Make The Bank Prove It Really Owns Your Mortgage Before You Let Them Toss You Out

We’ve written about this before, but as more and more people face foreclosure (last year’s foreclosures totaled 2.3 million, according to the AP) its a good time to remind people of this strategy.

From the AP:

During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.
ompel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.

“I’m going to hang on for dear life until they can prove to me it belongs to them,” said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. “I’ll try everything I can because it’s all I have left.”

In a few cases that we wrote about in 2007, judges halted foreclosure proceedings because the banks could not prove that they actually owned the mortgages.

The AP says some lawmakers are in favor of the stalling technique:

Democratic Rep. Marcy Kaptur of Ohio endorsed the strategy in a fiery speech on the House floor during debate on the federal bank bailout last month.
“Don’t leave your home,” she said. “Because you know what? When those companies say they have your mortgage, unless you have a lawyer that can put his or her finger on that mortgage, you don’t have that mortgage, and you are going to find they can’t find the paper up there on Wall Street.”

We think that fair is fair. The bank certainly wouldn’t just take your word that they owed you several hundred thousand dollars.

Homeowners’ rallying cry: Produce the note [AP] (Thanks, Plastik Man!)
(Photo:foundphotoslj)

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  1. perruptor says:

    “The bank certainly wouldn’t just take your word that they owed you several hundred thousand dollars.”

    So much for that plan …

  2. dave23 says:

    If they can’t produce the documentation are you still legally obligated to pay the debt?

    Please note that I am not asking an ethical question, this is only a question of the law.

  3. tedyc03 says:

    I’m torn on this strategy. On the one hand I think it should not be used as a method of defrauding the bank if you really owe them. Delaying the proceedings may work for a while but if you owe the money, you have made a promise to repay it.

    On the other hand, if Bank A sells a note to Bank B and then tries to foreclose on the borrower, the borrower by all means should demand to see whether Bank A still owns the note or not. Someone owns it to be sure; but if Bank A sold it they have no legal claim to the property. In that sense, I support the strategy.

    And, courts are about proving things. You should have to prove your point, not just win because it’s plausible that you’re right.

    • GMFish says:

      @tedyc03: “On the one hand I think it should not be used as a method of defrauding the bank if you really owe them.

      But you don’t know if you owe the collector. The entity you originally signed a mortgage with has long since sold it off. Clearly, anyone who kicks you out of your house should first have to prove they are entitled to do so.

    • MrsLopsided says:

      @tedyc03: If you don’t demand proof then there is the chance that you will pay the wrong party and still be on the hook to the rightful mortgage holder.

    • David Brodbeck says:

      @tedyc03: On the other hand, one of the reasons many borrowers are having problems doing short sales or other negotiations is they’re unable to find the entity that has the note in order to negotiate with them. This could be one way of forcing the issue.

    • lilbit01 says:

      @tedyc03: I agree fully. Folks shouldn’t use this as a way to wriggle out of rightfully-owed debt but it’s wise to make sure the bank asking for the money does have proof of ownership these days… It would be horrible for a homeowner to pay the mortgage to one bank only to get hit for the same amount from another bank that *does* have proof. With the economy what it is, everyone should be extra-cautious.

    • Mike_Hawk says:

      @tedyc03: The starving and homeless have little use for Honor. Honor is something you practice when you can afford to.

    • MikeWas says:

      @tedyc03: Your “on the other hand” case is much stronger, in my not-so-humble opinion.

  4. courtarro says:

    Doesn’t the bank hold the deed? What happens if they lose your mortgage and the deed? How do you prove that you have a right to the property? In that case, how does anyone prove who owns the property?

    If you get away with this, do you effectively get to keep the house without any attached debt?

    (Above questions asked by someone who doesn’t really know how this all works … just curious)

    • SonicMan says:

      @courtarro: You keep the deed. The bank does not keep it.

    • sirwired says:

      @courtarro: Where I live, the county Registrar of Deeds holds the deeds for all land in the county. It isn’t like a car, where the bank holds the physical title until you pay it off. Instead, the deed is in your name, and this is filed with the deeds office (and all this is covered in official stamps and barcodes). In addition, the lien the bank holds on the deed is also recorded there, and this lien is cross-referenced to the deed itself.

      If/when the note is paid off, the bank sends a note to the deeds office, where yet another letter is filed stating that the lien on Book X, Page Y is canceled.

      This whole process forms a coherent history of the ownership of the property, which is important in the case of an ownership dispute. For instance, if you sell the house and fail to clear the lien, the lienholder can successfully argue that since you could not legally sell the property, they can take ownership of it from whomever you sold it to. (This is why all Mortgage banks require title insurance; it prevents these nasty surprises from hurting the bank.)

      Now, if the lien is transferred to a new entity, that transfer does NOT have to be recorded, and that is where all these problems have arisen. Since there is no official filing when the ownership of the note happens, the bank instead is supposed to dig through their own files to document this process, as the county deeds office simply doesn’t have that record.

      • courtarro says:

        @sirwired: So if, in the case of a lost mortgage record, a bank cannot foreclose based on a legal judgement, what happens to that lien? Is it nullified as well, thereby giving the owner full equity in the house and property?

        • David Brodbeck says:

          @courtarro: My guess is it just maintains the status quo; the legal judgment shows the bank doesn’t have the right to foreclose, but the person who holds the note (that the bank couldn’t identify) probably still does. But IANAL.

        • Eyebrows McGee (now with double the baby!) says:

          @courtarro: It would depend, and I’m fairly sure state law issues would enter into it.

          I’ve tried to turn this into a coherent statement like six times and I keep deleting my explanatory paragraph as incomplete and confusing, so I will stick with my bit of trivia instead: In my town, it once took an act of the federal Congress to settle a mess o’ lien issues and property title problems arising from the aftermath of the Peoria War. So presumably if it got bad enough, Congress could intervene and just *decide* what happens to them all.

          I’m sure we have a property attorney around here somewhere who can give an explanation that isn’t all muddled.

        • sirwired says:

          @courtarro: If the bank lost their mortgage record, your house would be in a bit of legal limbo.

          On the one hand, foreclosure is impossible without proof that the “new” bank actually owns the note.

          On the other hand, no judge is likely to remove the lien without at least some proof from your end that the note associated with it has been paid (i.e. canceled checks, bank statements, 1099’s, etc.) Even if you raised questions on the standing of the “new” bank to present evidence in their favor, I don’t think a judge will grant “default-ish” judgment in your favor and have the lien removed simply because you ask him/her to.

          In the end, you might be able to live in your house without foreclosure being possible, but you would never be able to sell because you wouldn’t be able to get the lien removed from the deed.

  5. funkright says:

    I love the last paragraph in the referenced article…

    “This is an army of lawyers getting out there to stop foreclosures so we can get to the serious business of creating solutions,” Charney said. “Nothing good is going to happen as long as we continue to bleed homeowners.”

    Great see lawyers referenced in a positive light (I am not a lawyer though) and definitely shows that we need to make the right decisions here, for all, not just the few.

    Times like these are a test of our society and humanity, I am positive we will pass that test!

    • MikeWas says:

      @funkright: April Charney is awesome. She’s done great work for the underprivileged in Jacksonville, and is a role model for lawyers all over the country.

  6. JGKojak says:

    “I’m torn on this strategy. On the one hand I think it should not be used as a method of defrauding the bank if you really owe them. Delaying the proceedings may work for a while but if you owe the money, you have made a promise to repay it.”

    But they need to LEGALLY prove they own the mortgage. And if they failed to keep the necessary paperwork on hand, that is THEIR responsibility, not yours. In fact, I believe these same banks worked to defeat legislation that had more stringent requirements for mortgage change of owner notification.

    Since when do they get to take legal action without producing paperwork?

    • tylerk4 says:

      @JGKojak: They already have to notify a borrower if the mortgage is sold or transferred. See 12 U.S.C. section 2605(b).

      • TechnoDestructo says:

        @tylerk4:

        That says if the servicing is transferred. I’m not 100 percent, but I’m pretty sure that ownership and servicing can be separate (otherwise, I don’t see how securitization would have ever been possible).

      • sirwired says:

        @microcars: This will not help with a mortgage overly much. Debt collectors are more normally used for small-time debt, such as credit cards, cars, etc. A mortgage is going to be handled in-house, which eliminates many of the provisions of the FDCPA.

        In addition, if you really feel like assertively giving your mortgage bank the finger, they will certainly not hesitate to foreclose on you, and skip all of the “pay us, pretty please” letters and phone calls.

        Oh, and I don’t think the statue of limitations can stop a collector from attempting to collect, nor can it stop negative notations on your credit report. They will simply be unable to obtain a court judgment in their favor to force you to cough up the cash; that has no bearing on your payment status, which is what is reported to the CRAs. (Unless the debt has also aged out of your credit report.)

  7. stemplain says:

    We all need to drag the banks over the hot coals. Banks need to go under, We as Americans need to go after the Feds and make them break up. USA need to print its own money. The banking Cartel needs to be audited. Rothschild need to be assasinated along with the other players. We need to take back USA for the people. Boot them Bankers who had started wars along with other factors. Soon revolution will take place. Starting with the Rottenchilds , they are so rotten that they stink and the smell overwhelms the public. They are blind to see it. This is my own theory.

  8. Imaginary says:

    Screw that “I’m torn because it’s defrauding” crap. Make them show you that they own your house. Pull out those papers and show me! If you said they owed you money they’d start an investigation that could drag on for months hoping you’d give up and not have to pay you. These people play dirty, so play their game. I’m saying reduce yourself to their level but even the playing field. Everyday folks need to be smarter and more tenacious. To many times do we just back down and let them have whatever they want.

    • floraposte says:

      @Imaginary: It’s not even playing dirty; you’re ascertaining they have the legal ability to make the demands they’re making. Same as if somebody calls you on the phone and says they’re a collection agency and you owe them $10k.

  9. microcars says:

    I have had great success for friends who debt collectors bugging them by having them send the following letter via certified/registered mail to the “collector”, don’t know how much of it applies to a mortgage…

    To Whom It May Concern:

    This letter is being sent to you in response to a notice sent to me on (date). Be advised that this is not a refusal to pay, but a notice sent pursuant to the Fair Debt Collection Practices Act, 15 USC 1692g Sec. 809 (b) that your claim is disputed and validation is requested.

    This is NOT a request for “verification” or proof of my mailing address, but a request for VALIDATION made pursuant to the above named Title and Section. I respectfully request that your offices provide me with competent evidence that I have any legal obligation to pay you.

    Please provide me with the following:
    * What the money you say I owe is for;
    * Explain and show me how you calculated what you say I owe;
    * Provide me with copies of any papers that show I agreed to pay what you say I owe;
    * Provide a verification or copy of any judgment if applicable;
    * Identify the original creditor;
    * Prove the Statute of Limitations has not expired on this account
    * Show me that you are licensed to collect in my state
    * Provide me with your license numbers and Registered Agent

    At this time I will also inform you that if your offices have reported invalidated information to any of the 3 major Credit Bureau’s (Equifax, Experian or TransUnion) this action might constitute fraud under both Federal and State Laws. Due to this fact, if any negative mark is found on any of my credit reports by your company or the company that you represent I will not hesitate in bringing legal action against you for the following:

    * Violation of the Fair Credit Reporting Act
    * Violation of the Fair Debt Collection Practices Act
    * Defamation of Character

    If your offices are able to provide the proper documentation as requested in the following Declaration, I will require at least 30 days to investigate this information and during such time all collection activity must cease and desist.

    Also during this validation period, if any action is taken which could be considered detrimental to any of my credit reports, I will consult with my legal counsel for suit. This includes any listing any information to a credit reporting repository that could be inaccurate or invalidated or verifying an account as accurate when in fact there is no provided proof that it is.

    If your offices fail to respond to this validation request within 30 days from the date of your receipt, all references to this account must be deleted and completely removed from my credit file and a copy of such deletion request shall be sent to me immediately.

    I would also like to request, in writing, that no telephone contact be made by your offices to my home or to my place of employment. If your offices attempt telephone communication with me, including but not limited to computer generated calls and calls or correspondence sent to or with any third parties, it will be considered harassment and I will have no choice but to file suit. All future communications with me MUST be done in writing and sent to the address noted in this letter by USPS.

    It would be advisable that you assure that your records are in order before I am forced to take legal action. This is an attempt to correct your records, any information obtained shall be used for that purpose.

  10. bdgbill says:

    Fair is fair? How is it fair to borrow money and not pay it back? I certainly have sympathy for people who are in foreclosure because they lost their job or had some other personal disaster like the death of a spouse. However, the vast majority of foreclosures are happening to people who bought a house they could not afford. Others continually refinanced the roof over their heads to buy such things as plasma tv’s and jet ski’s.

    • floraposte says:

      @bdgbill: I don’t think people are arguing that the homeowners shouldn’t pay money; I think they’re arguing that it’s fair to require the wannabe forecloser to meet the required legal standard to prove they’re entitled.

      I don’t see how anybody can be against that, really. It seems like foolish consumerism to hand over money or a house to anybody who just randomly claims they’re entitled. If they are entitled, they’ll have the paperwork, so this isn’t a problem, right?

    • MikeWas says:

      @bdgbill: the problem is… pay it back to whom? Unless the plaintiff in a foreclosure case can prove that it is the rightful “lender” – i.e., they have possession of the original note – then it’s likely they’ve sold it off to someone else. they’ve already got their money – and they’re trying to double-dip. Think it doesn’t happen? Banks aren’t infallible, and they screw up all the time.

      The key to remember here is that the “produce the note” strategy is really only a piece of the puzzle. In most cases, it’s used to buy time and force the lender to negotiate in good faith when otherwise they won’t.

      See, for exampl, this case:
      [www2.tbo.com]

      And as far as your contention that, “the vast majority of foreclosures are happening to people who bought a house they could not afford,” this is simply false. Many people got loans they couldn’t afford, because they either didn’t understand what they were getting or because they were affirmatively misled by a lender or mortgage broker.

  11. Barry White Stripes, Office LW says:

    Not only would I request a copy of ALL the docs associated with the loan, do some math and run a check on compliance related issues such as TIL (fees on your HUD-1), RESPA (time sensitive signing period), Prepay penalties, and usury rates (both vary by state) to make sure that the lender played by the rules every step of the way.

    If any rules and regulations were violated along the way it should be your free ticket to loan modification, and in some cases cash coming your way!

  12. XianZomby says:

    People that have just borred money to buy a house would have had to make at least a few mortgage payments. How is the relationship defined between who recieves that check and who actually owns the mortgage? Can’t whoever recieves your check each month “follow the money” to find out where it ends up? And if you have written even one mortgage check, doesn’t that prove that you know you have debit to pay to soembody?

    • god_forbids says:

      @XianZomby: IANAL, but AFAIK from finance courses the ownership of a debt instrument is easily separated from the ownership of the stream of payments from that instrument. Banks trade and share interest or other payments on their various assets all the time, and that’s where this whole CDO mess came from.

      Further, in the case of collateralized loans and securities, different people can own:

      1. The collateral (house, car)
      2. The loan (servicing responsibility including collecting payments)
      3. The right to payments on the loan
      4. The right to foreclose on the collateral (if the loan goes non-performing)

      And while you may know that you owe somebody money, the entity you pay may not have the right to foreclose on the property. The mortgage itself could have gone from your issuing bank to a collateralizer to a securitizing bank/underwriter to the CDS market and then to investors who might be funds, banks, insurance companies, foreign governments, municipalities …

      Most often just the cash flows were sold, but hundreds of collateralizers (Countrywide, et al.) sprung up during the bubble and they all did business differently. Are you going to assume that the proper paperwork was filed each step of the way and that the documentation from all of those defunct (and sometimes illegally operated) companies is readily available? This thing is a massive clusterfuck of contract law, and nobody even talks about those responsible.

  13. Rey Trejo says:

    I love how people took out loans they knew they couldn’t pay back and how after they got these loans they took out more loans so they could buy another car, cars for their 15 1/2 year olds or go on their 5th Cruise in a year.

    Now we all have to suffer since no one wants to take personal responsibility for their actions.

    Hell for kicks as a 21 year old with starting credit I got approved for something I know I couldn’t pay off and I told them “no”.

    Fact is John and Jane American you took the loan and you should pay it off.
    Granted you can’t due to that home you bought at $500,000 wasn’t really supposed to be worth that much in the first place!

    • mythago says:

      @Rey Trejo: Five cruises a year? Maybe in your rich neighborhood. In the real world, people are losing their houses because they bought mortgages whose payments are now beyond their income.

      • Rey Trejo says:

        @mythago:

        I don’t live in a rich neighborhood all I want to know is why I have to pay off my neighbor’s house because he wanted a big house!

        Hell this house is small and I rent but I live within my means and not trying to own a house at 24 since it’s apparently a right in this country now.

  14. Angie Graham Johnson says:

    Does the property have to be in foreclosure or could you simply request the documents to see if it is owned by the bank? If they don’t have the proper documents then why am I paying them? I have requested documents since my loan was sold and I am looking to refinance. The bank that currently owns my mortgage cannot find the deed which assigned them my property. Do I owe them or the bank where I originally financed? So much greed in selling the bundles and not enough checks and balances.

  15. tworld says:

    That’s a great idea. Turn the tables on the banks. Let them prove they own the house and drown THEM in paperwork.

  16. billbobbins says:

    If the banks were dumb enough to lend people money that couldn’t afford to pay them back, then they surely are not smart enough to keep the paperwork.

    Look at it this way – if I were an unscrupulous person, I could send you a letter that says Bank of Billbobbins has purchased your loan and you need to start sending me your mortgage checks. Are you just naturally going to believe me and send me a check every month??? I would hope that you want some proof. If not, you are very naive and you will learn the hard way to ask for proof.