Mortgage Fraud

By Andrew J Thompson

Because of the nature of mortgage transactions, it can be difficult to determine a case where a homeowner has been defrauded by a lender, broker or title agent in  a mortgage transaction.  But it does happen, and it happens far more often than homeowner’s realize or know.

What is a Case for Fraud?

First, to prove fraud there must be some material misrepresentation or omission of fact.  Actual representations of fact demonstrate the potential of actual fraud, and when the representation is visible, a case becomes easy to prove.

But in most cases, there is limited or no contact between the lender and borrower, and very little contact between the borrower and title agent, in fact it is common that the borrower only meets or talks to the title agent at the closing – and for a very brief period of time.

But omissions of fact, that can be determined from examination of all the evidence surrounding the mortgage transaction itself, if the situation meets other requirements, also can constitute fraud – or perhaps something treated in the law as “constructive fraud”.

Either way, the representation or omission must have occurred either intentionally or knowingly on the part of the party to be held liable for their actions.  If the party did not know and was not accountable for knowing that the misrepresentation or omission occurred, it cannot be guilty of fraud. But if it knew or should have known that important facts relating to the transaction were not disclosed, or were misrepresented to the borrower, fraudulent behavior was in play.

Fraud, however, must also cause the borrower to suffer harm.  This can come in many forms.  For example, it the borrower was eligible for a significantly lower payment at better rates on the loan, if the borrower accepted money based on an appraisal that was inappropriate given the market conditions at the time of a loan – and borrowed more than they should have and lost equity in the house because the appraisal was wrong, even if the borrower’s finances did not justify the loan and they could never get to a position they could repay the loan, these are examples of how fraudulent conduct could case harm to a borrower.

But the homeowner must actually suffer a loss at the hands of the borrower or other party to recover for fraud.  If the above scenarios present only hypothetical losses, the homeowner is not entitled to recovery.  But if they can prove at last $1 of actual loss because of the fraudulent conduct, the defrauded party is entitled to recovery.  At that point, a major case is opened up – for the recovery of actual losses and potentially punitive damages as well.

In other articles, we will discuss how fraud is proven, other claims that may be available to a homeowner, and what to do when you suspect fraud has occurred with respect to your own mortgage.

If you would like assistance with an investigation or assessment of potential fraud relating to your own mortgage, please contact the Thompson Law Office at (317) 564-4976, or email the author at: andrew@thompsonlawindiana.com

Can You Keep Your Home after a Short Sale?

By Andrew J Thompson

One of the requirements for any short sale is that the property must be owner occupied.   Obviously, this is a requirement imposed upon the seller.  Another requirement is that the buyer must not be a “related party”.  This means a spouse, ex-spouse, parent, child, sibling, or possibly a partner, employer, landlord, or even a friend. The lender has great latitude in determining who fits the definition of a related party.

OK, so let’s say you’re living in a home you bought for $250,000 several years ago.  The market has reduced the value of the home to around $175,000 today, you’ve fallen behind on your mortgage, and the bank says you now owe them around $325,000.  Regardless of income, a loan modification probably doesn’t make sense at this point.

But you could reasonably make payments on what the house is worth today, and have faithfully tried to work with the bank ever since you fell behind.   The house is very attractive at the price to a third party buyer-investor.  You don’t know who this is, but chances are good your realtor will know what the buyer is looking as much as he/she knows your situation, and they may well be looking for a good renter – and the best renter might just happen to be you.

Is this plausible?  Basically it depends on the underwriting requirements of the lender.  If they will allow it, or have no means of prohibiting it, then yes, it could be plausible.  The problem is they have to approve the short sale, and if they feel like they will get a little less than they could through another form of sale, they are not likely to approve it – or it could take a very long time to get approval.

But if it takes a long time – so what?  What do you lose when this happens?  Probably not very much, if anything.  It just means additional months you are living in your own home and that you cannot make payments while you do.

The scenario is definitely one worth exploring if your hope for a loan modification is minimal, and if it seems your potential for recourse against the lender – as in most cases – is minimal.

Our firm has helped dozens of homeowners in foreclosure situations figure out ways to save heir homes.  If you think there may be a way we can help you, please call us at (317) 564-4976 for a free consultation.

Your Indiana Attorney – Foreclosure Defense

Attorney Andrew Thompson of Thompson Law Office in Carmel Indiana briefly explains procedures to foreclosure defense.

Protection from a Sheriff Sale

By Andrew J Thompson

The most important thing you can do to protect yourself from losing your home in a Sheriff Sale is to be pro-active in presenting your legal defense at every step of the foreclosure process.  If you have tried to work with your bank alone, however, without the help of an attorney, it’s likely you’ve fallen short of protecting yourself in the best way you can.

If you have an attorney, who defends your rights on every point of contention, it is unlikely a court will decide you have slept on your rights, or failed in your efforts to meet your obligations (if in fact you have tried to meet them), and allow a Sheriff Sale to proceed.  On the other hand, if you wait until a Sheriff Sale has occurred or is about to, before having an attorney do anything on your behalf, the court is very likely to conclude you have had plenty of opportunity, and never shown the court you truly would do what you could to keep your home.

If you have fallen behind on a mortgage, there are things an attorney can do for you at each stage of the process:

  1. BEFORE A FORECLOSURE ACTION IS FILED: It’s wise to engage an attorney as soon as you reach a point where you cannot deal with the bank and get a sound resolution to your problem.  This usually occurs the first time you have trouble applying for a loan modification.  The banks are not good at explaining why there is a hang up in the process, and you may have some options or defenses to their claims against you for an arrearage, that can only be adequately presented if you start when they arise.
  2. AFTER RECEIVING A SUMMONS: Within 20 days after receiving a Summons, you should consult with and engage a lawyer.  This is the point at which the attorney can typically do the most to help you.  Why?  It is the one opportunity you have to deny the bank’s allegations.  But more important even than that are two critical steps in the process you can only engage within 20-60 days of receiving the summons: 1) the opportunity to file a counterclaim against the bank for what it may have done wrong, and 2) scheduling a settlement conference to seek a foreclosure prevention agreement.
  3. UPON A MOTION FOR SUMMARY JUDGMENT BY THE BANK: If the bank seeks summary judgment, and it usually does at some point, it is trying to avoid the expense and risk of going to trial by getting the judge to rule in its favor on the paper filed with the court, rather than evidence that could be presented at trial.  A skilled attorney can help you avoid summary judgment by pointing out factual issues that need to be addressed before the bank’s claim warrants a judgment in its favor.  If you prevail at this juncture, there is a very good chance the bank will never take a judgment against you and you will have the opportunity to negotiate a settlement that will work for you. (You may have to tender payments to the court to show good faith on your part in the meantime, however.)
  4. AFTER FORECLOSURE OR DEFAULT JUDGMENT IS TAKEN: This is a point when fast action is critical.  If you get something done before a Sheriff Sale is scheduled, you may never face that prospect.  But your options have been narrowed considerably by now and you have to think much more tactically with your attorney’s help.
  5. ONCE A SHERIFF SALE IS SCHEDULED: Like the preceding step, but much more obviously, this is a point when you need to act.  Your attorney needs to leverage his ability to slow down or “stay” the process and get the bank to consider a settlement that doesn’t end up in it taking back a property it probably doesn’t want.
  6. POST SALE, BUT BEFORE AN EVICTION: Even at this late stage, we have seen homeowners keep their homes indefinitely by showing some good faith and using their attorney to plead their case before the court.  You can save your home at any point in the process, but it gets tougher with each marker the bank passes on the road to taking possession of your home.

Take advantage of the resources you have.  Your attorney can be the best help you find in the process of avoiding the loss of your home through foreclosure.

Andrew J Thompson is an attorney with 22 years experience in business, family and real estate law, practicing in Indianapolis, IN.  You may reach his firm, the Thompson Law Office, by calling (317) 564-4976 to schedule a free consultation.

Issues with Existing Mortgages and Foreclosures

By Andrew J. Thompson, Attorney

On one hand, the “mortgage foreclosure crisis” in America today is so enormous and widely discussed, everyone knows the seriousness of the problem that exists with the handling of mortgages in our country in the last decade.  On the other hand, as a homeowner, you may have found it very, very difficult to do anything to protect yourself or even to clarify the precise status of your own mortgage, even to give you comfort that you could ever actually pay off the entire balance and obtain free and clear title to your own property.

Below I have listed the critical areas and problems with mortgage debt in the marketplace today.  I recommend you consider talking with competent, legal counsel soon to better understand the depth and scope of the potential problem for your own mortgage.  It could mean literally hundreds of thousands of dollars to you in the future.

Promissory Note vs. Mortgage

When you closed on the purchase of your home or the financing you obtained to leverage the equity in it, you were asked to sign many documents.  The two most important documents you signed were your mortgage and promissory note.  The mortgage should have been recorded as a lien against the real estate you own, as a security interest to assure payment of the debt, which was documented by the promissory note itself.  The note and mortgage go hand in hand, but they are not the same.  The mortgage has no value or purpose except to support the claim to collect on the promissory note.  The note represents the debt itself.  It may not be worth much, if anything, if the mortgage, and the value of the real estate, aren’t there to support the note as collateral for payment of the note.

The problem comes in then, when the two are separated.  If the mortgage becomes separated from the note, i.e. it’s claim belongs to someone other than the proper holder of the note, it no longer supports the note, and cannot be used as an enforcement tool for the note.  Yet, it has been common practice for many, many years for lenders to “negotiate” notes to third parties, and to allow mortgages to be assigned to other parties.  This is true even though the United States Supreme Court has held long, long ago that the assignment of a mortgage, without the note going along with it – is a “nullity” – as if it never happened.  Arguably, once the separation of the two instruments is documented via the assignment of the mortgage, there can be no legitimate claim by a lender to enforcement of the mortgage.

This involves complex legal theory – and it is rarely if ever tested in the courts.  In most states, it has never been clarified whether this “nullity” destroys the security interest of the mortgage, but it is clear that it creates a “cloud on title”.  The problem has become so large and pervasive, it can no loner be avoided.  If a property is sold, foreclosed upon or otherwise transferred, who gets clear title to that property?  How many owners may end up with valid claims of a right to title?  Someone has to sort out this mess, and it has to begin to happen soon.

As a homeowner, you probably want to know that you can sell your house someday – or at least pay off your mortgage, and obtain free and clear title to the property.  Certainly you want to know that you are paying the right party the monthly payments you make, and that you know the balance it will take to pay off that loan – and that the balance is recorded properly.  Given the nature of the situation, you may be  entitled to reduce the amount of your debt – and possibly even claim damages against a lender for improper  actions in handling your loan.  To protect your rights, and assess the situation as it stands today, you need competent counsel to help you through this maze.

Contact the Thompson Law Office at (317) 564-4976 (toll free: 877-365-1776) to schedule time to evaluate your position and determine the course of action with respect to your mortgage(s) that best suits your needs.