In an earlier article this week we outlined how homeowners can verify the validity of their mortgage notes, as well as to receive documented confirmation that the mortgage service company to which you send your monthly payments is legally servicing the note with permission from the note holder. For more information: Here’s What You Can Do: Demand Your Mortgage Note.
We received several comments, most being supportive of contractual law and contractual obligations, though some opinions suggested that taking such action against banks, lenders and mortgage service companies was immoral based on the argument that as a homeowner, you engaged in a contractual obligation, and be reneging on said obligation you are essentially knowingly and willfully defrauding the note holder by choosing not to pay your note.
Our intention, of course, was not to promote voluntary default on mortgage loan payments. It was to give homeowners the opportunity to verify and validate the actual contract which exists between themselves and the note holder.
Just as a bank has the ability to enforce a contract, so to does a homeowner. But, with the current mess related to mortgage transfers, the validity of the contracts themselves is now in question, and for all you know as a homeowner, you may be paying the wrong company your monthly payments – a company that may not even own the home or be legally servicing your monthly payments. There has been at least one confirmed case of a homeowner who was in delinquency being foreclosed on by two different banks. This tells us that there is something seriously wrong with the entire process, and not even the banks know who owns what.
In a recent article titled Second Leg Down of America’s Death, Gonzalo Lira makes clear what the issue is and why it’s a good idea to obtain proof of ownership from the note holder:
If the chain of title of the note is broken, then the borrower no longer owes any money on the loan.
This is extremely important to understand, and Lira outlines exactly how this process is supposed to work and the problems that have occured as a result of banks dicing and slicing mortgages into securities and trading vehicles for investors. Essentially, as mortgage notes were “transferred” from one bank to another the chain of title was broken, which means that whoever was supposed to make their monthly payments on that title no longer had to do it, because the title was not transferred legally.
So, when we said you might get “free house, or, at the very least, a deferment on your monthly mortgage payments (interest free) until everything is worked out” in our previous article, we meant it. The banks have completely dropped the ball, and have actually hired companies whose sole purpose is to fraudulently re-create all of this paperwork.
Using some colorful language (*explicit), Lira explains why this is a problem, and what the end result may be:
The reason the banks are fucked again is, if theyâ€™ve been foreclosing on people they didnâ€™t have the legal right to foreclose on, then those people have the right to get their houses back. And the people who bought those foreclosed houses from the bank might not actually own the houses they paid for.
And it wonâ€™t matter if a particular caseâ€”or even most casesâ€”were on the up-and-up: It wonâ€™t matter if most of the foreclosures and evictions were truly because the homeowner failed to pay his mortgage. The fraud committed by the foreclosure mills casts enough doubt that now, all foreclosures come into question. Not only that, all mortgages come into question.
People still havenâ€™t figured out what this all meansâ€”but Iâ€™ll tell you: If enough mortgage-paying homeowners realize that they may be able to get out of their mortgage loan and keep their house, scott-free? Shit, thatâ€™s basically a license to halt payments right the fuck now. Thatâ€™s basically a license to tell the banks to fuck off.
What are the banks gonna doâ€”try to foreclose and then evict you? Show me the paper, motherfucker, will be all you need to say.
This is a major, major crisis. This makes Lehmanâ€™s bankruptcy look like a spring rain, compared to this hurricane. And if this isnâ€™t handled rightâ€”and handled right quick, in the next couple of weeks on the outsideâ€”this crisis could also spell the end of the mortgage business altogether. Of banking altogether. Hell, of civil society. What do you think happens in a country when the citizens realize they donâ€™t need to pay their debts?
We’re talking about trillions of dollars in debt here – and because the banks screwed up, those debts may literally go from being worth $1 trillion on the books of banks like Bank of America, to $0.
Consider what something like that, times all of the major banks and mortgage lenders in the country, might do to our economy. It would not be pretty.
Of course, if such a thing were to occur we would not be at all surprised to see the largest financial bailout in the history of the world. Our guess would be that the U.S. government would give the banks another round of trillion dollar bailouts and in the process they would acquire “ownership” of these notes at which point, they could simply re-write contract law like they did with the GM bondholders and force homeowners to start paying. That or they’d restrict their ability to acquire loans for any new home purchases and who knows what else. Congress, as we all know, can get very creative with commerce laws, other peoples’ money and definitions of property rights.
A lot of things can go wrong here, and already have. None of them will result in anything good.