Fall 2005-12 Holder of original notes prevails over holder of copies

Number 61
Fall 2005

Holder of original notes prevails over holder of copies

Apparently by mistake, the Small Business Administration sold the same mortgages to two different purchasers. The first one received the original mortgage notes, while the other got copies. In PRAMCO LLC v. Pérez, 2005 U.S. Dist. LEXIS 20618, the U.S. District Court for the District of Puerto Rico ruled in favor of the holder of the originals.

Double sale

In August of 1999 SBA sold a pool of mortgages to CFSC Consortium, LLC, which included mortgages originally constituted by Manuel Pérez in favor of Banco Popular de Puerto Rico. CFSC in turn assigned the mortgages to PRAMCO LLC for collection. All assignments were accompanied by the endorsement and delivery of the mortgage notes.

One year later SBA sold a similar pool to Beal Bank, and for some reason this second pool also contained Pérez’s mortgages, albeit under a different identification number. Instead of original notes by Pérez, Beal received copies marked as such.

Foreclosure

Beal intervened in PRAMCO’s foreclosure suit, claiming a better right to the mortgages. Beal argued that CFSC had received the notes in error, as evidenced by the written statement of Walter Intlekofer, director of the Portfolio Management Division of the SBA. Intlekofer, stated that Pérez’s loans had been sold to Beal.

Court decision

The District Court did not agree with Beal. “Whatever Beal’s arguments and evidence might be, the bottom line is that the Court finds that the assignments in question were validly executed in favor of Plaintiff.” PRAMCO was, after all, the holder of the original notes. Holding copies just doesn’t cut it. “At the very least, Beal must, or should have noticed that the promissory note in its favor read ‘copy’ and this should have been enough to sound warning bells. Beal’s lack of diligence on its part on these facts is telling.”

‡‡ Note:

Additionally, the District Court indicated that Beal had ample remedies for this issue against the SBA. Beal’s recourse in this matter was not against PRAMCO, but against the party who made the alleged mistake in the assignment of the mortgage notes: the Small Business Administration.

© 2005 Goldman Antonetti