A case in White Plains, New York is sure to put the fear of God into mortgage companies looking to foreclose upon homeowners. The need to show the actual paperwork that constituted the mortgage. The failure to do so compelled a Federal Judge to wipe out a $461,263 mortgage because there was no proof that it existed.
With all the securitizations of mortgages and the selling of them at such a high velocity, original paperwork can be hard to track down. If the mortgage servicers have to find all the original paperwork to foreclose upon a residence they may end up being in big trouble.
And if you are being foreclosed upon, requesting proof of the loan through original paperwork may be a gambit worth pursuing. Worst case it buys you some time, best case is that your loan could be wiped out and you owe nothing.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what. via the NY Times.
{ 12 comments… read them below or add one }
Doesn’t this seem out of integrity for the homeowner to do though? I mean, sure it’s a valid technicality. But aren’t they claiming they don’t owe money that they actually do, in fact, owe?
Having a hard time seeing when this would be an ETHICAL solution for a homeowner, unless his property was truly encumbered fraudulently.
….jp
JP
I do not disagree. The one mitigating factor is the mortgage companies are notoriously difficult to deal with. If I was in that situation and had done all I could to work with the mortgage company but had been given the run around I would probably try to make them uphold the letter of the law.
I constantly get emails and comments that the mortgage company asked for a packet of the information, the borrower sends it to them, and then they say it was missing something or a part was lost and the whole process has to start from the beginning. If they had their act together and were able to give honest and straightforward answers, then my sympathies would run more with the mortgage company.
Oh, JP, great to see you commenting again!
Awesome! Glad to hear it. These companies cannot do business without keeping good records, and if they fail to do so this is the perfect punishment!
-Tyler
I agree with you, JP. Homeowners might use this tactic simply to get out of debt they legally owe and that’s not OK.
But Tom’s “notoriously difficult” point is a valid one. I recently tried to help a homeowner client who was 100% medically disabled, not working for over 2 years and no hope of ever working again. Homeowner’s on food stamps and public health assistance. His lender declined to allow a short sale (after 6 months of back-and-forth). They said they’d rather foreclose, then file a judgment against the homeowner because “he might have money some day”. Ya think?
If you’ve tried other avenues and had zero success, this might be worth it. But note that the court battle isn’t easy or cheap. You can read the last of many, many pleadings in this case here: http :// cr4re DOT com SLASH Albrt1 DOT pdf. It’s 23 pages of mind numbing legalese!
It’s a shame that these banks apparently thought they were above the law. You transfer a mortgage, you record that transfer with the public land records holder. Or use MERS, it couldn’t be simpler. But apparently that was too difficult for them! Shame.
I to think it would be unethical for a homeowner to have their mortgage wiped away because their lender cannot produce the original documents. However, I do think it could be used as leverage for the homeowner to get the Lender to work with them on a loan modification.
Hi, I’m also interested in writing a guest post for your blog, please get back to me on the attached email address
Rich
Based on the past actions of these banks/service companies I think they deserve what they are getting. Who is going to pay for the damage they (the banks/mortgage industry )have done to all of us and the economy. Maybe its time to teach them a lesson, that greed has its price. I know if I get greedy and spend like there’s no tomorrow I will have to eventually pay it back. OverAppraised homes, mortgage fraud, hidden fees are only the begining of what was happening behind the scene’s. Has any one ever heard of “karma”
Think it’s a bit much to wipe out debt completely (would be nice)… but perfect scenario for a mandatory loan mod with favorable terms for homeowner…
we this is a big one the mortgage company forged my income information and went as far as to putting my name and information on a bank statement that did not belong the statement shows that i made a withdraw of $39,0000 and a check that was purchased and my name was put on it the documents also show w2s that were altered to show inflated income i am in fore closer court what can i do about this or who would i call about getting help
Send the bank a “Nice Offer and Demand” which asks the bank to (within 30 days) provide you with every piece of paper signed at the closing. This would include the “original Note”. When it is produced it will be a copy of the original. This is not acceptable in the court. Many debtors have won their case with this demand. The “Note” has the value of the entire mortgage. You gave the note (a security instrument) they signed the back and deposited it into their bank account…then they handed you their “security instrument” for an equal amount. Then they charged you interest for 30 yrs! HELLO???
If you are in Circuit Court and lose take your case to Federal Court as you the Plaintiff. You can file free of charge if you are broke. Over 30 Ohio cases were won this way..And untold nuber of others throughout the USA. Google Judge Rose Ohio Foreclosures..
So, did you actually get to see and count the money that they supposedly lent you? Your mortgage says you did. There was never any money involved in your house transaction. You actually owned it at closing, then like every other silly bugger you signed it back over to them with out knowing. Check your mortgage papers it will tell you that your lender is your security trustee meaning that if you default the house belongs to them where as you would normally leave it to your kin. You can change that without causing too much fuss. Why should you pay for 30 years if they didn’t lend you anything???? Wake up people investigate…..