Deleveraging: Borrowers Paying Off Loans Early — But Who Signs the Satisfaction of Mortgage?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

It could get even worse, and probably will. The current status of title and the current status of these obligations is such that a moral hazard exists that is sure to be exploited by a new group of third parties who perceive the opportunity. Because the title question is not resolved and the status of the obligation is not revealed, ANYONE can make the claim that they are the creditor and ANYONE can pretend to be an “institution.” They will take your money in a scam, give you a satisfaction of mortgage that meets the statutory standards as to form and you will record it only to find out that nobody ever heard of the people who took the payoff on your mortgage. By the way, this group is no different from the current group of pretender lenders who are doing the exact same thing.

EDITOR’S COMMENT: If you don’t know the identity of the creditor, how do you pay off your loan? The answer is that any of the securitization players including “servicers” will be more than happy to take your money and they might even give you a satisfaction of mortgage. If it is a credit card, they will be happy to give you a statement that says you don’t owe any more money. That ought to feel good, right? A growing number of people who still have some money are using it to reduce their debt a process called “deleveraging” in the world of finance. The net result for the economy is that instead of buying stuff they don’t need, people are taking the advice of people like Dave Ramsey on Fox and going for a new brass ring — NO DEBT.

The problem again is the attempted securitization of the receivables and the obfuscation of the identity of the owner of the loan. A satisfaction of mortgage from someone who that doesn’t own the loan is the same as a deed from someone who doesn’t own the house. Don’t be too surprised if down the road you start getting dunning letters from collection bureaus claiming you still owe the money.

It doesn’t matter how you are paying off a loan — sale of property, securities or refinancing — if you don’t have the right party in the room as the “lender”, you have a title and a credit problem. The satisfaction of mortgage from a party with no financial interest in the loan is a wild deed — void. A statement that reciting the payoff of the loan is worthless if it comes from someone to whom you do not owe the money.

All roads lead back to the same question — who is the creditor and what exactly is the current status of the obligation after the receivable has been sliced, diced, paid off from collateral sources without subrogation and otherwise closed out long before you proposed to pay it off. In fact you might be proposing to pay off something that no longer exists.

Lawyers who ask me about this, because it is coming up more and more, get two pieces of advice from me — either get a release letter from the client that says they acknowledge that this transaction might not be what it seems and that title is clouded, defective or unmarketable OR get a court order declaring the status of title to be as set forth in the new deal where the mortgage is being paid off — a quiet title action in which the parties cooperate. Otherwise, I tell them, you are a walking target for malpractice or discipline when the client finds out that the the transaction is a legal nullity.

It could get even worse, and probably will. The current status of title and the current status of these obligations is such that a moral hazard exists that is sure to be exploited by a new group of third parties who perceive the opportunity. Because the title question is not resolved and the status of the obligation is not revealed, ANYONE can make the claim that they are the creditor and ANYONE can pretend to be an “institution.” They will take your money in a scam, give you a satisfaction of mortgage that meets the statutory standards as to form and you will record it only to find out that nobody ever heard of the people who took the payoff on your mortgage.

Then there is the possibility, some say probability, that anyone signing a deed that guarantees they have title (called a Warranty Deed) could and probably will get sued for breach of that warranty when it is discovered that the signor either had no interest in title, even though they thought they did, or that they conveyed title with an encumbrance which was represented as satisfied but in fact still is in the title chain.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

US borrowers pay off home loans

By Suzanne Kapner in New York, Financial Times

Published: December 13 2010 18:58 | Last updated: December 13 2010 18:58

A growing number of US borrowers are paying off their mortgage balance ahead of schedule, reversing a trend that saw them extract record amounts of cash from their homes by taking out ever larger loans during the housing bubble.

The reduction in mortgage balances is part of a larger move by consumers to pare back their debt in the wake of the financial crisis. Consumers are also using disposable income to reduce credit card debt.

The shift is having an impact on the shape of the US recovery. Such deleveraging “will be good for economic growth over the long term, but not in the short term”, said Frank Nothaft, chief economist of Freddie Mac, the government-owned mortgage finance company.

It also speaks to the weakness of the housing market. Borrowers can no longer count on rising home prices to inflate their spending power. In fact, with home prices falling, some borrowers will find themselves owing more on their mortgage than their homes are worth unless they pay off their principal, making it difficult to sell their home or refinance.

Lenders said that more borrowers are choosing to make mortgage payments every other week, as opposed to once a month, which works out to an extra payment a year and can save thousands of dollars in interest.

Other borrowers are opting for shorter-term mortgages, which will leave them debt-free sooner, but also require higher upfront payments than do standard 30-year fixed-rate loans.

A record number of borrowers are also paying off principal when they refinance, a process known as “cashing-in” that is the opposite of the “cash outs” popularised during the housing boom, when rising home prices allowed borrowers to refinance into larger loans and pocket the difference.

With home prices falling, such “cash outs” dropped in the third quarter to their lowest level in 25 years. Meanwhile, mortgage debt outstanding has been shrinking since the second quarter of 2008, after growing steadily during the previous three decades.

Brad Blackwell, a national sales manager for Wells Fargo Home Mortgage, said he is seeing more borrowers pay off their mortgages faster. Wells Fargo has seen a 10 per cent increase since January in the number of customers enrolled in its bi-weekly mortgage plan.

The savings can be significant. A borrower with a $200,000 mortgage that carries a 5 per cent interest rate could save $33,000 and repay the loan five years early simply by making one extra payment a year, according to Victoria Clement, a senior vice president of Loan Depot.

CMG Mortgage, based in San Ramon, California, encourages borrowers to deposit their entire paycheck into what it calls a “home ownership accelerator account,” which acts like a checking account, but automatically funnels any money not used for living expenses to mortgage payments, thereby reducing the loan balance faster.

11 Responses

  1. PJ,

    Yeah — I have copy — but was not easy to get – and for quite some time ago. Also should be able to get confirmation. Yes, heard of the Check 21 — but many forget about this — you are right — good records to have.

  2. @Anonymous… not quite sure about getting a copy of your check after electronic conversion, it is destroyed if I’m not mistaken. Also there are people out there that do not know that today you can opt out of Check 21, by calling the “servicer” then you will get an image on the bank statement, front and back which will show who is depositing and endorsing. have been working with a few people on this, one had 4 different entities endorsing the check/payment over the course of 6 months! Good records to have !!!

  3. Yeas — but electronic conversion should still give you information. Have seen in cases, that it was not the servicer — but the trustee — then check trustee’s records — (for trust) — have found, in instances, no record. Meaning “investors” in trust –not paid off.

    But, need to translate investor fraud to borrower victim fraud. Investor settlements will not help us.

  4. 2 Anonymous.. not sure what canceled checks you are referring to, but if it is the mortgage holder, then, if they did not elect to opt out of Check 21, there submitted check’s/ payments are converted to an “electronic payment” and they do not receive even a photo image of their check on a monthly banking statement.

  5. Ian

    Loans were not refinanced — they were not paid off — they were modifications of prior loan. Just get a hold of the canceled checks – and trustee ledgers for supposed pay off of the prior “securitization”. Not there..

    Go back — trace the loan BACK — all the way back — flaws — way before you even thought they existed.

  6. Neil

    Just needed to read your title — RIGHT ON!!!!

    BIG ISSUE.

  7. Neil-this post would also be a great place to hammer home the fact that ALL mortgages,including mortgages which have always been paid on time, or which have been paid off, (?), are now at the mercy of the title insurers as far as providing clean unbroken chain of title when sold. Because the exact same set of circumstances affecting homes in foreclosure is affecting all loans. Maybe you can add a short addendum and hit this topic again.

  8. Well, paying off your mortgage early might have been a good idea IF you have not refinanced several times, and you do not have MERS in the line of title. Can anybody be sure that they have paid the correct entity in today’s America? I, personally, had a debt collector (scum of the earth) calling and harassing me, because they thought I was someone who owed them money. They kept calling and asking for a man named Charles. I sent them a certified letter telling them not to contact me EVER! I was not related to Charles and have never been Charles. They kept on calling. Finally, I got a supervisor on the phone and told him I was not Charles and that if they did not stop calling me, I would sue them. He asked me when did I send the certified letter, and I told him. They stopped calling for a while and then started calling me on my cell phone and hanging up. That went on for about 3 more months. http://www.challengingforeclosure.com Sirak@challengingforeclosure.com

  9. They keep coming back to what I learned on this site. Almost every thing you have said over the course of the last couple years has come to pass.
    If people don’t file to quiet title on their property, this fleecing will continue. It isn’t expensive and it may stop your “pretender” in their tracks.
    Why would anyone with any sense of the greater world with this ongoing crisis buy a foreclosure? Greed or ignorance? Why would someone pay of their home if they don’t know for certain whom that payment should go to? If everyone files, it stops the perpetual motion machine from grinding us all into sausages to be enjoyed at parties along the beltway. If you choose to waste your money paying a “pretender” that can’t prove you owe them anything, even after your legal requests are denied, then you choose ignorance. Filing in my state is around $600 with fees, process and recordings. Make them prove what they can not prove. Thanks Neil. Tom Paine would be proud.

  10. Propaganda to counter Strategic Defaults and convince people to let the banks bleed them dry. Notice there are no stories of people or places which these things have occurred. They fool you and wait until your vulnerable.

  11. Neil,good post as usual- but everyone should remember that if they refinanced several times and the creditor/lender/satisfaction of debt issue was present at each refinancing, then at some point SEVERAL persons may show up at the same time claiming that you owe them money. Only now the potential amounts due and owing may have tripled or quadrupled.

Leave a Reply

%d bloggers like this: