Foreclosure Litigation, Missing & Misplaced Mortgage File Documents, & "Robo-Signers"

TASA ID: 322

Keep these important considerations in mind when handling foreclosure litigation.

How Mortgage File Documents Become Misplaced or Lost 

In order to set up any mortgage loan file, a number of tasks must be completed, and a lengthy checklist of items and documents has to be produced, executed by the borrower or someone else, many of them sent out to the courthouse for recordation, some of them sent to the borrower, some sent to other places such as a property insurance or title insurance company, and most of them maintained in the mortgage loan file for the life of the loan.  This creates plenty of opportunities for errors.

Due to the fact that mortgage loans are often originated by one lender and then sold to other investors or packaged together and sold as securities, mortgage loan files are often shipped from one financial institution to another, and this increases the likelihood of a document becoming misplaced or lost.

Sometimes, the missing document problem is as routine and simple to solve as retrieving the lost document from the bottom of an electric rotating file cabinet (remove the front cover) or behind or between manual file cabinets.  However, before you start moving around file cabinets, keep in mind that a fully loaded six-drawer file cabinet weighs approximately 600 pounds; so first, unload it from the top down before you attempt to move the cabinet.

Another problem is that loan files are over-documented.  At a recent closing of the sale of a small house, the pile of documents that had to be executed was approximately four inches thick, encompassing at least sixty documents just to transfer title to a small house and set up a new mortgage loan for the purchasers.  Logically, more documents means that there is a greater chance that one of them may become misplaced or lost.  

Problems with Promissory Notes

Most often, the missing document is the promissory note, and this is primarily due to the fact that promissory notes are usually filed separately from the rest of the loan file.  A typical financial institution filing arrangement is that loan files containing all documents except the note are kept in a walk-in file vault, and the promissory notes are filed in a locked cabinet usually inside the walk-in file vault or possibly in a safe or a secure locked cabinet outside of the loan file vault.

The lender's security interest in the collateral property is represented by the mortgage or deed of trust, which is recorded at the courthouse, and if lost, can be replaced by a recorded copy.  The promissory note-even though it is a negotiable instrument- is not recorded at the courthouse, and is subject to being lost. 

Since it is an industry standard practice to file promissory notes separately from the rest of the mortgage loan documents, when a mortgage loan is sold or its servicing transferred to another mortgage loan servicer, the mortgage loan file and the note are both shipped to the new owner or servicer, and this often leads to misplaced or lost promissory notes.

The Frequency of Missing Documents

In my experience that spans forty years, I have encountered an occasional mortgage loan file that is missing a single document, but it has been my experience that there are very few instances when there is more than one document missing in a mortgage loan file.  And if more than one document is missing from a loan file, then it is highly likely that the missing documents were misfiled and can be found in another loan file with a similar name, similar loan number, or in close physical proximity to the file with missing documents.

Having worked in and around the mortgage lending, mortgage servicing, and mortgage banking fields for a long time, it has been my professional observation that all lenders that I have ever encountered take the issue of a missing document very seriously, and act to correct the problem promptly.  Sometimes, it may not seem like the corrective process is proceeding as fast as it should, but usually this is due to the time required to properly search for the missing document before a replacement or correcting document is generated.  It is an industry standard practice to make a thorough search for a missing loan file document before a replacement or correcting document is generated.  If you generate a replacement document and then the missing document surfaces, which quite often happens, then that can create a problem. 

How to Correct Mortgage File Document Problems

During my entire career that spans over forty years and counting, and which includes over two years as a banking regulator managing two insolvent financial institutions that had previously been (mis)managed, I have never experienced any financial institution creating a fake document to replace one that is missing.

If, after a thorough search, a mortgage file document is determined to be missing, then the industry standard method for handling the situation is to contact the borrower, produce a duplicate of the missing document that is clearly marked as a replacement document or a duplicate signed after the fact, and have it signed by the borrower. 

If the missing document happens to be the promissory note, then it is not unusual for an indemnification provision to be included in the new document or in an associated affidavit so that the borrower can be assured that he or she will not be called on to repay both the original note (if it surfaces, which they usually do) and the replacement or duplicate note.  Consult an attorney with any questions on generating replacement documents.

A lost or misplaced document is a problem that occurs from time to time, but it is not a terminal problem.  When a mortgage loan becomes seriously delinquent, and there is an imminent foreclosure, the simple facts that must be kept in mind are that the borrower clearly owes the debt since he or she signed all of the other loan documents that are in the loan file and on public record, he or she certainly has paid on the debt for some time, the borrower occupies the property, and the mortgage is seriously past due and has to be paid or else the mortgage lender or mortgage servicer will be forced to foreclose in order to move toward earning a return on the investment in the mortgage loan.


The term "robo-signer" is a term made up by some business press writer that has no knowledge about how businesses, including banks and mortgage lenders and mortgage servicers, actually function.  Anyone with experience in any type of large business would immediately recognize the "robo-signer" claim as nothing more than an authorized person affixing an official signature to a document that has to have an official signature and that has been processed by the appropriate staff members working under the document signer.                                                 

Consider as a similar example a corporate executive who has check signing authority for a company of any reasonable size, and regularly has to sign a group of checks that are being sent out to pay all types of company bills.  No one expects or pretends that the corporate executive signing the checks has personally run down all of the details of each of the bills that the checks he is signing are being sent out to pay.  Generally, the corporate executive signing the checks (or documents) makes sure that the amount on each invoice is the same as the amount on the check, and relies upon the corporation's staff people that prepared the checks (or documents) to do their job of verifying the invoices before the checks (or documents) are brought to the authorized signer for a required signature.  This is an industry standard practice for all areas of business including banking and mortgage lending and mortgage servicing, and also applies to the procedure for processing mortgage loan foreclosures.

In the case of mortgage loan foreclosures, various staff members generate the required items that are needed in order for a foreclosure to go forward, and then the document authorizing the foreclosure is signed by a person authorized by the lender or servicer.  It is my professional opinion that it is unreasonable to expect that the authorized signer who signs the document authorizing a foreclosure to proceed has worked up and verified every backup item that has to be handled in order to authorize a foreclosure.  As stated earlier, the authorized signer relies on his or her staff people to complete the various required items accurately, and then the authorized signer signs the document in part as a ratification that the staff has completed the required work. 

Unreasonable Overreactions - No Free House

Banks and mortgage lenders and mortgage servicers are unique businesses and quite different from most other types of businesses, but they do share the common characteristic that they are capable of losing a document or making a mistake.  Anytime that a document is discovered to be missing or a foreclosure error is discovered, the problem should be corrected as quickly and efficiently as possible.

Given the unfortunate fact that mistakes and misplaced documents occur in all businesses including banks, mortgage lenders, and mortgage servicers, it is my professional opinion that it is completely unreasonable to expect that a delinquent borrower would be allowed to live in a house without having to make payments or would receive a free house due to an error or oversight.  It remains as fact that the borrower borrowed the money from the lender, signed numerous mortgage loan documents that remain in the mortgage loan file and on public record, acknowledges the existence of the debt by having made past payments on the debt, occupies the mortgaged property, and clearly owes the debt.

Any missing mortgage loan documentation or other problems have to be resolved in the best way possible, but it is unreasonable for a lender to lose control of its mortgage loan collateral over a missing document or other minor problem that can be easily resolved. 

An additional factor to consider is that it is highly likely that a mortgage loan is owned by one investor and serviced by another company based upon the terms of what is called a "servicing agreement."  Mortgage loan servicers are required to take prompt action to correct any problems that come up on the mortgage loans that they service.  This includes overseeing the maintenance of insurance, the payment of property taxes, the management of escrow accounts, and the prompt collection of payments, etc., up to and including foreclosure if necessary.  As a result, mortgage loan servicers are contractually obligated to pursue all available collection measures, including foreclosure, in a timely manner or risk being sued by the owner of the mortgage loan. 

Significance to the Owner of the Mortgage Loan

A mortgage loan is a sizable investment for an investor, just as a mortgage loan is typically the largest financial transaction for a mortgage borrower.  Investors in mortgage loans need to earn a return on their investment, and due to the large size of mortgage loans, it is a serious matter when the payments cease on a mortgage loan investment.  That is why if a document turns up missing in the loan file of a mortgage loan that is being processed for foreclosure, the servicer should immediately address the problem so that the mortgage loan stays as close to the intended schedule for foreclosure as possible, and that the missing document or other problem is dealt with promptly.


1.  No one likes foreclosures.  Mortgage lenders and mortgage servicers hate foreclosures.  When a lender has to take a property back these days, the economic outcome is only a question of how large the loss will be.

2.  Mortgage lenders and mortgage servicers admit that they can lose or misplace a document, which is understandable if you have ever seen a big fat loan file, obtained a mortgage loan, or attended a mortgage loan closing.  When mortgage lenders and mortgage servicers do lose or misplace a document, they don't like it, and they should attempt to correct the problem as quickly and easily as possible.  It has been my professional experience that they do this.

3.  In my long banking and lending career, I've never seen a bank or mortgage lender or mortgage servicer run an employment ad for a "robo-signer."  While this not-so-clever (not to mention, not-so-accurate) catch-phrase may sell newspapers and magazines, it simply reveals the level of the lack of understanding on the part of some business writers about how businesses actually operate. 

This article discusses issues of general interest and does not give any specific legal, medical, or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

This article may not be duplicated, altered, distributed, saved, incorporated into another document or website, or otherwise modified without the permission of the author, who will be contacted by TASA.

The author is a banking, lending, and mortgage banking expert witness and consultant referred by TASA.  Over 450 cases for plaintiffs & defendants nationwide, 108 testimonies, and 12 courthouse settlements, in all areas of banking and finance.
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