How Many Defects Did the Bank Put In Your Mortgage Note?

Published: 27th April 2009
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With all of the different parties involved in a mortgage transaction, it can be surprisingly easy for important mistakes to be made in the mortgage or note documents. Banks can be held accountable for these mistakes, even if they are not discovered until after foreclosure has been initiated. But if a mortgage or note has serious material defects, homeowners may be able to have their entire loan declared invalid when defending the mortgage company's lawsuit.

The mortgage or note may be defective in any number of ways, from minor deficiencies to more serious ones that can derail a foreclosure lawsuit entirely. Borrowers may want to take a look at the original mortgage or note that they signed to qualify for their loan and compare it to the version that was recorded and the version that the mortgage company currently holds. Any differences may be valuable sources of information and may lead to the uncovering of mistakes. In any event, such differences may be questioned by borrowers.

For instance, terms may not match between one version and another, or terms in riders attached in additional documents may not match the terms found in the mortgage or note itself. Stated terms may also be impossible to perform, such as if the loan states the rate will adjust in five years but the adjustment date listed is actually only one year from the time the contract was signed. When the loan closed and what terms are contained in the paperwork will hold clues to potential deficiencies.

Even if a loan is modified once and homeowners fall behind again, there may be defects found in the paperwork. If all of the required parties did not sign the modification agreement, the new mortgage may be defective. Notary stamps that are expired or incorrect also indicate defective paperwork. Homeowners should read the loan documents carefully to find these discrepancies if they wish to include them as defenses in a foreclosure lawsuit.

Invalid terms in a mortgage or note, however, will have different recoveries for borrowers. Minor defects that caused the owners no harm may just be changed by the courts or simply ignored as immaterial. Major, material defects, on the other hand, could result in the entire loan being declared invalid. Of course, a likely consequence for many homeowners in court may be somewhere in the middle of these two extremes.

Homeowners should also view defects in the paperwork as potential violations of other federal and state real estate laws. If the terms are stated incorrectly in the mortgage or note, the calculations based on the defective terms may violate the Truth in Lending Act or other regulations. In such cases, borrowers may sue for damages under these laws or include counter claims in their answer to the lawsuit.

Some common mistakes that foreclosure victims may run across are listed below:

-Terms in the mortgage and note do not match.

-Terms in the riders do not match the mortgage or note.

-The terms are impossible to perform.

-Errors create liability under the Truth in Lending Act.

-Errors in the interest rate trigger HOEPA regulations.

-Assignments of the mortgage or note are not valid or properly endorsed?

-Assignments were not signed at all.

-The loan is not properly amortized according to the terms of the mortgage or note.

-The mortgage or note recorded with the county do not match the versions included by the bank in the complaint.

-A mortgage modification agreement is not signed by all parties to the loan transaction.

-The lender that approved the modification is not the foreclosing lender and there is no chain of title to indicate the new lender owns the mortgage or not.

-The notary stamp is defective or expired.

-The mortgage lien was released accidentally.

Of course, possibly the best way for homeowners to determine if their loan has any of these deficiencies is to consult with a real estate attorney. Either by hiring a lawyer to help them with their court case or just consulting with one to find out the best options going forward, good legal advice should be sought out by foreclosure victims. Speaking with an attorney is not a guarantee to stop foreclosure, but it can help homeowners gain some perspective on how to defend the lawsuit and what to do to save their home for the long term.
Nick publishes articles on the ForeclosureFish website, which aims to teach borrowers how they can prevent on their properties while they still have time. The site describes various methods to save a house, including foreclosure refinancing, cash for keys, mortgage modification, filing bankruptcy, and more. Visit the site today to read more and find out what alternatives you can use to prevent losing your home:

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