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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tmc
Filed chapter 7, did not reaffirm the home, the debt was discharged, the bankruptcy was not closed which means it is part of the bankruptcy estate.

The bank wrongfully foreclosed and they don't dispute it.  However, they do maintain the because the property was not abandoned by the trustee and was part of the bankruptcy estate,  I did not have any interest in the property and therefore my claim should be dismissed.   I was not ready for that argument!  Does any one have any thoughts?

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  This is for those that have a large "Homestead exemption" such as in Florida
where it is unlimited.
  When a judgment is entered, the Note and mortgage must be surrendered to the court and they are replaced by a judgment. Unless a certified copy
of the judgment is recorded in Official Records, it is an "unsecured judgment".
   So in Chapter 7, you list the judgment as unsecured and the property as
homesteaded. If the homestead exemption equals or exceeds the judgment,
then the judgment will be "discharged" and the homesteaded property will be
"abandoned" by the trustee (ie returned to you).
   Now you have a money debt which is reduced to zero and you are still in
possesion of the property, so what happens next?
   Most likely, the plaintiff will go back into State court and try to do a "forced sale" of the property. However, their credit bid has been reduced to
zero, so they will have to bid real cash. Also, who gets the cash if it sells?
In my opinion, it would be the homeowner, however I have found no case law
on this question.
   In my experience, what happens next, is that the plaintiff will agree to a
"cram down" to the value of the property on a new mortgage, because they
do not want to risk having to actually pay cash for the property at a forced
foreclosure sale and the defendant getting the cash.
   Also, if the plaintiff recorded the assignment of the mortgage, after the
filing of the case, you have a strong argument that the plaintiff had no lien
at the inception of the case, so they can not force the sale of the property.
One of my "students" won on this argument. The plaintiff threw in the towel
and dismissed the case. Think about it! case # 09-ca-002715 Hillsborough
County, Fl. Many of my other "students" have done the same thing, so it was
no isolated incident!
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Angelo

So Mike H, you are teaching how to do this?  How can I get in touch with you? Seems like a very interesting concept.

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t

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Old adage, if there is no Note (discharged), there is no lien. (Security Instrument securing what no longer exists), how can that be?

Texas, it is not really quite that simple. For centuries, the law and the courts have distinguished between the obligation of the debt and the obligation of the note. While it is absolutely true that the note is typically the written evidence of the debt and the holder of the note is usually entitled to enforce the debt, this is not universally true.

 

A discharge of the obligation under a note without an actual accompanying discharge of the debt itself does not absolve a borrower of the obligation to repay the debt. What is discharged is the personal obligation to repay the note.

 

What remains is the obligation to repay the debt to discharge the lien.

 

The lien is discharged by the repayment of the debt or the discharge of the debt. It is not discharged by the discharge of the note.

 

There are a variety of ancient cases that also exemplify this distinction. Many of these arise in respect of questions about the right to enforce a note where the right of enforcement to the mortgage did not follow the note.

 

So often, both pro se litigants and dilettante lawyers seize upon the simple cases and pronouncements, for example the general rule that the equitable right to enforce the lien automatically follows the note through negotiation. But there are nuances and well established exceptions, particularly in respect of the effects and enforcement of the recording acts.

 

For example, what should happen when A is the maker of a note to B and the grantor of a mortgage to B, but B then separates the note and mortgage?

 

While there are many cases suggesting that the note and the mortgage are inseparable, there are also cases expressly showing otherwise!

 

Suppose that B, the the hold of A's note and the mortgagee under A's mortgage next sells A's note to C, properly negotiating the original instrument, but withholds the original mortgage from C and fails to execute a written assignment of mortgage in favor of C. Further suppose that B is a swindler, not unlike Mike H. or others who troll this Forum seeking to victimize additional distressed borrowers.

 

Suppose that after the negotiation of the original note to C, B uses a copy of the note to forge an additional original of A's note. B now sells the forged note to D, obtaining full value for the note a second time.

 

D, being more thorough and businesslike that C, demands and receives both the original mortgage and a written assignment of mortgage which D promptly records.

 

Here, we are presented with a paradox. C is in possession and is the seemingly valid holder of A's note and would seem to have a valid right of enforcement of the note. C has the original note.

 

By contrast, D has a forgery of the note, but D has the original mortgage and a seemingly valid written assignment of the valid mortgage which has been properly recorded in the county records.

 

The UCC would seem to tell us that C has the right to enforce the original note. The recording acts would seem to tell us that only D has a valid right to enforce the mortgage security instrument.

 

But under your analysis, Texas, since D has no valid note, D cannot possibly have an enforceable interest in the debt. Since D holds only a forgery uttered by B, D would seem to have no interest in the debt whatsoever.  

 

Common sense and cases teach us otherwise.

 

Under the example shown, both C and D have been defrauded by B, but in different ways. But D is more conspicuously the innocent purchaser since C could have protected and secured his lien by insisting on (a) the delivery of the original mortgage security instrument and (b) obtaining and recording a written assignment of mortgage.

 

As long as D purchased without notice of C's claim and was truly blameless in the transaction, D will probably be found to have the only valid right to enforce the mortgage. D's claim in respect of the perfected mortgage assignment will be found to be superior to C's claim in respect of the valid note!

 

Once again, swindler Mike H. is putting forth blatantly false information in his quest for new marks for his swindles.

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texas
Would not a Note need to exist to prove a debt exists?
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t

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Would not a Note need to exist to prove a debt exists?

No!

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texas
In applying the United States Supreme Court's opinion CARPENTER v. LONGAN. December Term, 1872. APPEAL from the Supreme Court of Colorado Territory, the lien follows the Note, D would be left out in the cold.

"The mortgaged premises are pledged as security for the debt. In proportion as a remedy is denied the contract is violated, and the rights of the assignee are set at naught. In other words, the mortgage ceases to be security for a part or the whole of the debt, its express provisions to the contrary notwithstanding. The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity."

Love a good argument t...
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t

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In applying the United States Supreme Court's opinion CARPENTER v. LONGAN. December Term, 1872. APPEAL from the Supreme Court of Colorado Territory, the lien follows the Note, D would be left out in the cold.

"The mortgaged premises are pledged as security for the debt. In proportion as a remedy is denied the contract is violated, and the rights of the assignee are set at naught. In other words, the mortgage ceases to be security for a part or the whole of the debt, its express provisions to the contrary notwithstanding. The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity."

 

Texas, I am well familiar with Carpenter v. Longan.  But you both misunderstand and are conflating the significance of the holding.

 

I would recommend that you read these Ohio Supreme Court decisions:

  • Kernohan v. Durham, 48 Ohio St. 1, 26 N.E. 982 (Ohio 1891)
  • Kernohan v. Manss, 53 Ohio St. 118, 41 N.E. 258 (Ohio 1895)

You will NOT find that the law is any different in other states, nor does the holding in Carpenter require a different result.

 

You might find these cases within Google Books.  I doubt that they can be found in Google Scholar.  Of course they are available in WestLaw and LEXIS.

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J

 

Kernohan v. Durham, 48 Ohio St. 1, 26 N.E. 982 (Ohio 1891)

 

follow the link below

 

http://www.jstor.org/stable/pdfplus/1327119.pdf?acceptTC=true

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texas
I use West Law and consider newer case law.

Where A indorses the Note in blank as Indorser, MERS cannot be an agent of an unidentified Indorsee as the Note is "In Blank", as such, the Note was never per UCC properly negotiated, therefore the security, if still perfected, would have never been able to be Assigned out of A's name.
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t

See:

 

Kernohan v. Durham, 48 Ohio St. 1, 26 N.E. 982 (Ohio 1891)

http://books.google.com/books?id=o-0DAAAAYAAJ&lpg=PA12&ots=PEGgVlakFV&dq=%22Kernohan%20v.%20Durham%22&pg=PA1#v=onepage&q&f=false 

 

Kernohan v. Manss, 53 Ohio St. 118, 41 N.E. 258 (Ohio 1895)

http://books.google.com/books?id=x-0DAAAAYAAJ&lpg=PA125&ots=til-WuE5Yr&dq=%22Kernohan%20v.%20Manss%22&pg=PA118#v=onepage&q&f=false

 

The law set forth in these cases is still valid law in Ohio and in most other states.  I give you these cases as they tend to exemplify the precise principle that I discussed above.

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texas
29 L.R.A. 317
Supreme Court of Ohio.
KERNOHAN
v.
MANSS.
June 11, 1895.
Error to circuit court, Hamilton county.
The action below was a proceeding in the probate court of Hamilton county for the sale of lands of Gano Martin, deceased, to pay debts, in which the plaintiff in error and the defendants in error were cross petitioners, each claiming to hold a lien prior to that of the other upon the lands in question. That court found in favor of John and Louis Manss, from which Kernohan appealed. On error, the circuit court affirmed the judgment of the court of common pleas, and Kernohan brings error. Affirmed.
On the trial in the common pleas, the following undisputed facts appeared, viz.:
On January 1, 1879, Gano Martin, the then owner of the real estate sold in this action, being in feeble health, and desiring to make some sort of settlement of his estate, before he died, providing as well for his children and widow as for certain creditors (amongst whom was one William R. McGill, to whom he was then indebted in the amount of $7,602.72), executed a mortgage deed covering his said real estate. The consideration named was $16,113.69. The grantees were said McGill and seven others. The mortgage was conditioned to secure the payment of eight promissory notes, each dated January 1, 1879, payable five years after date, with 8 per cent. interest, payable annually, except one on which no interest was payable until after Gano Martin's death. The mortgage deed was then delivered to McGill, with the consent of the other mortgagees, he (McGill) stating he would put it in his safe for safekeeping. It was left for record, January 20, 1879, with the recorder of Hamilton county, and duly recorded, and thereafter without objection by the other mortgagees, remained in the possession of said McGill until delivered to said Kernohan, as hereinafter stated. The note for $7,602.72 was also delivered to McGill at the same time, and the notes to order of three other mortgagees were also delivered, unindorsed, to McGill, at the same time, for safe-keeping. Some time afterwards one of the mortgagees (George Martin) sold his note to William R. McGill, and, so far as appears, McGill never owned, or had any interest in, any of the other notes. The note for $7,602.72 remained in the possession of McGill until delivered to John and Louis Manss, as hereinafter stated.
On the 8th day of February, 1879, being prior to the maturity of the notes secured by said mortgage, Robert Kernohan made a loan of $11,000 to McGill, who, among other collateral, transferred and assigned to Kernohan the said mortgage, and what purported to be all the notes secured thereby. At the time of the transfer, McGill was the owner and holder of the genuine note for $7,602.72, secured by said mortgage. This transfer was made in the following manner: Before the payment of the $11,000, McGill produced to Kernohan and his attorney the original mortgage deed from Gano Martin, and the following assignment was indorsed thereon:
‘For value received, I hereby assign and transfer to Robert Kernohan, his representatives and assigns, the within mortgage, and the notes secured thereby. William R. McGill. February 8, 1879.’
The assignment was then and there signed by William R. McGill. At the same time, eight certain papers, answering in form to the eight notes described in the mortgage, including one for $7,602.72, were produced by said McGill as the original genuine notes secured by said mortgage. The said papers were, at the time they were produced, indorsed in blank with the name of the payees thereof, except that for $7,602.72, which was indorsed as hereafter stated. At the same time he signed the said assignment on the back of the mortgage, McGill indorsed each of said papers (including that for $7,602.72 drawn to his own order, which hitherto had been unindorsed) with his own signature, and the words ‘protest waived,’ as appears thereon; and thereupon the said papers and mortgage were delivered to Kernohan, with the other collateral, and said sum of $11,000 paid. The mortgage, so assigned and delivered, was the genuine mortgage deed executed by Gano Martin and wife; but the papers purporting to be the notes secured thereby, and so delivered and indorsed by said McGill, are each and every one of them forgeries (except the indorsements of McGill thereon), though they were delivered to Kernohan by McGill as genuine. Kernohan received the mortgage and what purported to be the real notes, as above, duly indorsed and delivered to him, in good faith and for value, supposing said notes to be genuine, and they remained in his possession until after the death of McGill, which took place July 2, 1884, and until this action was begun. Kernohan did not know, or have any cause to know, of such forgery, and that said notes were not genuine, until after the death of McGill. Interest on said loan of $11,000 was paid by McGill up to his death. The amounts realized from the other collateral, together with any amount that has been or may be ordered paid to him in this case, will not discharge said debt of $11,000. The estate of said Gano Martin is insolvent. The assignment on the mortgage was not left for record or entered, until April 25, 1884.
On or about April 1, 1879, being after the transaction with Kernohan, but prior to the maturity of said note for $7,602.72, the defendants John and Louis Manss loaned William R. McGill the sum of $4,000 taking his note, dated May 8, 1879, for same, McGill at that time transferring to them, by indorsement and delivery, as collateral for said loan, the original genuine note for $7,602.72 made by Gano Martin, which, notwithstanding his transaction with Kernohan, he had retained possession of. John and Louis Manss did not learn, until a week or 10 days after McGill's death, of any other note purporting to be of the amount of the note so indorsed and delivered as collateral. At the time of the transaction between McGill and the Manss brothers, McGill stated that the note was secured by a mortgage; that it was given to secure other notes, to other payees, and that he, by and with the consent of all the other mortgagees, was holding the mortgage, for himself and as custodian for the other holders of notes secured by the mortgage; and also told them that he thought the mortgage notes safe. Before loaning the money, they had an examination made of the records, which showed that the mortgage was as represented, and that there was no other mortgage against the property. They did not ask McGill to let them see the mortgage deed, nor did they at any time see it, but relied upon McGill's statement that he had it. They, before and after the maturity of the note, made other advances to McGill, to the extent of $11,300, additional to said sum of $4,000, and also received other collateral; it being agreed with McGill, at the time said other advances were made, that the note for $7,602.72, together with the other collateral, should stand as security for all the advances. Some of the other collateral were known by Manss Bros. to be mortgage notes; but in no instance did they require the production of the mortgage deed securing the same, again relying upon McGill's statements to them. They have not been able to realize upon any of the said other collateral, as in each case the mortgage notes and other instruments are claimed to be forgeries. There is no question as to the good faith of either Kernohan or the brothers Manss.
Upon these facts, the court held that John and Louis Manss were the owners and holders of the genuine note for $7,602.72, given by Martin to McGill; that it was secured by the mortgage; and was the first lien; and decreed accordingly. On error the circuit court affirmed this judgment, and Kernohan now asks that those judgments be reversed.

West Headnotes (1)Collapse West Headnotes

Decedent executed to several persons a mortgage to secure several notes, one having been made to each person, and after the record of the mortgage it was taken, together with several of the notes, by one of the mortgagees for safe-keeping. Before maturity of the notes, said mortgagee assigned the mortgage and notes for value, claiming to own them, and delivered the mortgage and forged copies of all the notes, with forged indorsements on each except the copy of his note. Subsequently, before maturity of the notes, said mortgagee indorsed the genuine note made to him for value to defendants in error, they having examined the records, and found his statement that the note was secured by mortgage to be correct, but not having asked to see the mortgage which he told them he held in custody for the other mortgagees. Held, that on foreclosure of the mortgage the debt to defendants in error was entitled to preference over that of the assignee of the mortgage.
Syllabus by the Court
M. executed to eight persons a mortgage to secure eight promissory notes, made to them respectively. The notes were delivered to the several mortgagees, and the mortgage to McG., one of the mortgagees. It was then duly recorded. After record, without objection by the others, McG. took possession of the mortgage and of three of the notes belonging to other mortgagees, for safe-keeping. Afterwards, and before maturity of any of the notes, McG., claiming to be the owner of the mortgage and of all the notes, for a valuable consideration received of K., assigned and delivered to him the mortgage and forged copies of all of the notes, with forged indorsements on each, except that on the note purporting to be made to him the indorsement was genuine. The assignment purported, also, to transfer the notes secured by the mortgage. McG. retained in his own possession the genuine notes. Afterwards, but before the maturity of the note made to McG., he, for a valuable consideration, indorsed and delivered the genuine note to M. & M., informing them that the note, with others, was secured by mortgage on certain real estate. Before taking the note, M. & M. had the records examined, and found that the statements of McG. respecting the mortgage security were correct. He also stated that he, with the consent of the other mortgagees, was holding the original mortgage for himself, and as custodian for the others. They did not ask to see the original mortgage, and did not see it. K. and M. & M. acted in entire good faith, neither having a suspicion that a fraud was contemplated by McG. Held, on foreclosure of the mortgage, the debt to M. & M. is entitled to preference over that of K.

Attorneys and Law Firms

*124 **260 Drausin Wulsin and Frank O. Suire, for plaintiff in error.
*129 Wm. E. Jones and J. J. Glidden, for defendants in error.

Opinion

*132 SPEAR, J.
The question presented by the record is whether, both parties acting in good faith, one who obtains title to a mortgage given to secure several notes to several persons, by assignment for value by one of the mortgagees, with delivery of the same and a forged copy of one of several notes secured thereby, indorsed by the payee who was then the owner of the genuine note, obtains a lien for money thus advanced on the faith of the security, in preference to the bona fide indorsee for value of the genuine note obtained afterwards, both transactions occurring before the maturity of the note. *133 It seems to us that the question will be solved by the application of simple and well-established principles. The concession that each party acted in entire good faith removes any necessity for considering equities, and leaves the case to be determined on purely legal grounds.
The following propositions we consider are settled in Ohio:
1. Where a promissory note is secured by mortgage, the note, not the mortgage, represents the debt. The mortgage is, therefore, a mere incident, and an assignment of such incident will not, in law, carry with it a transfer of the debt. On the other hand, a transfer of the note by the owner, so as to vest legal title in the indorsee, will carry with it equitable ownership of the mortgage. And so, if the debt be evidenced by several promissory notes, the legal transfer of a portion of the notes carries with it such proportional interest in the security as the notes transferred bear to the whole. Harkrader v. Leiby, 4 Ohio St. 602; Swartz v. Liest, 13 Ohio St. 419; Fithian v. Corwin, 17 Ohio St. 119; Allen v. Bank, 23 Ohio St. 97; Holmes v. Gardner, 50 Ohio St. 167, 33 N. E. 644.
2. Being but an incident of the debt, the mortgage remains, until foreclosure or possession taken, in the nature of a chose in action. Where given to secure notes, it has no determinate value apart from the notes, and, as distinct from them, is not a fit subject of assignment. And, where the notes are legally transferred, the mortgagee, and all claiming under him, will hold the mortgaged property in trust for the holder of the notes. Jordon v. Cheney, 74 Me. 359; Jones, Mortg. 818; Pom. Eq. Jur. § 1210.
3. All notes payable to any person or order are *134 negotiable by indorsement thereon, so as absolutely to transfer and vest the property thereof in each and every indorsee or holder successively. Such indorsee or holder may, in his own name, institute and maintain an action thereon against the maker. Rev. St. §§ 3171, 3172.
4. A holder of negotiable paper who takes it before maturity for a valuable consideration, in the usual course of trade, without knowledge of facts which impeach its validity, holds it by a good title. To defeat a recovery, it is not sufficient to show that he took it under circumstances which ought to excite suspicion in the mind of a prudent man. To have that effect it must be shown that he took the paper under circumstances showing bad faith or want of honesty on his part. Nor does the note lose its commercial character when secured by mortgage. Johnson v. Way, 27 Ohio St. 374; Kitchen v. Loudenback, 48 Ohio St. 177, 26 N. E. 979.
Applying these rules ot the facts, the following conclusions seem to result, viz.: Kernohan, by the assignment of the mortgage, took the legal title to it, so far as the same was owned by McGill, and an equitable right in the $7,602.72 note. He did not take, nor did McGill intend to transfer to him, any legal title to the note, for McGill kept, and intended to keep, that in his own possession, unindorsed, and subject to his continued control. Such rights as Kernohan **261 took he might assert as against McGill, but John and Louis Manss alone can recover on the note. They, by their purchase and the indorsement to them by McGill, took a full title to it, as against the world, together with the equitable title to the mortgage in whosoever hands it might be. The one has the legal title to the incident, with an equitable right *135 in the debt; the other, the legal title to the debt, together with an equitable title to the incident. As both cannot have precedence, the weaker must give way to the stronger. The legal title to the incident must be subordinated to that which is superior, viz.: the legal title to the debt, although the holder of the incident acquired his right first. John and Louis Manss were, therefore, entitled to the proceeds of the mortgaged lands. The case of Kernohan v. Durham, 48 Ohio St. 1, 26 N. E. 982, is relied upon by plaintiff in error. We think it does not support his contention. In that case, Coddington took, by indorsement, the genuine note, after due. Kernohan took an assignment of the mortgage, which assignment also purported to transfer the note. This was not only before the transfer of the note to Coddington, but before the note was due. The holding is that, as between Kernohan and McGill (the payee), the former took an equitable title to the genuine note, and hence, as Coddington's title was acquired after the note had been dishonored, he could take no better right than his indorser had. The note being past due, he was put upon inquiry, and was chargeable with whatever knowledge due inquiry would have elicited. The vital difference between the position of the holder of the note in that case and in this is, that, while Coddington took his title after due, and hence was charged with all infirmities, John and Louis Manss, being indorsees and purchasers for value in the ordinary course of trade, before due, took good title as against the world. Judgments affirmed.

Parallel Citations

53 Ohio St. 118, 34 W.L.B. 79, 41 N.E. 258, 2 Ohio Leg. N. 707
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texas
As both cannot have precedence, the weaker must give way to the stronger. The legal title to the incident must be subordinated to that which is superior, viz.: the legal title to the debt, although the holder of the incident acquired his right first.

Appears the Note owner has superiority and the Security owner is subservient to the Note owner..
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