Can your mortgage disappear?
Can your mortgage disappear?
Your mortgage can disappear – sounds too good to be true, isn’t it? But, it can be true if you are lucky enough. If your lender is unable to find your mortgage paperwork, he will not be able to prove that he owns the mortgage on your property. Thus, the judge can erase the debt and you have a debt-free house.
On 9th October, 2009, in the Southern District of New York, such a ruling was given by the federal bankruptcy court. As per nytimes.com, a lender called PHH Mortgage could not prove that it holds the mortgage for a borrower’s property. As a result, the judge simply wiped out $461,263 mortgage debt on the borrower’s property. Yes, you’re correct in thinking - the mortgage debt disappeared due to a court order.
Why can’t the lenders confirm the mortgage? Well, the notes have gone missing as a lot of mortgage securitizations occurred during the housing boom. Banks loans were sold off to the investors but the notes were never properly recorded during the boom.
However, do you think it’s fair to erase the borrower’s debt completely? I don’t think so. It has to be accepted that the borrower owed to money to a lender. The court should rather come up with an alternative plan wherein the borrowers will have to make payments for a certain period of time to the court. Meanwhile, the lender will get some more time to prove the ownership of the mortgage. If the lender can’t prove it after a certain period of time given by the court, the judge may erase the debt. This will help the court remain fair to both - the borrower and the lender. What do you say?
November 1st, 2009 at 7:19 pm
Wow! The mortgage simply disappears if the lender cannot prove it??? That’s really great to know. But I guess it won’t help much. Yeah – it’s always good for the borrower who would own the property free and clear but the mortgage market would go into a slump. I agree with you that the courts should come up with a balanced decision which will help the borrowers as well as let the lenders survive in these hard days.
November 6th, 2009 at 7:14 am
So because the title company, and mortgage lender didn’t do the job they are paid to do, it falls on the borrower. Poor record keeping, lax quality controls are all calls for more government regulation. What happened to the title insurance protection afforded to the lender? Wasn’t there this thing called a “Closing Protection Letter” that spells out the duties/responsibilities of the title company. I’m sure the title company “cut” a deal to avoid litigation with the lender. Otherwise, what lender would do any future business with them.