- The payor, who may have received the original by mistake
- Creditors of the note owner, such as the IRS, state tax lienholders or judgment creditors
- A court file, if there was ever a dispute between the note owner and the payor
What to expect during the search
In your search for a lost note, you’re likely to run into people who are uninterested, unmotivated and unpaid for their trouble. They have little reason to cooperate, so you’ll need salesmanship, and possibly even payment, to get their help. Expect delays at best.
