As we’ve discussed the “where’s the note?” problem of mortgage securitizations, some readers who are old enough to have sold a home more than once have said that while they’d gotten a cancelled mortgage note back on their first sale, on a more recent one, they hadn’t. They were concerned, and as this post will show, they are right to be.
By way of background, the popular press has done the public a disservice by talking about “mortgages”. A “mortgage” consists of two instruments: a promissory note, which is a IOU, and a lien against the property, which is referred to as a mortgage (in non-judicial foreclosure states, they are typically called a deed of trust and confer somewhat different rights, but we’ll put that aside for purposes of this discussion).
What appears to be happening on all too often in Florida is that when borrowers signed warranty deeds in lieu of foreclosure when they can no longer keep these homes, they often get only a satisfaction of mortgage, not a cancelled note. This is not what is supposed to happen. When a borrower deeds his property to the bank, the objective of the exercise is to cancel the debt. If the note has not been extinguished, it is referred to as a “zombie note”. As the Fort Myers News-Press reported last year:
Carol Kaplan, a spokeswoman for the Washington-based American Bankers Association, said leaving the note off the satisfaction of mortgage is “not a practice we’ve ever heard of.”
Turns out that’s a bit disingenuous. The article quoted Jack Williams, resident scholar at the American Bankruptcy Institute and a bankruptcy professor at Georgia State University:
“We saw something very similar to this in the debacle in the ’80s, people buying notes from the government and suing,” Williams said. “I won’t rule out that could happen again. They sold the note to collection agencies and law firms and places like that.”
In the real estate meltdown of the ’80s, he said, it was the Resolution Trust Corp., set up by the federal government to liquidate mortgage loans and other real estate assets held by failed savings and loan associations.
“Let me tell you, people made millions of dollars suing homeowners back in the day,” Williams said.
Some of the debt was in the form of deficiency notes: court judgments saying a certain amount was owed even after the property was sold at public auction.
But in other cases, Williams said, it was the note, straight up.
Even though the lawyers who’ve taken note of this practice are in Florida, the ground zero fo the foreclosure crisis, it is important to stress that anything that is happening in one state on a meaningful basis in securitized mortgages is very likely to be happening elsewhere. The securitizations were set up to be widely dispersed geographically and the servicers have set up their procedures to be as standardized as possible even with the differences in real estate law across states. If borrowers aren’t getting notes back in Florida, it’s quite probable that that is occurring in other states.
Xiomara Cruz, a Coral Springs attorney who has taken an interest in this topic, sent a warning to fellow lawyers:
I have seen in dozens if not hundreds of foreclosure suits allegedly “settled” for properties in Florida, MOST only include language satisfying the mortgage BUT DO NOT INCLUDE SPECIFIC CANCELLATION/SATISFACTION of the promissory Note. So that in essence your client just got a Release of Mortgage and nothing else.
I hate these tactics being used against consumers, the recording system and the judiciary. It is wrong. Regular people are being conned. Judges are being conned. Even many lawyers are being conned. The words “mortgage loan” and “mortgage” are being used by Fannie, Freddie, all Servicers, Banks as if they were interchangeable with ‘debt’ and ‘NOTE’ when the foreclosure mills walk into court or settle for their ‘clients’. Yet, when you ask the mills or the banks, servicers, Fannie, Freddie to put their money where their mouth is, all of a sudden its “we only made an agreement to settle the foreclosure suit, we dismissed with prejudice, we filed a satisfaction of mortgage, we can’t back to sue you” That is serious BOLOGNA and I don’t mean the capital city of Emilia-Romagna!
The very inherent INTENT of every borrower entering into a settlement is to cancel the debt, otherwise what good is to settle to give back the collateral willingly? Filing the satisfaction of mortgage only helps the banks, servicers, and Fannie/Freddie obtain clear title so they can sell it and make more money after already getting fat with interest for years, servicing fees, selling ‘beneficial rights’ to receive monthly payments, but not selling the actual underlying note. This situation gets horribly worse because if the note is left outstanding, it can be used upon by anyone else who obtains that note in the flow of commerce. A suit on the note is left open.
And she reports in a later message to me that servicers and even judges don’t take well to being pushed on this issue:
When this happened to my client, he immediately raised the flag requesting specific performance in the underlying foreclosure suit. However, the bank voluntarily dismissed the foreclosure action with prejudice while the motion for specific performance was pending hearing (which had already been set) and the judge ceded to the bank’s voluntary dismissal. He then hired me specifically after a year of calling everyone from members of congress to the OCC to the AG to obtain the cancelled note back because no one would give it him back to him marked cancelled. The bank and Fannie stated through their attorneys, over and over in every instance before our suit, that they never promised him anything else but a dismissal of the foreclosure suit and a satisfaction of mortgage, and he got a dismissal with prejudice. Long story short, its still there, the circuit judge dismissed all counts of the unfair consumer practices, unfair debt collection practices, with prejudice and although he really wanted to couldn’t dismiss with prejudice the breach of contract, specific performance counts but dismissed them without prejudice and with leave to amend “because he didn’t like some of the WHEREFORE clauses”.
This story borders of Kafkaesque. Yet Cruz is not being unreasonable. 25 years ago, an attorney who did not demand the cancelled note in satisfaction of a mortgage would have been considered grossly negligent. And the risk is not theoretical. Professor Williams described how people were defrauded in the wake of the S&L crisis when notes that should have been cancelled got into the wrong hands. April Charney had just seen a case on a 2008 foreclosure where the ex parte order returned the original note to the plaintiff/servicer. The hapless borrower is now being sued by the private mortgage insurer. PMI was typically used to insure the LTV over 80% on high LTV loans. In in the subprime market, lenders bought mortgage insurance on loans and paid the premiums themselves (via the trust) rather than have the premiums paid by the borrower, as is the more traditional structure.
Tom Adams suggested that this issue probably arose when the insurer would have had no direct relationship with the borrower but would have been at risk to the loan defaulting. But regardless, this is an ugly business, and serves as a reminder to homeowners: if your friendly servicer asks you to deviate from a long-established practice, your assumption should be that it is for a very good reason, and that reason is for their benefit, not yours.
Haha! Think I (or others like me) will buy a house until this mess is long settled? Heck, I won’t even buy an American car and it’s been a decade since American cars were the pieces of crap they used to be.
As for non-judicial foreclosure states, they can forget me EVER buying a house there.
Agreed. That’s why, after we lost our house to foreclosure, we BUILT the next one, mortgage-free. It means living in a house that’s constantly under construction, and cheaply built to begin with. But it our home, not a pea in a bankster’s shell game.
Dont be so sure. I know of a case that has gotten a lot of blog play, where a guys parents built their house in 1968 and payed it off in 1992.He inherited it in 2003. His wifes exhusband (they were divorced about 20 years ago) who is in the mortgage banking business at the govt level, and apparently has a history, began receiving mail his house as the owner. He was erased on all the databases. It appeared the the ex husband had assumed his ID and commited ID theft upo him, his wife and his house!and made his ex wife his wife married and owning this guys house! However, the title was clean at the court house. It appeared he took out a loan on this guys house, but he could not prove it, as he could not determine who the lender was. This trick essentially began to unravel a deep unending rabbit hole. (He figured out the existence of MERS back in 2007, before he knew what it was).
Apparently these databases obtained their data via mortgage loans (suppressed/concealed). But this ex husband is sophisticated and connected. Like anyone who is going to do this type of crime, expecting to get away with it. He knows he is immune from prosecution. He somehow is protected visa vi his govt job and his attorney who is a state assistant attorney general. This must go very deep. It has been the topic of many blogs over the last couple of years, but neither the ex husband,nor his attorney have been prosecuted, as far as I can determine
So, do not believe you will own your house so long as fraud and racketeering is not prosecuted and the real entrenched racketeering syndicate is in play. No one ownes their house. Its not possible to own anything that is not protected by law. If a fraudulent foreclosure is issued upon you 25 years from now, and that foreclosure was on a loan taken out by some racketeer, and you never had any reason to suspect the fraud,or you did but the criminal was protected by a syndicate lawyer, you will loose your house. PERIOD. Property rights are only as enforceable as the enforcement of the law. There is no law, because the racketeers are not in prison. You cannot believe anything until the racketeers have been prosecuted. Nothing else will mean anything. No help, no HARP, no ‘law’,no this no that.
To return a cancelled note you have to know where it is. Maybe they can’t find it?
And the Real-Estate-icide continues… Will they ask in 50 years “How could nobody have known this was happening?”
“To return a cancelled note you have to know where it is. Maybe they can’t find it?”
Let’s break this down…
1. What is a note? Or more accurately, the Promissory Note? Why, it is the Loan, inscribed on paper per the Statutes of Fraud, a contract to repay in consideration for monies received. It is NOT a mortgage, the mortgage being the Deed of Trust securing the note. In effect, a NOTE is a negotiable instrument, just like our “Federal Reserve NOTES”, not worth the paper upon which they are printed unless another remote party perceives a value.
2. What happens when you lose a Federal Reserve Note? Well, if you were smart, you’d have made a copy before you lost it, right? Of course not, you’d be in jail for making copies and presenting them as negotiable instruments. You have a $20 bill, inscribed with a serial number, and though it’s mass printed, the signature of the Secretary of the Treasury, and until recently, the stamp of the regional branch of the Fed issuing the bill. These aren’t ornaments, they are what give the Reserve Note legitimacy and authenticity.
3. So, if I lose my Federal Reserve Note, I obviously can’t walk into a bank, present my photocopy and expect them to update my deposit account, crediting $20 for the missing note, even though proof of the note was presented. Even if they didn’t call in the Secret Service (yes, the same team “guarding” the POTUS is the special service protecting the interests of the Federal Reserve, which I’m sure Kennedy never saw coming), the bank would look at you like you were crazy.
4. So, rather than present a copy, you just sign and affidavit declaring you are the Note Holder, but you lost/destroyed it. When you find it, you’ll bring it in, but in the mean time, the Bank will credit you for the note, right? Of course not, they reason that you might be lying, having actually given (sold) the note to another person, so if they credited you, another person could come along holding the REAL note, something they wouldn’t want to happen, so they reject anything but the REAL NOTE.
In closing, the banks that won’t produce the “Wet Note”, the original negotiable instrument that binds you to repayment, that they sell on Wall Street, won’t accept anything but a real Federal Reserve Note. Not for $20 , or $10, or $5, or even $1. But they expect us to roll over and accept nothing when a Loan Note worth $200,000 or $300,000 can’t be found…?
Quick solution, write a RESPA compliant QWR demanding presentation of the Wet Note. If they can’t sue first for breach of RESPA ($2000-$4000), then sue for Quiet Title. Though anecdotal, the 1980s and now the current banking crisis proves the danger of lost or resold Notes. If the Courts won’t grant Quiet Title, that’s okay, just keep sending out QWRs and every time they fail to produce the note, sue for another $2000. It may just cover your mortgage payment:)
Exactly like the caring and wise Mr. McGuire in the movie, The Graduate, I pull young people aside all the time; to give them the good advice:
By thorough and repeated study of the the scene, my technique has been perfected. I have it down. The friendly hands on the shoulder, the steady eye contact, the deep gravitas in my gravelly but friendly voice, I, the older man, dispense my concentrated wisdom to the younger man in one word; not the antiquated “plastics,” of course, but …
Note: I suppose this fits in more with Matt Stoller’s, Towards a Creditor State, posted below, but it’s really all the same thing, isn’t it.
one more nail in the coffin of private property
Needless to say , many people saw this coming.
This adds legs to the idea that promissory notes have been sold and/or pledged to multiple parties.
Also to the idea that the note and mortgage were split.
Even though judge’s have been saying that is a legal impossibility.
Will the farce ever end?
The farce ends when judges put a stop to it, which means they need to educate themselves about what’s happening with notes and mortgages. Will the judiciary step up to the plate?
The farce ends when each and every foreclosure is reversed based upon fraud on the court. None of these foreclosures is enforceable, IMHO. The real con is that the public is being programmed to believe that a fraud is enforceable. The court is either an unwitting victim, or a collaborator. Either way we are talking about major felonies at the Federal level. A lawyer who is involved in racketeering is a racketeer operating under the cover of a law license, not a lawyer at all. Those lawyers who have/are aiding and abetting fraud must be prosecuted. They are essentially the syndicates CRIME BROKERS and PROTECTORS having infiltrated the judical system all the way up through the County COurts to the State AG’s
Massachusetts’s top court has made the law very clear. Some effort seems to have been made in NY to remind courts of the law.
But other states…. still disasters.
Depending upon the state, occasionally the mortgage and the note can be and will be split. However, typically it makes more sense to have the owner of the note also own the mortgage that confers the ability to enforce the security backing the note. IIRC, Massachusetts is one of the states.
Since Florida is a full-recourse state, is this surprising? In the interests of full disclosure, I too live in a full recourse state. There’s really no surprise to me that the bank is going to go looking for the rest of their money when the sale failed to make them whole.
Everyone talks about this in terms of fraudclosure, or selling a house, but what about refinancing? Until I learned about the fraud behind this mess, it never occurred to me that after refinancing my house twice (landing eventually in the loan that lost the house), I never got a cancelled note from the loans that were ostensibly paid off by the new “lender.”
Add to that that the previous liens were satisfied by MERS, and I’m afraid I might have some nasty surprises down the road.
A foreclosure action is premised upon the mortgage and the note, therefore any “settlement” of the foreclosure action which does not encompass the promissory note is deceptive. When will servicers realize that deceptive behavior only creates more potential claims against them?
It seems to me, that a ‘foreclosure’ is not a foreclosure when it is a fraud. thus, the very filling of a foreclosure is a non quadrature. There are legal pre-requests that are required for a filling named a foreclosure to actually be a foreclosure and just a counterfeit of a foreclosure. I believe that the vast majority of foreclosures we in fact counterfeit, and thus null and void. IMHO.
Just a side political note, Jeb Bush was governor when all this was happening. More Bush shenanagans. All teachers and other employees who have lost or are losing their pensions might want to post this in teachers break rooms.
“A government money market debacle unfolding in Florida is raising questions about fo rmer governor and presidential brother Jeb Bush’s possible involvement in the mess. Florida froze withdrawals from a state investment fund earlier this week when local governments withdrew billions of dollars out of concern for the fund’s financial stability. In the past few days, municipalities have withdrawn roughly $9 billion, nearly a third of the $28 billion fund (which is similar to a money market fund) controlled by the Florida’s State Board of Administration (SBA). The run on the fund was triggered by worries that a percentage of the portfolio contained debt that had defaulted.
I had the good fortune to pay off my Wells Fargo-owned mortgage a few years ago and now own my house free-and-clear. At the time, which was before I started reading NC, it bothered me slightly that I never got anything from WF stating that the loan had been paid in full. Now I worry much more. I also agree with the hypothesis that the bank may not have the note, even though WF owned the loan.
I just did a refi. Never got the old note from Chase, just a statement saying I didn’t owe them anything (which I’ve kept, obviously). They said the note would follow, but so far hasn’t (they bought the loan from the originator). Guess I’ll have to send a letter. I’ve been delaying because I know it won’t do any good. These guys never respond to anything.
Any suggestions on how to do the request for the cancelled note would be greatly appreciated.
Don’t be so certain. Hopefully Linda Green didn’t sign your release/satisfaction of mortgage.
‘Linda Green’ apparently signed a lot of mortgages in Georgia that are in good standing. What is that about? How can it be?
If Wells owned and serviced the loan (it should be safe to assume they service all their own loans), the satisfaction would be signed by a bank employee and shouldn’t be a problem. The papers would have stayed in-house (assuming they weren’t lost or destroyed, not necessarily a safe assumption, Wells did routinely destroy documents in at least one facility I’m aware of (per former VP of mortgages). In the case of portfolio loans, only a foreclosure would be going out to one of the robosigning breeders.
The problem I see, and I’m in a similar boat with Wells, is that they’re so deluged and over their head trying to handle current loans, trying to get somebody to assist with finding an old note may be a real challenge. I’m lucky that at least where I live, those at the local branches will go an extra mile, and then some, to keep customers happy. It seems to be a southern thing, found everywhere from the grocery story to Target. Before I came here, I thought Target was strictly a self-help store. Four years later, I’m still awestruck at how helpful employees are. Maybe they put prozac in the water.
I’m in the same boat with my paid-off BOA loan.
I have actually called around to various local real-estate law offices to see if anyone will do a quiet title action for me. All tell me cheerfully that there’s no problem, and I shouldn’t worry my pretty little head about it – if the title insurance companies say things are hunky-dory, well then they jolly well must be.
If anyone has any advice about the best qualified class of attorney to take my case, who would simultaneously be WILLING to take the case, let me know.
Have you contacted a title company? They might be able to either help get the note, tell you where the best place to get help, or possibly sell you a policy that would cover any future claims (or more accurately, future claims on any document issues prior to date of policy, which would cover paid off mortgage….. I’m pretty sure, but definitely ask). And the title policy may be cheaper than attorney fees. Researching mortgages, liens, encumbrances, (unsure about notes), etc. is their specialty. Also, I’ve talked to title people who were a lot sharper on property documentation issues than the typical real estate lawyer. (Excepting Abigail Field, Adam Levitan, April Charney, among others, of course)
There’s too much to say on this as it encapsulates the prior Cathy O’Neil post (economists who don’t get “financializaton”), a perceived verbal tick and the end of western civilization. I’m not kidding that much – or at all.
Carl Hiaasen – a former Miami Herald reporter and bestselling pulp mystery writer – has a character who explains why young people say “it’s like ….” While it’s assumed to be a verbal tick or undisciplined inarticulateness, this character says, no, it’s that young people sense that everything is “like everything else.” This stripmall is like the the one down the road. This fast food place is like that fast food place.
I wish I could find this passage right now because it makes such a great point. An extension of the point comes in education, where the the over-arching point is to “teach students how to think,” which not-so-roughly means, “how to extrapolate from one thing to something else.” Isn’t this largely what the class of “symbolic analysts” does? Their careers get started by learning how not to say “it’s like …” casually, but rather to say authoritatively that “our analysis of ‘A’ gives us a high degree of probability that this statement about ‘B’ will hold up.” In short, “It’s like, we’re, like looking at like ‘A’, and it’s like, we like need to tell, like this dickhead about ‘B,’ and I like say to him, ‘B’ is like ‘A.'” Education is the process by which we clean that statement up to satisfy “educated” people’s sensibilities. But the fact remains, “‘B’ is like ‘A,'” and this is what people get paid to say when all is said and done.
Except it frequently isn’t true. A satisfaction of debt is not like a release of lien. They are frequently related, and the two frequently go together, but they are different. But, we live in a boiler-plate universe where everything is pretty much like everything else. The documents are long and boring, and frankly, not meant to be read. That they have gotten so much longer in the past few decades, IMO, is NOT a reflection of more thought having gone into them, but rather that “cut and paste” is so easy. At the level that boiler-plate is generated, all the economic incentives line up to do things faster, better and cheaper. Two out three is the goal, but one out of three is what we usually get.
Here’s a hint to anybody interested: many lien releases have satisfaction of debt language in them. I suspect that in many cases, it is inadvertent (because NOBODY every really reviewed these forms, they’re just copied verbiage from prior ones), but it is in many of the common forms in current use. It is effective against a note that has not been cancelled in the old “belt and suspenders” method.
Extrapolation is a great thing when done carefully and humbly. It is usually a very bad thing when done quickly, cheaply and thoughtlessly.
Final note: I am not saying that things are necessarily worse now because of changing mores, or, like, people, like not doing their, like, job. Old legal documents are just as bad, IMO. It’s just now, there is such an accumulation. Although I used to consider myself a “free market” guy – and maybe I still do – it’s clear to me that markets are not very good at dealing with the type of problem I’m talking about. Most of the time – nearly always – the “problem” doesn’t matter. It’s when everything goes wrong – like, like, right, like, now – that the deficiencies are really a bitch, and nobody has a real stake in correcting the bad process, for future beneficiaries.
Actually, ‘like’ is a discourse particle similar to “Ah”, “Um”, or “Uh”. It’s frequently used to highlight important information in a sentence or express intensity:
“That restaurant is, like, so expensive.”
just wait for those who “own their homes mortgage free” who call others deadbeats, start finding out the banks are coming after them…..then and only then will they realize what has happened….what names can we call them ….
gee surprised the banksters don’t revert to form
just create another original
forge the borrowers signature
and give it back to them
as i recall on commercial deals done in the 90’s it was often a lender client asked the borrower to sign 3 copies of the note at closing
supposedly for various parties
but multiple wet copies always seemed crazy to me
still the borrowers or their counsel never objected
What would have happened if the borrower insisted on only one wet note? As in telling the lender to make as many copies of the original as necessary. Would that have killed the deal at the table?
That is unbelievable that three notes would be signed as notes are negotiable instruments, and unless endorsed to a specific party which is less frequent than not, are payable to bearer. Signing three notes would be like signing three checks to your lender, each for the full amount of the loan.
Any attorney that let that get by should be sued for malpractice, if not disbarred for incompetence. It doesn’t require a law degree (and I don’t have one) for that to be a no-brainer.
We walked on our house in Phoenix. It was hopelessly underwater.
Arizona is a recourse state with an anti-deficiency statute. The home was auctioned in July of 2011. We have not received any cancellation of the note.
There may be HUNDREDS of counterfeit shadow mortgages on ONE HOUSE! Get it!? The loan originators/brokers (NOT THE LENDERS) brokered the loans MANY TIMES TO MANY LENDERS on one purchase!These ‘originators’ along with their syndicate ‘partners in crime’ inside the banks (loan underwriters who are synonymous with bank tellers who are in on a bank robbery) Fabricating loans to many lenders and concealing these counterfeits from each respective lender using MERS, etc and setting up FAKE ACCOUNTS that appear to be that of the a legitimate party to a legetimate loan, where the banks trasnfer these funds to an OFFSHORE SECRET ACCOUNT where the loan originator fraud syndicate(loan originators, loan brokers, bank underwriters, bank lawyers, then divide the funds among themselves. The ‘banks’, asde from the syndicates ‘inside men’ cannot know legit from fraudulant loans, as its dome n massive volume by computers. Only the syndicates ‘inside men’ in the banks are able to ‘enable’ the bank robbery. The Trusts dont know what they are buying. Its all computerized, wit the ‘inside men’ making sure no flags are raised.
I recall that the note satisfaction, tthe lien, comes from the county where your deed is registered.
Maybe they just want to sell them again- just that one last time!
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“sign 3 copies of the note at closing”
I had to fire someone for that once.
This reminds me of what is possibly my favorite blog post and comments discussion, from Tanta in 2008, about a foreclosure defendant who “demanded the note” after WaMu tried to get away with presenting a lost note affidavit to the court because it was more convenient than actually digging up the note.
Seriously, read the post and the comments if you haven’t. Tanta, reasonably enough, was dubious of the defendant’s claim because she had no way of knowing that Joseph Lents’ case was just the tip of the iceberg. But some of the commenters tried to set her straight.
Thanks for the link to an interesting blog post circa 2008. Tanta is incredulous that lenders would engage in certain misdeeds (excuse the pun) that have since been shown to be common practice. How far we’ve come in four years since she wrote that post.
Question for anybody who knows the answer.
I refi’d a couple years ago. A satisfaction of mortgage was filed in the land records, but I don’t recall getting my note returned. (Thank you, thank you, Yves! Never even occurred to me until I read this article.) If I’m in a non-recourse (and deed-of-trust) state, i.e. lender is unable to collect for other than what the house brings, and the lender is unable to foreclose on the security backing the original note because the security on the note was recorded as satisfied (and no robosigning, real live Wells employee, did verify that much), then can they even collect on the note? In that case, would it be a moot point?
I’m offering a bottle of wine to the first person who supplies the desired answer. :=)
It’s ashame to hear about the shoddy foreclosures that were done and the allegations of robo-signing at some lenders. The industry is becoming more regulated every day so expect for there to be less incidents of this in the future.
Yes, it’s “a shame” to throw families out on the streets, and as for “allegations”, I’m pretty sure the major banks have all admitted to robosigning, even if they try to downplay what that actually means.
As for new regulation, the signs all point to these practices becoming enshrined in law and blessed by the President himself. We can expect more of the same, not less.
I have seen a “Rescission of Satisfaction of Mortgage”. So…that satisfaction might be short lived.
Sorry, Tom….couldn’t resist. :-)
I know its late, but can anyone answer a simple question?
When a property is sold (NOT a foreclosure, a normal sale), and the proceeds are used to pay off a mortgage, is it normal to recieve a cancelled note?
I have sold 2 properties in my life, and both times I got payoff letters from the mortgage companies and a release of the mortgage, but i never saw anything about the note.
It used to be normal to receive a cancelled note.
If your note was *non-negotiable* (rare) then a statement from the lender stating that the debt has been satisfied is good enough.
If it was negotiable, you need the cancelled note, or you need to jump through *hoops* to repudiate it, hoops which I don’t even know.