can you sell home when there is no mortgage assignee?
In the growing number of cases where the owner of a home's mortgage is unclear (because records were not properly kept as the mortgage note changed hands) what happens when the borrower actually wants to sell the place?
Since there is no clear owner of the mortgage note, can borrowers petition the court to just have the mortgage vacated altogether? I can't see how a lender would be able to stop a sale, or take out a lien, if they can't even legally prove they own the mortgage.
There must be some legal way to unencumber a property from a mortgage when there is no longer any legal owner of the debt.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aejJZdqodTCM
Since there is no clear owner of the mortgage note, can borrowers petition the court to just have the mortgage vacated altogether? I can't see how a lender would be able to stop a sale, or take out a lien, if they can't even legally prove they own the mortgage.
There must be some legal way to unencumber a property from a mortgage when there is no longer any legal owner of the debt.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aejJZdqodTCM
Comments
My brother sometimes does work cleaning up titles. There is a way to make money there if you know what you are doing.
When a homeowner must sell, of course the mortgage holder can readily be found via the loan servicing company.
Title must be free and clear of all liens and encumbrances before title transfer can take place using a warranty deed. If there is a cloud on title, then a title insurance company can decide to "insure around" the cloud.
An example would be a person who is refinancing for the second time. Several years ago, when they first refinanced, they paid off Lender X in order to refinance. Lender X did not record a reconveyance of the deed of trust, so the original deed of trust looks like it was never paid off. If that homeowner can furnish proof of payment, then a title insurance company would take the risk of not showing the un-reconveyed deed of trust on the new preliminary title report. Low risk.
I give chances of a title insurance company "insuring around" an active deed of trust about a zero.
So, what are the home-owners' options if no one can prove they own the mortgage note? Does this mean the home can never be sold because it will be impossible to ever pay off the loan? Getting a receipt from the company you "think" owns the note doesn't help since they have no legal standing anyway.
I can't believe that borrowers can wind up in some sort of limbo netherworld, never being able to sell their home because it is impossible to find a legal owner of the mortgage.
Hi Sniglet,
For clarification, did you mean to ask "if no one can prove which mortgage company owns the note?"
Three scenarios.
1) The homeowner actually DID pay off the note/deed of trust.
In this case, with proof, title can be cleared.
2) The homeowner has not paid off the note/deed of trust and is trying to sell or refinance. In this case, the homeowner has been making payments....believe me, the bank who wants to be paid off can be found.
3) The homeowner has not been making payments and is headed toward foreclosure. The homeowner hires an attorney who does everything in his/her power to stall the foreclosure, including making sure the lender has all required documents. As to what happens if the lender can't provide proof, an attorney would have a better answer for the homeowner than me.
Moral of the story: Homeowners in foreclosure should always hire an attorney.
Scenario 3 can be further modified: Homeowner is heading toward foreclosure AND ALSO is trying to sell the home.
I'll grant that in MOST cases you can locate the lender (although I've heard exceptions, such as the individual who provided financing who took off to Venezuela never to be heard of again). But the real issue I am highliting is the situation where the lender can't provide any legal documentation to prove they own the note. This has been happening all across the country, when judges throw out foreclosures because the lender is unable to provide the proper documentation showing they actually own the note. This usually happens because the note was bought and sold many times, and the documentation never got completed, or passed along, at various stages.
So let's say a homeowner is current on their payments, but discovers that their lender has no legal documentation to prove they own the note. Can't the home-owner go to court and demand the lender prove they own the note? Wouldn't a judge just vacate the lender's claim against the property if the lender in question can't provide the right documentation?
In this case the title company would try to find next of kin, heirs, a spouse, or anyone who might show up in the future and lay claim to having a title interest in that real property.
The cases we're reading about in the news have to do with homeowners in foreclosure and the lender rushed the paperwork through without making sure all the assignments were in place. The judge in that case is making the lender go back and find all the documentation. The homeowner in that case had a very smart attorney.
In terms of your new question:
It is my opinion that the vast majority of lenders could provide the right documentation.
I do not believe a judge can just throw out a contract between two parties. But what do I know? I am not an attorney.
Any pending litigation would cloud title, potentially making title un-insurable. No NEW lender would touch it without title insurance. No competent escrow closer will close without title insurance.
Yes, the majority of lenders have valid documentation on their loans. However, the growing number of situations where the lenders have been unable to provide documentation during foreclosure shows that in at least some cases the lenders simply don't have any way to prove legal ownership of the note. I have heard about the lenders resorting to affidavits of various parties to try and prove ownership, since they don't have the actual documents themselves (a tactic judges have declared to be useless).
In these kinds of situations there isn't any contract between two parties for the judge to throw out. The lender is no longer a valid party to contract, and no longer has any standing.
I wonder what would happen if all the other borrowers in these mortgage pools (where it has already been discovered there is inadequate ownership documentation) could get their mortgages vacated by going to a judge, since there is no longer a legal owner of their loan?
Certainly, there is no reason for people to keep making mortgage payments if their loan is in a pool where there is no longer a legal owner. The lender can't foreclose on you (i.e. because they have no legal standing). In fact, these lenders can't even report you to credit agencies (to ding your credit rating), without getting sued. They have no right to claim you aren't paying a debt when they have no legal claim on that debt in the first place (i.e. since they are unable to provide legal documenation of their ownership of the note).
Someone should examine these cases where courts have thrown out foreclosures due to inadequate lender documentation, and closely examine the entire pool of loans that these particular homes were a part of. Then ALL the borrowers in those pools can be notified that they should stop payment of their mortgages. Unfortunately, I think that most borrowers in these pools have no idea that it has already been proven that there is no longer any legal owner of their debt.
Keep in mind that it is not just individual loans that have no legal lender documenation. These documenation issues effect the entire pool of loans, and usually occured due to multiple transfers of the pool from one entity to another, where someone skipped a documentation step along the way. These documentation problems are pretty much impossible to repair. Lenders like Deutsche bank have tried moving heaven and earth to recover their documentation, but have found the problem insurmountable, with some documents completely vanished, and holes in the chain of custody that can't be explained.
I wonder what our friend S-Crow has to say on this subject? How can a borrower go about getting a clear title when the lender no longer has legal proof that they own the note?
I followed that legal case as well and all I can say is that it is so important for homeowners facing foreclosure to hire an attorney.
Because what happened in that case was new, it might set a precident for other attorneys to research.
However, it would be unwise to recommend that any homeowner take any action in this area without first hiring an attorney.
You know, you were ahead of the game with the "youwalkaway.com" phenom. I remember reading a forum post where you were questioning whether this would become a factor way before it actually did. Maybe you're on to something here.
If this "proof of assignment" problem blooms into something tangible on a wide scale, then the servicers are the next meltdown we should all prepare for.
Actually, the "servicers" wouldn't be hurt all that much from proof of assignment issues. All the servicer stands to lose is their fee for collecting the mortgage. The real loser is the investment pool that the mortgages belong to, which will have to take a hit. In fact, whole mortgage pools could be wiped out over night when it becomes clear the entire pool has no legal right to the mortgages.
I completely agree with the admonishment that people should get themselves a lawyer if there are assignee issues on their loan. Unfortunately, most borrowers would never know this unless they got a lawyer to dig into it in the first place (i.e. you have to harass your lender to get their documentation). I think there could actually be a good business opportunity for some entrepreneurial law firm to actively go about contacting borrowers who's mortgages are in knowingly poorly documented pools, and offering to go to court on the borrower's behalf for a contingency fee.
The law firm could get the borrower to agree to pay them six month's mortgage equivalent if they are able to successfully get the mortgage vacated.
Once a lawyer has went through the trouble of establishing a precedent by vacating the mortgage for one home in the pool, it would likely be a cake-walk to get all the others vacated as well. Heck, maybe this would be a great class-action business opportunity! Just imagine how much money a law firm could make getting 1000 borrowers in a given pool to pay it 6 months worth of mortgage payments?
The really interesting thing about the assignee mess is that this impacts FAR more mortgages than just those in delinquency. In theory, even borrowers who are current on their payments could just stop paying if they could determine the lender didn't have adequate documentation. The only reason this hasn't blown up and become a BIG problem so far is the simple fact that most borrowers who's mortgages are in their poorly documented pools have no idea this is the case. The only people who discover the documentation problem are the handful of borrowers who wind up in foreclosure proceedings, and then fight it in court.
If some business or law firm made it their mission to actively go out and inform all the borrowers in these pools about the documentation problem, then we could have an even deeper problem with losses in mortgage securities, as the default rate would skyrocket very quickly in quite a few pools.
Instead of "youwalkaway", we could have "staybutdon'tpay". Hey, maybe this would be a great side-line for the youwalkaway folks to get into. They could run late night info-mercials, telling all people who have their mortgages serviced by a particular firm, and who got their loans between particular dates to contact them. All the people who call up could then be signed up for contingency fee agreements, allowing the "staybutdon'tpay" folks to try and get their mortgages vacated.
I'm pretty sure this would be considered "barratry," and hence against the rules for attorneys. From Wikipedia:
http://en.wikipedia.org/wiki/Barratry
Also see the entry for "Ambulance Chaser."
http://en.wikipedia.org/wiki/Ambulance_chaser
Please note that I am not a lawyer.
-Rick
I see law firms advertising for people who bought particular products, or medication, on late-night infomercials all the time, so this kind of solicitation must be legal. I also don't see how listing the known poorly documented mortgage pools on your web-site, and tips for how to determine if your mortgage is in any of them, would be a violation of any ethics.
Heck, if the "youwalkaway" guys can have a web site encouraging people to send the keys into the lender, I don't see why it would be wrong to suggest people check if their mortgage is in a poorly documented pool, and contact you if they would like to investigate the possibility of legally vacating the mortgage.
From the American Bar Association Model Rules of Professional Conduct:
http://www.abanet.org/cpr/mrpc/rule_7_3.html
Advertising is allowed, subject to some restrictions, by Rule 7.2. Feel free to peruse the rules for yourself.
http://www.abanet.org/cpr/mrpc/mrpc_toc.html
-Rick
Well, then it would seem there is nothing to prevent lawyers from advertising to find people who have mortgages in poorly documented pools. Even if directly soliciting business from people who have mortgages in these pools was illegal it likely wouldn't help since the lawyers wouldn't have access to the names of the people who have the mortgages (i.e. this isn't public information and the lenders have no reason to provide the lawyers with it). But that likely wouldn't be a big deal since it is easy to target your advertising at the impacted borrowers. You would know the region, lender, and time-frames of the mortgages involved.
This business idea is looking better and better...
Anyhow, just because the supposed current mortgage owner doesn't have clear records of the transfer, that doesn't mean the mortgage would be voided. In the worst case, the court would probably just void the transfer of the mortgage and it would revert back to the originator, at which point you would owe them the money.
[url]http://www.washingtonpost.com/wp-dyn/content/article/2008/02/26/AR2008022603351.html?referrer=patrick.net
[/url]
I remembered this thread when I ran into this article in the New York Times.
How One Borrower Beat the Foreclosure Machine
It looks like the issues you brought up are gaining some prominence.
-Rick