Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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A Friend
Long time lurker. First time poster.

This is a situation a friend of mine is in..

The note is in the name of her former husband.
The Mortgage is in both of their names.
The deed is in both of their names. 

She got the house in the divorce, but the x husband still hasn't signed over a quit claim deed to get him removed from the title.

As she got behind and tried to modify the note, the mortgage company told her she was not eligible for a loan mod as she was not on the note. And while the X was willing to modify, they wouldnt modify the loan in his name as it is not his primary residence.

Ok now for the question:  Since the note and mortgage are not in the same names, have they been bifurcated? And if so, can the conclusion be made that the  note is now an unsecured debt?

Anyone know of any cases where the court has ruled on a similar situation?
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William A. Roper, Jr.
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A Friend said:
Ok now for the question: Since the note and mortgage are not in the same names, have they been bifurcated? And if so, can the conclusion be made that the note is now an unsecured debt?

Anyone know of any cases where the court has ruled on a similar situation?

This couple is in a precarious situation somewhat of its own making in failing to solve ownership and debt responsibility issues with greater clarity when the divorce was finalized.  Whether this situation was purposeful or simply reflected laziness or ignorance is unclear.  If each party was represented by an attorney, each should have each gotten counselled on the legal consequences of the arrangement.

Please note that I am NOT a lawyer and this is NOT legal advice, but there is a common sense aspect to this situation which arises not infrequently in a divorce situation and ought to have been relatively well understood by any competent divorce attorney representing either party.

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It is UNCLEAR how it came to pass that the note was solely in the husband's name prior to the divorce.  The most common way that this tends to happen is when the husband has good income and good credit, while the wife has very poor credit and little or no income OR poor credit but the husband's income is otherwise has sufficient income to qualify.

Mortgage lending guidelines are actually a little irrational in this regard.  The lending decision is often based upon the credit of both and the fact that one of two co-buyers has credit problems tends to be treated as though that person has leprosy which might be contageous.

I recall the first time I encountered this as a lender, we were actually presented with the problem that three prospective buyers wanted to be co-borrowers on the same loan and property which they would co-own.  It was a couple and their best friend.  All were going to contribute to the downpayment.  All had good jobs and income.  Two had good credit, but the third had credit problems.

While it would seem that having three obligors on the loan and three sources of income rather than two would be better, both Fannie Mae and Freddie Mac lending rules then precluded making the loan in respect of the credit score of the borrower with poor credit.

It turned out that the prospective borrowers with good credit had sufficient income and liquid assets to qualify for the loan without the other.  And the transaction was restructured so that all three purchased the property and signed the mortgage, but only two applied for the loan and signed the note.  In this way, the problem was resolved and the borrower with poor credit obtained partial ownership of the property with no liability on the note at all.

This is not a matter of bending the rules but rather diligently following lending guidelines which are actually irrational.

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My guess is that similar dynamics created the situation with joint ownership, but no liability on the note, as described in your post.

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When the couple decided to divorce, by whatever means, they seem to have agreed that the wife kept the house.

Generally, the husband's attorney should probably have encouraged the husband to insist upon the transfer of his interest in the property with teh wife refinancing this loan in her own name.  Depending upon the timing of the divorce, this may have been impractical.  And it might have also been an impossibility if the wife lacked the income or credit to qualify.

Of course, this might have been a sound reason NOT to vest ownership of the property in the wife.  But this is a matter of negotiation between the parties.

Whether as an accomodation or an oversight, the husband allowed the wife to retain ownership of the property in respect of a loan for which he alone was liable.

This is somewhat problematic, even if the wife agreed to make the monthly payments, because any DEFAULT would impair ONLY the husband's credit!

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When the wife began to have payment difficulties, whatever credit and cash flow problems she previously had became compounded.  She is VERY unlikely to qualify for a regular mortgage under these circumstances.  I am sufficiently unfamilar with the HARP rules to know whether she could qualify for a HARP refinance.

From the perspective of the Lender, she is obligated under the mortgage or deed of trust, but NOT liable under the note.  This is NOT uncommon and is not an instance of "bi-furcation" as that term is usually understood.

IF she has substantial equity in the property, she may be able to find some sort of workout through a new mortgage, possibly with a co-signer.  If there is little equity or negative equity, I see very little latitude UNLESS she can qualify for a refinance under the HARP rules.

The assertion that she would NOT qualify for a modification under HAMP seems almost certain to be CORRECT.

Also note that ANY refinance of the property in a new loan under the wife's name is inherently going to require either (a) that the husband deed his interest in the property to the wife, or (b) that the husband at least sign the new mortgage (but not necessarily the note). 

Whether the husband can WITHHOLD a deed probably depends upon the wording of the divorce decree.  It is hard to see how the husband would be required to execute a new mortgage if his agreement was to relinquish his ownership interest in the property.

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Again, depending upon financial dynamics and unique facts of the case, it MIGHT be in the husband's interest to join with the wife in a new loan, even if he lacks an ownership interest in the property.  He IS now liable under the note.  In some jurisdictions, he may be liable for a deficiency judgment on the note if a foreclosure takes place.

Realize that the husband may also have consented to the wife's ownership of the home intending and expecting her to default.  He may be awaiting her abandonment of the property and might then recover the property in this distress situation!

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It should also be noted that there may have been several possibly good reasons for one or both attorneys to leave the situation as it now exists at divorce.  First, IF the interest rate on note was favorable, it might have been to the wife's financial advantage to pay on the note rather than to refinance.  Second, the wife might not have been able to qualify for a new loan and this was the ONLY alternative that was consistent with the desires and agreement of the parties.  Third, most mortgages have a due on sale clause.  In some, but not all jurisdictions, a sale of a half interest in a divorce might trigger the due on sale clause.  (This would be a valid reason NOT to execute the deed, as it might trigger a due on sale acceleration and default.)

The wife's attorney might very well have seen this arrangement as being in the wife's interest in respect of ownership of the property (which might not be otherwise possible), while leaving the husband liable under the note, the ineligibility for a modification being a fly in the ointment! 

Hope this helps!
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