Not too many years ago, this headline would have sounded ridiculous. However, such sentiment seems to be gaining traction outside of the fringe anarchist groups that would normally espouse such behavior. Before the real estate market went haywire, a borrower who did not pay the lender lost his or her home to foreclosure. Nowadays, we see lawsuits by homeowners to stop foreclosure, law suits and injunctions by state attorney generals to halt foreclosures, and lenders voluntarily placing moratoriums on trustee’s sales – even when the homeowners have not paid the mortgages.
There are several fears that make people pay debts: (1) credit scores get pummeled when debts are not paid; (2) unsecured creditors will sue, then garnish wages and clean out bank accounts of deadbeats; and (3) secured lenders will take the collateral property whether it is a car, boat, or home. Once a person decides that maintaining a high credit score is worthless and files for bankruptcy to avoid personal liability for debts, all that is left to make that person pay the mortgage is fear of losing the home. Take that fear away, and the only reason to pay the mortgage might disappear as well. Anyone who has kept up with the latest mortgage news should be asking himself or herself, “If the bank cannot take my home, why the heck would I pay the mortgage?”
This article is not advocating any particular action with regard to payment of any debt. The purpose of this article is to provide the reader with additional factors when considering whether to pay or not pay the mortgage. Furthermore, I am a California attorney, and I have written this article to provide general information for Californians. As such this article may not apply to any other states. Also, I am using very general terms in this article so that the layperson can easily understand the points made. I may use lender and bank interchangeably, and while technically not correct, the point is the same. In addition, the following disclaimer is made: “This article is for informational purposes only. None of the information or materials presented herein is legal advice. None of the comments, answers, or other communications herein should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship. While I try to be accurate, I do not guarantee accuracy.”
In general the California mortgage documents allow the lender to sell the debt (and its rights and obligations) to anyone, but the borrower may not transfer the debt (or any of its rights and obligations). This means that if you initially borrowed from Bank of America, Bank of America could sell your loan to Wells Fargo who could sell it to Chase and so on. However, you cannot have someone take over your mortgage and escape the obligations under that mortgage. The banks can transfer the mortgages, you cannot.
When lenders transfer mortgages, certain strict rules must be followed, and such procedures involve creating a genuine and authentic paper trail of such transfers. Certain documents that are used to transfer a loan from one bank to another require actual human signatures from authorized bank representatives. In the last few years, lenders have sold and resold loans in record numbers. As a result banks decided that the money used to pay an actual person to read and sign several thousand repetitively worded documents could be saved by having many people sign the same agent name or use stamped signatures or digitally reproduce signatures. This process has been called “robo-signing” by our media. These robo-signed transfer documents may not be valid. Absent a valid documentation of transfer, there cannot be a valid transfer.
Another cost saving device used by lenders to save money was to use the Mortgage Electronic Registration Systems (MERS) to act as trustee for all of the lenders as the loan went from lender to lender to lender. Since the trustee’s identity did not change, there was no need to notify the borrower every time the lender changed. Thus there was savings in printing, record keeping, and postage. Additional savings resulted because no change of trustee documents needed to be recorded, meaning no recording fees to the county recorder offices. MERS essentially became a privatized recorder of real property transactions. Some municipalities estimate the lost revenue in the hundreds of thousands of dollars from not receiving recording fees. In addition, robo-signatures were employed in transfers between MERS and some lenders. Thus, the robo-signed trustee’s deeds may not be valid. Absent a validly assigned trustee, there cannot be a valid trustee’s sale.
California allows trustee’s sales to proceed without court oversight. To ensure compliance with the sale there are many statutory laws which must be followed to the letter. Prior to recording a Notice of Default and Notice of Trustee’s Sale with the County and serving said notices on the borrower, a human agent of the lender is to sign documents that declare that the borrower’s account was personally reviewed and determined to be in default by that human. By now, I would guess you can tell what I am about to write, and yes, you are correct. These default documents were often robo-signed. These robo-signed default documents may not be valid. Absent a valid Notice of Default and Notice of Trustee’s sale, there cannot be a valid default or trustee’s sale.
Thus, for those people who find themselves facing imminent foreclosure, there may be several more months of “free housing” than originally expected. The banks will eventually correct their mistakes and foreclose, but it may take a while. There is simply too much bank money at stake for them to make true compromises with borrowers.
In closing, I offer a word of caution to anyone about to sue their lender for robo-signing. These lawsuits are complex, time-consuming, and expensive. These lawsuits may delay the sale, but will likely result in loss of the home. There are many so-called mortgage experts out there, including attorneys, who will take money from homeowners and make promises of saving homes based on forgery, procedural violations by MERS, and other such technical matters. Before spending your last dollars on a desperate last ditch attempt to stay in a deeply underwater home (i.e., the amount owed is far greater than the actual market value) that would rent for far less than the mortgage, taxes, insurance, and upkeep, give serious consideration to your situation and get an accurate education about your rights.
About the Author:
Nathan Fransen is a broker and attorney with extensive experience (owned a mortgage and real estate sale brokerage). Paul J. Molinaro is an attorney/broker with considerable mortgage and real estate experience but has also been a practicing physician for nineteen years. Gregg A. Eichler is a thirty-year bankruptcy attorney and a former United States Bankruptcy Trustee. J. Marie Gray has been a family lawyer for nineteen years and has dealt with all of the usual family law matters plus the complex issues of handling real estate during a divorce. F&M is more than equipped to handle any legal matter involving the above areas. With almost sixty years of collective law experience, F&M is large enough to handle the toughest cases involving national lenders or real estate brokers while still small enough to maintain a one-on-one relationship with all its clients.