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QUESTION: Legal / Financial
2/14/08 | bear_slayer

Posted on 02/14/2008 7:49:41 AM PST by Bear_Slayer

QUESTION for freeper lawyers & paralegals & wannabees:

If loan paperwork does not specifically state that a loan company can sell a loan, what legal basis could they have to sell it? What legal basis can another loan company buy it?

For example:

If a loan is defaulted, the loan company eventually files bankruptcy, zeroes the loan, and reports it as zeroed on the credit report, what legal basis could they have for subsequently selling the loan, especially if the loan docs do not state that power?

Loan docs do state that whoever they transfer the loan to inherits all legal power & authority that they have. The implication is a transfer to an outsourced collection agency.


TOPICS: Your Opinion/Questions
KEYWORDS: collections; legal; loan
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To: Bear_Slayer
I’m not a lawyer or a financial professional, but I did stay at a Holiday Inn Express last night.... -Wb
21 posted on 02/14/2008 8:09:59 AM PST by Wagonboy (STOP GLOBAL WHINING!)
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To: CatoRenasci

You’re right ! I had a “brain cramp” ...haven’t dealt with that stuff for a while - anyway, you get the idea.

Thanks for the correction!


22 posted on 02/14/2008 8:10:29 AM PST by Live Free NH
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To: Wagonboy
Thanks. That was the most encouraging response I've gotten.

Others were far more helpful, yours was the most encouraging. :-)

23 posted on 02/14/2008 8:11:48 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: Bear_Slayer

I was letting you have a way out, all loans are assignable and it says so somewhere in the papers.


24 posted on 02/14/2008 8:13:43 AM PST by org.whodat (What's the difference between a Democrat and a republican????)
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To: Bear_Slayer
What if the lender files bankruptcy and claims a loss on it, then subsequently zeroes the account and informs credit bureaus?

Has nothing to do with it. The paper claim as to value can always be reinstated as to the amount the bad debt was sold for. But the surface value of the debt and interest and collection fees remain on the sale of the note to the collection firm. The only out for the debtor is to search for an improper filing.

25 posted on 02/14/2008 8:21:35 AM PST by org.whodat (What's the difference between a Democrat and a republican????)
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To: Bear_Slayer
You need to understand the difference between tax law (and the accounting that goes with it) and contract law.

1. When a lender initially makes a loan, the lender has both an accounting and a tax basis equal to the principal of the loan.

2. If a borrower cease to repay the loan, the lender obvious has a loss of the principal and the interest income it would have received. Writing off the value of the asset is an accounting decision which is required when the lender determines the loan is not collectible. 3. As a result of the write-off, the lender may be able to deduct the amount written off from its taxes (whether as a capital loss or as ordinary income, depending).

4. At that point, the lender's tax basis in the loan is 0, but the debt is still valid. If it is subsequently collected by the lender, the lender would have to take the amounts collected on the principal into income, where originally only the interest would have been income.

5. Similarly, if the lender sells and assigns the defaulted loan for $.10 on the $1.00 outside of bankruptcy after it has written the loan off, it would have to take the net proceeds of the sale into income. (Though not in bankruptcy).

6. Note that all of this affects the lender's (and purchaser from the lender, whose basis in the loan will be what he paid for it) balance sheet and tax return, not the borrower's obligations.

7. As mentioned before, the borrower's obligations can only be changed by (a) express forgiveness by the lender (or a successor in interest) to the borrower, (b) foreclosure without a deficiency, or (c) the borrower's bankruptcy discharge.

26 posted on 02/14/2008 8:24:40 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: Bear_Slayer
Left out it all changes a little from state to state. Look under state "court rules of procedure" in google for your state.
27 posted on 02/14/2008 8:25:54 AM PST by org.whodat (What's the difference between a Democrat and a republican????)
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To: Bear_Slayer
The language "I promise to pay to the order of..." in the promissory note means that you have promised to pay the money to the lender, or whomever the lender assigns the promissory note to. In the olden days, the lender would assign the promissory note by signing it on the bottom, or on the back, "Pay to (subsequent holder's name) John Lender" When the note was finally paid off, the holder would mark it "PAID" and return it to the borrower. If the loan was secured by a lien on real property, by for instance a Deed of Trust, the lender would also record a written assignment of the lien to the subsequent holder of the note.

There is beginning to be a stink over foreclosures by Real Estate Trusts who purchased large bundles of home mortgages. Judges are requiring that the trust actually prove that: (1) there is a promissory note, (2) the promissory note has been duly assigned, in writing to the Real Estate Trust, and (3) the deed of trust has been duly assigned, in writing recorded in the real property records, to the Real Estate Trust.

That is all basic stuff. I mean the kind of nuts and bolts commercial paper (loans) and real property (liens) law you get as a second year law student, or as an on-the-job trained clerk, checking real estate records for a title company.

But apparently it is all a mystery to the high finance geniuses who have been bundling thousands of home mortgages together. Rather than go through the trouble actually physically assigning the thousands of notes and liens to the Real Estate Trust, then recording those assignments in the real property records, many of them have just "assigned" the notes to Real Estate Trusts via the internal book keeping of the lender. So long as every body pays on time, that works great. Saves time. Saves money. Its more efficient. Increases the bottom line.

But what does the Real Estate Trust do when they are not paid, and a foreclosure in order? They wander into court with a computer printout that says they are owed money, and are astounded that a judge won't take a person's home away without proof that the homeowner really owes the money, that they owe it to the Real Estate Trust, and not somebody else, and that the Real Estate Trust actually has a valid lien that can be foreclosed.

What if the promissory note was never assigned to the Real Estate Trust? Or what if it was assigned to three other Real Estate Trusts, all of whom want to foreclose? Where is the promissory note? Has the promissory note been paid off? Who is the recorded lien holder?

Those questions are easy answer if the original promissory note, with an assignment to the Real Estate Trust, and a written assignment to the lien, are produced in court. Without them, Judges are, very properly, telling Real Estate Trusts to pound sand. I think the bundling and selling of mortgages as book keeping transactions, without actually transferring promissory notes and liens, is going to turn out to be about as effective a cost saving strategy as never changing your motor oil, but just keeping it topped up. It will save a little money for a short while, and cost a lot of money in the long term.

28 posted on 02/14/2008 8:30:37 AM PST by Pilsner
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To: org.whodat
The only out for the debtor is to search for an improper filing.

I assume that you're suggesting the debtor look for some failure on the part of the lender to properly file and/or record the security instrument/mortgage/deed of trust, and (where required) to make whatever continuation filings or filings of assignments of interest as may be required by local law.

It can happen, and it's worth following up on, but don't hold out a lot of hope here, the title insurance company and the lawyers involved with the initial transaction and and subsequent assignment have a significant financial interest (malpractice!) in getting it right.

29 posted on 02/14/2008 8:31:24 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: Bear_Slayer

I believe the principle of TANFL applies.


30 posted on 02/14/2008 8:32:06 AM PST by NonValueAdded (Who Would Montgomery Brewster Choose?)
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To: CatoRenasci

True.!!!


31 posted on 02/14/2008 8:43:54 AM PST by org.whodat (What's the difference between a Democrat and a republican????)
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To: Pilsner
Your post reminds me of the famous story about the associate at Burlingham, Underwood & Lord, a major New York law firm with a primarily maritime practice back in the early 1980s, who mistakenly filled out (or didn't catch the paralegal's mistake, it's not clear) $99,000.00 as the amount of a ship mortgage on a UCC-1 Financing Statement, when the amount should have been $99,000,000.00. As a result, Prudential (the lender) was only secured to the extent of $99k instead of $99 million, and lost a bundle. BU&L ended up (I can't recall if it was settled or went to trial, but it was the talk of the bar) settling a major malpractice claim. Too bad, they were good people.
32 posted on 02/14/2008 9:04:38 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: Bear_Slayer

I don’t know. Seems to me that is in the realm of a tax and accounting question, not a question of whether the lender can sell the loan.

But it’s an interesting question, that’s for sure!


33 posted on 02/14/2008 12:36:51 PM PST by fightinJAG (Rush was right when he used to say: "You NEVER win by losing.")
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