If you are delinquent in mortgage loan payments to the lender, have been served with a notice of foreclosure letter or have received a mortgage foreclosure complaint, you have a very short time to respond. In many cases, a homeowner and borrower may begin to lose precious legal rights in as little as twenty (20) days. Any delay may make the situation you are in worse, and if a borrower or homeowner fails to do anything at all, the situation may become the worst case scenario possible. Florida's mortgage foreclosure process will absolutely have serious, long lasting ramifications that you may have to deal with in the future, so it is absolutely in your best interests to participate now while it is occurring. Your decision to participate now may preserve, protect and safeguard valuable legal rights affecting your future income, credit worthiness and income tax consequences.

We can offer to provide consumers with a mortgage foreclosure defense for a very low fee. Contact us for full details. Our representation in your foreclosure action will provide you with:

• The knowledge you will need to make informed decisions during this time period
• Our legal compliance analysis in the loan, collections, default and foreclosure process
• More time to pursue all loss mitigation and alternatives to foreclosure
• More time to negotiate a payment workout with your lender
• More time to save up money to reinstate your mortgage
• More time to refinance your mortgage
• More time to sell your home for fair market value
• More time to get over a hardship in your life so that you can afford to keep your home or property
• More time to qualify for bankruptcy

Beware Claim of Lost Note and Mortgage

Beware the “Lost Note” or “Lost Mortgage” (deed of trust, security deed, etc.) Position taken by foreclosing party (lender) in securitized mortgage foreclosure cases: nothing was “lost”, and to so represent to the court is a serious matter and may provide borrowers with a reason to request dismissal of the foreclosure case.

A recurring pattern in mortgage foreclosure cases involving securitized mortgage transactions is a statement in the lawsuit filed by the party seeking to foreclose that either the Note or the Mortgage (also called, depending your state, a Deed of Trust, Security Deed, or something else) was “lost”, but that copies are attached to the lawsuit. In such a case, it is more likely than not that nothing was “lost” at all, and that the party seeking to foreclose is simply trying to take advantage of state laws which permit the filing of a foreclosure action with a “lost” Note or Mortgage when in fact such a statute may not apply as the Note and/or Mortgage were never “lost”, but were sold, assigned, or transferred more than once to different persons or entities.

A securitized mortgage transaction, as has been previously discussed in other articles, involves a situation where, as part of the creation of a special investment vehicle or security, the original “lender” has sold off the Note and/or Mortgage either as a whole or in pieces to others such as a mortgage aggregator, who then sells these bundles of mortgages to an investment banker who uses these as collateral for a mortgage-backed security. In this sale and assignment process, there are often many links in the chain between the original lender and the ultimate alleged owner of the Note or Mortgage. During the course of sale and assignment, the original Notes and Mortgages have either been destroyed or cannot be located, as the downline sale of what wound up being bundles of hundreds or perhaps thousands of mortgages was accomplished through loan summaries, not a physical transfer of the actual mortgage and loan documents. In several cases we have seen, the original lender has admitted, in writing, that the original loan documents were sold off to an “investor”, but the original lender does not know who this “investor” is or where the original documents are.

Now here comes some bank as Indenture Trustee for the Registered Security Holders of Collateralized Mortgage Obligation Loan Trust Series XYZ-2006 (or some other equally complicated name) seeking to foreclose on your mortgage by filing a lawsuit where they claim that the original Note and/or Mortgage is or was “lost”. This is most likely an absolute falsehood in cases of this type, and for the attorney to represent to the court, in a written lawsuit, that the originals of the Note and/or Mortgage were “lost” is not only fraudulent itself but also constitutes a fraudulent attempt to manufacture a foreclosure case which could not be legally brought in the first instance.

At least one Judge in the State of New York has addressed this problem and cited case law as to the burden of the party seeking to foreclose to demonstrate that they have the legal right to do so, and absent such proof, a foreclosure action may not be brought. The legal premises of the New York cases are common in other states.

The Judge in the matter of Wells Fargo Bank, N.A. as Trustee, etc. v. Farmer cancelled and voided a series of real estate transactions as to property located in Brooklyn, New York including several Assignments of Mortgage, resulting in the termination of the foreclosure. In the decision, the Judge set forth the well-established law that one seeking to foreclose on a mortgage must demonstrate and prove title to and a legal or equitable interest in the mortgage, and must also establish the existence of the mortgage and mortgage note, ownership of the mortgage, and the borrower’s default in payment. The decision rested on case law which provides that foreclosure of a mortgage may not be brought by one who has no title to the mortgage, and absent transfer of the debt that the assignment of the mortgage is a nullity. The decision also set forth the law that a party seeking to foreclose on a mortgage in which he has no legal or equitable interest is a lawsuit without foundation in law or fact.

The cases cited include: Kluge v. Fugazy, 145 AD2d 537, 538 [2d Dept 1988]; Katz v. East-Ville Realty Co., 249 AD2d 243 [1st Dept 1998]; Campaign v. Barba, 23 AD2d 327 [2d Dept 2005]; Household Finance Realty Corp. of New York v. Wynn, 19 AD3d 545 [2d Dept. 2005]; Sears Mortgage Corp. v. Yahhobi, 19 AD3d 402 [2d Dept 2005]; and Ocwen Federal Bank FSB v. Miller, 18 AD3d 527 [2d Dept 2005].
Many states have laws which punish both parties and their lawyers for making statements to the court which they know or should know not to be true when they are made. These laws provide for sanctions such as attorneys’ fees, and some states have legal authority which provides for the dismissal of a lawsuit when it has no basis in law or fact.

As such, when you are faced with a foreclosure lawsuit where the securitized mortgage plaintiff seeking to foreclose makes a statement that either the Note or Mortgage were “lost”, you need to bring to the court’s attention that this statement may not be true based on the securitized nature of the mortgage transaction, and that it may be in fact that nothing was ever “lost”, but was instead sold, assigned, or transferred. Stay tuned to this blog for examples of what is called “formal discovery” to be submitted to the foreclosing party to explore these issues.

Predatory Lending

Predatory Lending is a pejorative term used to describe unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly defines predatory lending as "imposing unfair and abusive loan terms on borrowers."[1] Though there are laws against many of the specific practices commonly identified as predatory, various federal agencies use the term as a catch-all term for many specific illegal activities in the loan industry. Predatory lending should not to be confused with predatory mortgage servicing (predatory servicing) which is used to describe the unfair, deceptive, or fraudulent practices of lenders and servicing agents during the loan or mortgage servicing process, post loan origination.

One less contentious definition of the term is "the practice of a lender deceptively convincing borrowers to agree to unfair and abusive loan terms, or systematically violating those terms in ways that make it difficult for the borrower to defend against."[2] Other types of lending sometimes also referred to as predatory include payday loans, credit cards or other forms of consumer debt, and overdraft loans, when the interest rates are considered unreasonably high.[3] Although predatory lenders are most likely to target the less educated, racial minorities and the elderly, victims of predatory lending are represented across all demographics.[4][5]

Predatory lending typically occurs on loans backed by some kind of collateral, such as a car or house, so that if the borrower defaults on the loan, the lender can repossess or foreclose and profit by selling the repossessed or foreclosed property. Lenders may be accused of tricking a borrower into believing that an interest rate is lower than it actually is, or that the borrower's ability to pay is greater than it actually is. The lender, or others as agents of the lender, may well profit from repossession or foreclosure upon the collateral.

Predatory Borrowing

In an article in the January 17, 2008 New York Times, George Mason University economics professor Tyler Cowen described "predatory borrowing" as potentially a larger problem than predatory lending:[16]
"As much as 70 percent of recent early payment defaults had fraudulent misrepresentations on their original loan applications, according to one recent study. The research was done by BasePoint Analytics, which helps banks and lenders identify fraudulent transactions; the study looked at more than three million loans from 1997 to 2006, with a majority from 2005 to 2006. Applications with misrepresentations were also five times as likely to go into default. Many of the frauds were simple rather than ingenious. In some cases, borrowers who were asked to state their incomes just lied, sometimes reporting five times actual income; other borrowers falsified income documents by using computers."

It should be noted that mortgage applications are usually completed by mortgage brokers, rather than by borrowers themselves, making it difficult to pin down the source of any misrepresentations. The only situation in which the application would not done by the broker, but rather the borrower, would be in a "stated income loan."

A stated income loan application is done by the borrower, and no proof of income is needed.[16] When the broker files the loan, they have to go by whatever income is stated. This opened the doors for borrowers to be approved for loans that they otherwise would not qualify for, or afford.
Several commentators have challenged the notion of "predatory borrowing," accusing those making this argument as being apologists for the lack of lending standards and other excesses during the credit bubble.[17]

Although the target for most scammers,[18], lending institutions were often complicit in what amounted to multiparty mortgage fraud. The Oregonian obtained a JP Morgan Chase memo, titled "Zippy Cheats & Tricks." Zippy was Chase's in-house automated loan underwriting system, and the memo was a primer on how to get risky mortgage loans approved.[19]

Many laws at both the Federal and state government level are aimed at preventing predatory lending. Although not specifically anti-predatory in nature, the Federal Truth in Lending Act requires certain disclosures of APR and loan terms. Also, in 1994 section 32 of the Truth in Lending Act, entitled the Home Ownership and Equity Protection Act of 1994, was created. This law is devoted to identifying certain high-cost, potentially predatory mortgage loans and reining in their terms.

Twenty-five states have passed anti-predatory lending laws. Arkansas, Georgia, Illinois, Maine, Massachusetts, North Carolina, New York, New Jersey, New Mexico and South Carolina are among those states considered to have the strongest laws. Other states with predatory lending laws include: California, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia. These laws usually describe one or more classes of "high-cost" or "covered" loans, which are defined by the fees charged to the borrower at origination or the APR. While lenders are not prohibited from making "high-cost" or "covered" loans, a number of additional restrictions are placed on these loans, and the penalties for noncompliance can be substantial.

Underlying Issues

There are many underlying issues in the predatory lending debate:
Judicial practices: Some argue that much of the problem arises from a tendency of the courts to favor lenders, and to shift the burden of proof of compliance with the terms of the debt instrument to the debtor. According to this argument, it should not be the duty of the borrower to make sure his payments are getting to the current note-owner, but to make evidence that all payments were made to the last known agent for collection sufficient to block or reverse repossession or foreclosure, and eviction, and to cancel the debt if the current note owner cannot prove he is the "holder in due course" by producing the actual original debt instrument in court.

Risk-based pricing: The basic idea is that borrowers who are thought of as more likely to default on their loans should pay higher interest rates and finance charges to compensate lenders for the increased risk. In essence, high returns motivate lenders to lend to a group they might not otherwise lend to -- "subprime" or risky borrowers. Advocates of this system believe that it would be unfair -- or a poor business strategy -- to raise interest rates globally to accommodate risky borrowers, thus penalizing low-risk borrowers who are unlikely to default. Opponents argue that the practice tends to disproportionately create capital gains for the affluent while oppressing working-class borrowers with modest financial resources.[14] Some people consider risk-based pricing to be unfair in principle.[6]

Lenders contend that interest rates are generally set fairly considering the risk that the lender assumes, and that competition between lenders will ensure availability of appropriately-priced loans to high-risk customers. Still others feel that while the rates themselves may be justifiable with respect to the risks, it is irresponsible for lenders to encourage or allow borrowers with credit problems to take out high-priced loans.[6] For all of its pros and cons, risk-based pricing remains a universal practice in bond markets and the insurance industry, and it is implied in the stock market and in many other open-market venues; it is only controversial in the case of consumer loans.
Competition: Some believe that risk-based pricing is fair but feel that many loans charge prices far above the risk, using the risk as an excuse to overcharge. These criticisms are not levied on all products, but only on those specifically deemed predatory. Proponents counter that competition among lenders should prevent or reduce overcharging.

Financial education: Many observers feel that competition in the markets served by what critics describe as "predatory lenders" is not affected by price because the targeted consumers are completely uneducated about the time value of money and the concept of Annual percentage rate, a different measure of price than what many are used to.

Caveat emptor: There is an underlying debate about whether a lender should be allowed to charge whatever it wants for a service, even if it seems to make no attempts at deceiving the consumer about the price. At issue here is the belief that lending is a commodity and that the lending community has an almost fiduciary duty to advise the borrower that funds can be obtained more cheaply. Also at issue are certain financial products which appear to be profitable only due to adverse selection or a lack of knowledge on the part of the customers relative to the lenders. For example, some people allege that credit insurance would not be profitable to lending companies if only those customers who had the right "fit" for the product actually bought it (i.e., only those customers who were not able to get the generally cheaper term life insurance). [6]

Discrimination: Some organizations feel that many financial institutions continue to engage in racial discrimination. Most do not allege that the loan underwriters themselves discriminate, but rather that there is systemic discrimination. Situations in which a loan broker or other salesman may negotiate the interest rate are likely more ripe for discrimination. Discrimination may occur if, when dealing with racial minorities, loan brokers tend to claim that a person's credit score is lower than it is, justifying a higher interest rate charged, on the hope that the customer assumes the lender to be correct. This may be based on an internalized bias that a minority group has a lower economic profile. It is also possible that a broker or loan salesman with some control over the interest rate might attempt to charge a higher rate to persons of race which he personally dislikes. For this reason some call for laws requiring interest rates to be set entirely by objective measures.[15]

OCC Advisory Letter AL 2003-2 describes predatory lending as including the following:
Loan “flipping” – frequent refinancings that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products;
Refinancings of special subsidized mortgages that result in the loss of beneficial loan terms;
“Packing” of excessive and sometimes “hidden” fees in the amount financed;
Using loan terms or structures – such as negative amortization – to make it more difficult or impossible for borrowers to reduce or repay their indebtedness;
Using balloon payments to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures;
Targeting inappropriate or excessively expensive credit products to older borrowers, to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms;
Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions;
The offering of single premium credit life insurance; and
The use of mandatory arbitration clauses.

The origins of the word mortgage

The origins of the word mortgage come from the ancient French words mort (death), and gage (a pledge). The word mortgage literally translates to “Death Pledge.”  The great jurist Sir Edward Coke, who lived from 1552 to 1634, has explained why the term mortgagecomes from the Old French words mort,"dead," and gage,"pledge." It seemed to him that it had to do with the doubtfulness of whether or not the mortgagor will pay the debt. If the mortgagor does not, then the land pledged to the mortgagee as security for the debt "is taken from him for ever, and so dead to him upon condition, and if he doth pay the money, then the pledge is dead as to the [mortgagee]." This etymology, as understood by 17th-century attorneys, of the Old French term morgage,which we adopted, may well be correct. However, taking out a mortgage did not mean that the mortgagee (sic.) expected to die if he did not pay back the mortgage; it merely meant that his entitlement to the mortgaged property would cease if he fell behind on his payments. The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company.