If you've fallen behind on your monthly mortgage payments, you may have already begun receiving threatening letters from your bank or mortgage lender. After a certain period of time has passed without payment, you'll be declared in "default" and the bank will file a lawsuit to foreclose your mortgage. However, in today's mortgage market, where loans are bought, packaged, and sold multiple times over the life of the loan, the bank that files a foreclosure lawsuit may not even be owed money. How can you tell whether the entity suing you has the right to enforce your mortgage note? Read on to learn more about this area of law and what you should do if you find yourself facing foreclosure.
Who has the right to sue you for failing to pay your mortgage?
If you took out your mortgage through a local bank (or a branch of a larger national bank), it's likely that this loan was sold to another bank before the ink was even dry. While banks generate closing fees and other revenue from originating mortgages, the actual servicing process is less lucrative, and many banks find it worthwhile to outsource this by selling mortgage loans to servicing companies. After a loan is sold, the originating bank no longer has any right to enforce the loan.
Although some banks will help make this process simpler on you (the consumer) by allowing you to continue to make your monthly payments to this bank, when you've missed a few payments and a foreclosure proceeding is pending, you may find yourself receiving legal documents from a name you don't recognize as being connected to your mortgage.
What should you do if you're not sure your lender has the right to sue you?
It's important to ensure that the entity filing the foreclosure lawsuit is the actual "note holder" in your case. This not only prevents you from being unjustly foreclosed by a company that has no right to do so, it can also help protect you from dual liability. For example, if a lender who has no standing to sue you does so -- and is successful -- your original loan obligation isn't extinguished, and you're still on the hook for the amount borrowed (plus any late fees and interest charges). Meanwhile, the foreclosing lender who has no claim on your mortgage may sell your home at a sheriff's sale or bank sale and pocket the proceeds. Straightening out this legal mess can be costly and frustrating.
You'll want to request documentation showing that the mortgage was transferred from your original bank to the foreclosing servicer or lender. The bank should be able to provide a clear chain of title showing each specific transfer from lender to lender. If the foreclosing bank can't show that they actually own your mortgage, the case will be dismissed. Although you'll still owe your unpaid mortgage payments (plus any costs and fees), this process can buy you some additional time to come up with needed funds.
For more information, contact the Legal Clinic Of Jerry Paeth or a similar organization.