If you bought a home, you probably didn’t pay cash for it unless you are wealthy or you did a great job of saving money. Instead, like most people, you probably borrowed money and put your home up as collateral. To do this, you signed at least two documents; a promissory note and a mortgage. The promissory note is just a fancy term for an IOU (I Owe You). If you stop making payments on the promissory note, the mortgage allows the bank to sue you and show a court that they can sell your house and use the money to pay off your promissory note. That’s called a foreclosure.
If prepared properly, the promissory note is a “negotiable instrument.” That just means the bank can sell the promissory note that you signed to other companies and let them worry about collecting money from you. In exchange for the hassle of collecting money from you and the risk that you may not pay, the bank offers the buyer of your promissory note a discount. So even though you may owe the bank $200,000 on the note, the bank might sell it for $190,000. They don’t mind losing out on the $10,000 because it might cost them that much to collect the money from you but also they will get $190,000 in their hand right away from the buyer of the note instead of waiting 15 or 30 years, or for however long your mortgage is, to collect it from you.
The buyer of the note becomes what is called a “holder” because they hold your note as the owner of it. A holder has a special right to collect from you right away if you don’t pay. But only the holder of an original promissory note can collect from you. A promissory note can change many hands as it is bought and sold. Anyone along the way could have made a copy of the note so only the holder of an original promissory note can collect from you. The original is the promissory note that you signed in ink rather than just a photocopy.
The negotiable instrument market was booming during the last decade or so. Notes were exchanging hands so many times that sometimes the originals were lost and banks only had copies. When the bank would go to foreclose on an unpaid promissory note, however, many times they could only find a copy. That posed a problem for them because courts worried that the holder of the original note may also show up to collect from you as well. So courts began demanding that banks produce the original to show that they are the “real party in interest,” meaning that they are the only one who can sue you for not paying on the note.
That’s why you should demand to see your original promissory note if you are facing foreclosure. If the holder, often a bank you did not get a loan from, wants to collect all the money you owe because you have not been paying, the bank could lose their case right away if they do not have the original promissory note that you signed. They have to prove to the court that only they can sue you and they can only do so by showing they hold the original promissory note.