Mortgage question: What happens if a bank can't produce the note?

[TheWraith]

Assume you have a person who's current on their mortgage, and that the mortgage has been sold at least once since it was originally made. They've sent a standard letter to their mortgage holder, asking them to produce the note. What happens if the mortgage holder can't? Can the person challenge the validity of the mortgage and get the debt dismissed?

[Stinky The Clown]

1. I am not an expert on this, but here is what I understand:

Short answer - you don't owe them shit.

Long answer - this is so potentially damaging that the government is quietly working on legislation to protect the banks. Basically, it will absolve them of their guilt in this shitstorm and protect them from *us*. Then, to add insult to injury, they will send the bill to you.

[humpty dumpty]

2. Depends

If you signed the note, then you owe it. Anyway, a copy will probably turn up.

If you didn't sign the note, you don't owe and don't pay it.

Pretty simple.

[PeaceNikki]

3. Watch this

http://www.abovetopsecret.com/forum/thread440137/pg1

[charlie]

4. A couple of years ago

Deutschebank tried to foreclose a swath of homes in Cinncinnati and a judge told them to show him the notes. When they couldn't, he told them to go suck eggs.

If you want to see why nobody knows who holds the note, look at this infographic tracing the securitization tangle of one family's mortgage:

?

[TheWraith]

5. I understand they can't foreclose without the note.

What I'm trying to figure out is if they can still collect on the debt if they can't produce the note.

[flvegan]

6. In Florida:

First, the mortgage "holder" most likely will have no interest in even answering the letter, so taking a non response to be "unable to produce" is a poor basis to risk one's home and credit on. They're not beholden to produce anything until it's demanded in court.

<back to Florida>

Challenging the validity could be done by filing a Quiet Title action, naming the lender. Now it would be in front of a judge. If the mortgage holder couldn't prove up their claim of the debt, the judge could very well find in the homeowner's favor, and the mortgage/note is done and gone. The great thing is, a Quiet Title action is kind of the be-all, end-all of "you're title is clear, dude" finality. Couple years later, with no adverse action, your title is marketable, free and clear. Naturally, the smart thing would be to pay your mortgage payments into an escrow account, showing good faith in regards to the mortgage holder during the action.

Personally, I have yet to see anyone try this. I'd welcome the experiment though. I think that there are enough judges in enough counties here that this would definitely happen.

[Xithras]

7. The real answer: Depends on the judge.

Even if the bank doesn't have all the paperwork in order, judges are usually hesitant to set aside tens or hundreds of thousands of dollars in debt that you admit to owing. If you lie and say that it's paid off, the bank is just going to pull the sale records, look at the original price of the home, and ask you to PROVE how you paid for it.

If the bank can prove the debt but can't produce the note, things get interesting. Some judges will just order a new note generated. Others will order the bank to renegotiate with the homeowner, which can be a huge boon and may result in a drastically lower interest rate or completly rewritten terms. There have only been a couple of cases where the judge completely set the mortgage aside, and those are being appealed by the banks and probably won't stand.

[aquart]

8. But can't the real note holder demand payment at any time?

[drm604]

9. That's the problem that I see with all of this.

If the bank can't produce a note and you're forced to pay it, or the bank forecloses and takes the house, then a few years later someone else comes along and does produce a valid note, what happens?

[SoCalDem]

10. What I have always suspected is this

How many mortgages are even still "intact"..

With at the shenanigans they pulled, what if they broke apart the mortgages and sold them off in pieces.. like years 1-5 in one "bundle of shitty securities", years 6-10 in another,. etc..

[drm604]

12. Isn't that the whole problem? They're not intact.

I don't think they're broken up by years. My impression is that they've been broken up in less definable ways that cloud the whole issue of who holds the mortgage.

[dixiegrrrrl]

11. No one knows who the real note holder is.

It has come to light that when the mortgages were sold, they were actually sold to more than one Real Estate Trust.
And the note never made it to one, much less more than one, trust ( because selling ONE mortgage to MORE than one trust is not legal)

So the question has developed into: who really owns the note, who really owns the loan, who really owns the house?

btw, even if a court finds that my servicer cannot provide a note, I still owe a non-secured debt to ...someone.
All the mortgage did was provide security for the loan.
No note, the loan turns into a promissory note, with different legal implications of how the debt is to be repaid.

Here in Ala, we no longer have the opportunity to argue.
Our state legislature, in March of this year, re-wrote the laws to say that basically if a bank tells a court it has the note, the court has to accept that.

I suspect changing the law will be attempted in other states.

[aquart]

13. If they deliberately sold to more than one trust

that is fraud and the mortgage has to be invalid. No banking entity should be allowed to take a profit on that. They need to be reamed up the ass for these mortgages and then watched like the criminals they are. What's the banking equivalent of an ankle alarm?