The Straight Dope

Go Back   Straight Dope Message Board > Main > General Questions

Reply
 
Thread Tools Display Modes
  #1  
Old 05-08-2012, 09:21 PM
obbn obbn is offline
Guest
 
Join Date: May 2011
Foreclosure, bank can't find original paperwork

Hello Everyone,

I talked to my cousin today and found out she has been going through some rough times. Her business has been doing very badly and she hadn't been able to make her mortgage payment. She has a home and a condo in a different city on the same mortgage. When she bought the home she rolled the outstanding balance of the condo into the house mortgage. I remember telling her that it was a bad idea at the time, for if she couldn't pay the house mortgage she would lose both properties.

Well, fast forward, she gets into financial problems, hires an attorney. He told her great news today, it seems that Bank of America can't locate the original mortgage paperwork. If that is the case, she will be granted clear title to both properties. I have heard something like this before, although it seems unbelievable to me. Is this true?

Now, if it is true, why hasn't some enterprising law firm made a business of reviewing mortgages and if the bank can't come up with the original documents, take them to court and demand a free and clear title. Or does that only work if you are in foreclosure? I realize it is a scumbag way of thinking, but I can't a why some lawyers aren't doing just that.
Reply With Quote
Advertisements  
  #2  
Old 05-09-2012, 05:30 AM
Keeve Keeve is offline
Guest
 
Join Date: Aug 2000
Two guesses:

A) The bank doesn't lose the paperwork often enough to make it profitable for the lawyers. It's like picking up a thousand lottery tickets from the garbage, hoping that one is a winner that someone discarded by mistake.

B) The whole scheme will work only if the bank cooperates, and they have zero incentive to cooperate. Suppose you were the bank, and some lawyer asked, "Do you really have the paperwork?" You would just ignore the lawyer, whether you had the paperwork or not. Only in the case of the foreclosure, when the bank said, "We're throwing you out!", and the lawyer responded with, "Yeah? Prove you own it!" -- only in that case will the bank be motivated to show the paperwork, and be forced to admit when they can't find it.
Reply With Quote
  #3  
Old 05-09-2012, 07:11 AM
hajario hajario is offline
Charter Member
 
Join Date: Apr 2001
Location: Santa Barbara, California
Posts: 13,122
I think that either she has hired a lawyer who is lying to her or she misunderstood. I am sure that it could be used as a delaying tactic but no way did she just win two free homes.
Reply With Quote
  #4  
Old 05-09-2012, 08:50 AM
Polycarp Polycarp is offline
Guest
 
Join Date: Aug 1999
Location: A better place to be
Posts: 26,718
Actually, neither of the above, hajario. You'll recall that in criminal trials, the defendant is "presumed innocent until proven guilty," meaning that the onus of proof is on the prosecution to prove him guilty past reasonable doubt? Similarly, in civil suits, the presumption is in favor of the respondent, and the onus of proof is on the plaintiff.

In a foreclosure action, what it boils down to is plaintiffs saying, "In exchange for us making him a loan, respondent agreed he'd pay us a sum of money each month, and that we could take his house if he stopped paying. He stopped paying; we're suing to take his house."

To which any smart lawyer retained by respondent will say,. "Oh, yeah? Prove it!" And if they have no paperwork showing respondent agreed to this, their case is quite weak.
Reply With Quote
  #5  
Old 05-09-2012, 09:01 AM
hajario hajario is offline
Charter Member
 
Join Date: Apr 2001
Location: Santa Barbara, California
Posts: 13,122
I don't agree. They have records of many months of payments made to the bank which is pretty good proof that a loan was made. Was she paying the bank money out of kindness? I'm sure that she had homeowners insurance where she would have had to list the bank as a lien holder. There is probably mention on the title at the County too. Isn't that pretty good proof?
Reply With Quote
  #6  
Old 05-09-2012, 10:07 AM
simster simster is offline
Member
 
Join Date: Nov 2005
Posts: 7,162
Quote:
Originally Posted by hajario View Post
I don't agree. They have records of many months of payments made to the bank which is pretty good proof that a loan was made. Was she paying the bank money out of kindness? I'm sure that she had homeowners insurance where she would have had to list the bank as a lien holder. There is probably mention on the title at the County too. Isn't that pretty good proof?
Pretty good proof does not equal the kind of proof needed for foreclosure -after all, the suing bank could have sold the mortgage to a yet un-named party - possibly even without the part of the bank that is doing the suing knowing about it. (it happens).
Reply With Quote
  #7  
Old 05-09-2012, 10:24 AM
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 16,986
Right. It's not that the court declares that the homeowner is now free and clear. It's clear that some bank has the right to the house. Instead they declare that this particular bank has no right to take the house because this bank can't prove that they're the bank that owns the house.

If you haven't been making payments on your house, I could try to foreclose on you. The the judge would ask me if I can prove that I'm the real owner of the house. I could point to the fact that you have been making payments on a loan, and that you stopped making payments on the loan, and are therefore in default. That means somebody would be entitled to foreclose on the house. Except that person isn't me. I'm just some random schmoe.

The actual entity that actually owns the mortgage is the only one that can foreclose, and they'd have to show some proof to the judge that they're the actual entity that owns the mortgage, not just assert it. If they've lost the paperwork, then they can't foreclose. This doesn't mean that the homeowner now owns the property free and clear, because pretty soon the bank is going to go through their records and find the paperwork and start foreclosure again. In the meantime, the homeowner is sitting pretty. For a few months or maybe even years. But probably not forever.
Reply With Quote
  #8  
Old 05-09-2012, 10:29 AM
hajario hajario is offline
Charter Member
 
Join Date: Apr 2001
Location: Santa Barbara, California
Posts: 13,122
Quote:
Originally Posted by Lemur866 View Post
This doesn't mean that the homeowner now owns the property free and clear, because pretty soon the bank is going to go through their records and find the paperwork and start foreclosure again. In the meantime, the homeowner is sitting pretty. For a few months or maybe even years. But probably not forever.
Exactly. It's a valid and reasonable delaying tactic at best.
Reply With Quote
  #9  
Old 05-09-2012, 11:17 AM
Darth Panda Darth Panda is offline
Guest
 
Join Date: Mar 2010
Quote:
Originally Posted by Polycarp View Post
Similarly, in civil suits, the presumption is in favor of the respondent, and the onus of proof is on the plaintiff.
You are correct that the burden of proof is on the plaintiff, but their is no presumption in favor of the respondent. The standard in a civil trial is "preponderance of this evidence" - that is, more likely than not - not beyond a reasonable doubt like in a criminal trial. So, 51% is enough to win.

Last edited by Darth Panda; 05-09-2012 at 11:17 AM..
Reply With Quote
  #10  
Old 05-09-2012, 12:35 PM
obbn obbn is offline
Guest
 
Join Date: May 2011
Quote:
Originally Posted by hajario View Post
Exactly. It's a valid and reasonable delaying tactic at best.
Thanks to both of you for clearing that up. I really had a hard time wrapping my head around what she was telling me, this explination makes more sense. The reason I didn't dismiss it outright was that I had heard of this or something choose to this before in the news, although I never got the full story.

The bank can't foreclose, but she doesn't have clear title, if nobody finds the paperwork she can basically live there until she dies for no $'s. But if another entity comes up with the paperwork, she's in hot water, for not only future payments, but missed ones too. And good luck trying to sell either on I suppose. That about sum it up?
Reply With Quote
  #11  
Old 05-09-2012, 12:37 PM
md2000 md2000 is offline
Guest
 
Join Date: Feb 2009
Quote:
Originally Posted by Darth Panda View Post
You are correct that the burden of proof is on the plaintiff, but their is no presumption in favor of the respondent. The standard in a civil trial is "preponderance of this evidence" - that is, more likely than not - not beyond a reasonable doubt like in a criminal trial. So, 51% is enough to win.
There was quite a bit of this discussion about a year or two ago. Several things are relevant.

First, Real Estate is not necessariliy a standard contract. Many states have more specific laws when it comes to land, title, mortgages, foreclosure, etc. In some, producing the original motgage document/agreement is a specific necessity. Plus, in the real estate boom leading up to 2008 and the crash, some banks set up or overxpanded their mortgage departs too fast, without setting proper procedures in place. In some cases, a the mortgage had to be witnessed by an authorized bank officer. heres a side scandal, "robosigning", where some banks either had the wrong person sign, filled in a fictitious name, or the person signing did not actually witness the signing and deal being made.

Next, some banks misunderstood or ignored the processes, and assumed "we're banks, we will always win in court on our word". Some simply microfilmed and destroyed the original documents, on the asumption they would not be held to account to produce them - the copy was sufficient despite the wording of the law.

Also, with the reselling of collected mortgages as junk bonds, there is some question where ownership of some of these mortgage rghts actually resides. Some mortgage departments have been traded through several hands as the original banks have been bankrupted, sold by the FDIC, resold, etc. Odds are the original people who knew where stuff was filed and such are long gone in the jobs consolidation.

When it came time to foreclose, many banks were not only confused about documentation, but even about details of somemortgages since so much had been shuffled and misplaced. Originally, banks tended to win cases simply on the basis of "we're the bank, of course our story is the correct one". But as time went on, more and more appeals resulted in banks being forced to adhere to the letter of the law, which included details like producing the original documentation as the law required. The banks that shredded the originals or hav no idea where they are filed are in serious trouble now.

If they have totally destroyed the document, well, the shareholders should have a little chat with management, assuming either still exist. If they have simply misfiled papers, then a lawyer will tell you whether they can come back and refile when they find them, or whether there's a statute of limitations on how long they can wait to file a foreclosure.

But as mentioned above, it's luck of the draw whether your mortgage wins the lottery, and the only way to find out is to get foreclosed on.
Reply With Quote
  #12  
Old 05-09-2012, 01:03 PM
md2000 md2000 is offline
Guest
 
Join Date: Feb 2009
http://www.michelashomes.com/blog/re...age-documents/
http://www.dailyfinance.com/2010/11/...e-countrywide/

http://www.massrealestatelawblog.com...unenforceable/
Quote:
In a decision which could impact foreclosure cases involving missing or lost loan documents, the Appeals Court held that a mortgage is unenforceable and must be discharged where the underlying promissory note securing the mortgage could not be found.
Google "lost mortgage documents"
It seems some cases may be permanently delayed, some cases are simply stalled.
The interesting bit is at the end of the second article - that the result of this is that clear title may be in question too, making it that much more difficult to sell later. Sort of a phyrric victory - you keep the property, but you can't sell it.

Of course, many of these articles are from 2010.
Reply With Quote
  #13  
Old 05-09-2012, 01:27 PM
Lemur866 Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 16,986
Of course, there is also the possibility that the documents will never show up, because they've been destroyed or permanently lost. Then the property will be in limbo. They can't evict you, can't foreclose, can't make you pay your mortgage, because they can't prove you owe them anything. But that doesn't mean you own the property either. Good luck selling it. The homeowner could just abandon the property when they want to move, but that would mean abandoning any equity (if any) they've built up.

In a few of these cases the courts have awarded the house to the homeowner as punishment for outright fraud by the mortagageholder. That probably didn't happen in this case.
Reply With Quote
  #14  
Old 05-09-2012, 02:15 PM
Darth Panda Darth Panda is offline
Guest
 
Join Date: Mar 2010
Quote:
Originally Posted by md2000 View Post
There was quite a bit of this discussion about a year or two ago. Several things are relevant.

<snip>
Excellent stuff. Real estate law isn't my thing, I was just responding to the general statement "in civil suits, the presumption is in favor of the respondent," but what you brought up is certainly interesting and very relevant to the topic at hand. Thanks.
Reply With Quote
  #15  
Old 05-09-2012, 02:33 PM
hajario hajario is offline
Charter Member
 
Join Date: Apr 2001
Location: Santa Barbara, California
Posts: 13,122
Quote:
Originally Posted by Lemur866 View Post
Of course, there is also the possibility that the documents will never show up, because they've been destroyed or permanently lost. Then the property will be in limbo. They can't evict you, can't foreclose, can't make you pay your mortgage, because they can't prove you owe them anything. But that doesn't mean you own the property either. Good luck selling it. The homeowner could just abandon the property when they want to move, but that would mean abandoning any equity (if any) they've built up.

In a few of these cases the courts have awarded the house to the homeowner as punishment for outright fraud by the mortagageholder. That probably didn't happen in this case.
Eventually, the courts will figure something out and it should be pretty clear that the house belongs to the bank (assuming no fraud.) It will probably be a painful and expensive exercise for the bank and, in the meantime, free housing for the resident.
Reply With Quote
  #16  
Old 05-09-2012, 07:47 PM
md2000 md2000 is offline
Guest
 
Join Date: Feb 2009
I thought I read somewhere in some discussion that there was a "statute of limitations" on mortgage debt. Someone could not just hold a mortgage, fail to ask for or collect money, and then come after you some indeterminate time in the future and demand the whole wad. If you fail to enforce your contract, you forfeit it.

So they better find what they need in due course.

Of course, in the articles linked, some states will apply the "preponderance of evidence" rule and assume the bank is owed a debt. Other scenarios, the debt simply becomes debt, without any tie to the land title. Get in line behind the credit card company, the car loan company, and anyone else who is also owed money.

Last edited by md2000; 05-09-2012 at 07:48 PM..
Reply With Quote
  #17  
Old 05-09-2012, 11:40 PM
Rhythmdvl Rhythmdvl is offline
Charter Member
 
Join Date: Oct 1999
Location: Shakedown Street
Posts: 12,412
If no bank comes calling, after time (varies by state) wouldn't adverse possession come into play? Sounds like it would meet the elements of actual, open, exclusive, hostile and continuous. Note: it's been eleven years since I took prop law.
Reply With Quote
  #18  
Old 05-09-2012, 11:53 PM
Postariti Postariti is offline
Guest
 
Join Date: Nov 2008
Your cousin needs to be very careful. There have been a lot of scams related to mortgages in recent years. There have been a handful of cases where people were able to keep their home because of problems with bank paperwork, there have been thousands of people who were scammed.

You need to find out from her if this lawyer is really a lawyer, and if she's being asked to pay any unusual fees. She should try to see a second lawyer, if at all possible.
Reply With Quote
  #19  
Old 05-10-2012, 12:25 AM
Postariti Postariti is offline
Guest
 
Join Date: Nov 2008
Here is information about some of the scams I mentioned. Ask her if the lawyer is talking about a forensic loan audit, that's a common part of these scams. The scammer charges a huge fee for an audit that supposedly shows a defect in the bank's paperwork.

http://www.ftc.gov/bcp/edu/pubs/cons...ts/alt177.shtm

http://www.ftc.gov/bcp/edu/pubs/cons...dit/cre42.shtm
Reply With Quote
  #20  
Old 05-10-2012, 04:55 AM
Alley Dweller Alley Dweller is offline
Guest
 
Join Date: Feb 2011
Quote:
Originally Posted by Rhythmdvl View Post
If no bank comes calling, after time (varies by state) wouldn't adverse possession come into play? Sounds like it would meet the elements of actual, open, exclusive, hostile and continuous. Note: it's been eleven years since I took prop law.
Many people (incorrectly) say that "the bank owns the property" when the bank issues a mortgage loan. It was even said by someone earlier in this thread. This is not correct. Even if you have taken out a loan and given the bank a mortgage against your house, YOU are still the owner of the house. The bank has a security interest in the house, but it does not own it.

You cannot adversely possess your own property. Possessing your own property is not hostile.

The only way that adverse possession could come into play would be if the bank foreclosed and obtained the title to your property and then failed to remove you from the property. If the bank cannot obtain title from you, you are not in adverse possession. This is all about delaying or preventing the bank that holds your mortgage from obtaining the title in the first place because they do not have the proper paperwork.

Last edited by Alley Dweller; 05-10-2012 at 04:57 AM..
Reply With Quote
  #21  
Old 05-10-2012, 05:05 AM
Fear Itself Fear Itself is online now
Charter Member
 
Join Date: Apr 1999
Location: 847 mi. from Cecil
Posts: 28,927
Quote:
Originally Posted by hajario View Post
I think that either she has hired a lawyer who is lying to her or she misunderstood. I am sure that it could be used as a delaying tactic but no way did she just win two free homes.
It does happen.
Reply With Quote
  #22  
Old 05-10-2012, 05:55 AM
Alley Dweller Alley Dweller is offline
Guest
 
Join Date: Feb 2011
Quote:
Originally Posted by Fear Itself View Post
The decision was overturned on appeal.
Reply With Quote
  #23  
Old 05-10-2012, 07:05 AM
Fear Itself Fear Itself is online now
Charter Member
 
Join Date: Apr 1999
Location: 847 mi. from Cecil
Posts: 28,927
Quote:
Originally Posted by Alley Dweller View Post
That's unfortunate.
Reply With Quote
Reply



Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 09:31 AM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2014, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@chicagoreader.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Publishers - interested in subscribing to the Straight Dope?
Write to: sdsubscriptions@chicagoreader.com.

Copyright 2013 Sun-Times Media, LLC.