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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ciola
I'm on title on my parent's house which they live in in California. The three of us are joint tenants. They are 75 and 85 years old, gullible, and dirt poor living off of Social Security only. Their home is worth about $150,000. A few years ago they declared bankruptcy so they are not eligible to go BK now again. I'm was on title to prevent them from doing something else stupid and end up homeless. 

Go back 18 months and I got a call from a notary asking to meet with me to sign loan docs. I said, "What loan docs? I didn't apply for any loan." They said my parents were doing a refi to cash out. I told the notary I didn't approve of any such loan and to have the lender contact me. A few weeks later my parents told me they got a check for $75K from refinancing the house. The money was soon squandered, and now they are having a hard time making the mortgage payments. I recently checked the records at the county recorder's office. My signature was not forged or anything like that. The lender simply ignored the fact I was on title. My parents at the time didn't even remember I was on title. They are old...

I'm curious about my options. I don't believe the loan should ever have been made without my signature. I also don't think my parents should have qualified for the loan given their low income and bad credit. Almost seems like the lender thought they'd make a quick buck on refi fees and then take their home away when they could no longer make the payments. 

I'm not very versed in mortgage law and protections so hoping the people here can give me some advice. I called a couple law firms to inquire and they said it sounded like I had a case but would need to pay them a $2,500 to $3,000 retainer fee to find out. 

The questions I have are:

1) Was it illegal for the lender to refi with my signature?
2) If it was illegal, what can I recover from the lender?
3) Can my parents simply stop making payments?
4) Can the lender repo their home with me on title?
5) Do I really need an attorney to handle this matter?
6) What is the statute of limitations to do something about this?

Thanks for any advice you can give. : ) 


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t

Quote:
The questions I have are:


1) Was it illegal for the lender to refi with my signature?
2) If it was illegal, what can I recover from the lender?
3) Can my parents simply stop making payments?
4) Can the lender repo their home with me on title?
5) Do I really need an attorney to handle this matter?
6) What is the statute of limitations to do something about this?

Thanks for any advice you can give. : )
 
I am going to field this question as it presents some very interesting issues and the exposition may be useful to others in understanding some otherwise arcane aspects of real estate law.
 
First, I want to clarify that THIS IS NOT LEGAL ADVICE!
 
I would encourage you to consult with attorneys specializing in real estate and possibly even probate/guardianship law as to the issues discussed.
 
Please view these comments as merely a suggested point of departure for further inquiry, to include consultation with a lawyer.
 
Permit me to begin with the short answers to your questions.  I will follow with a more elaborate explanation and analysis.  Again.  These are my PERSONAL LAY VIEWS.  Read what I have to say.  Use this as a basis for further discussion and research.  Also, CONSULT A LAWYER!
 
Quote:
1) Was it illegal for the lender to refi with my signature?
 
No.
 
Quote:
2) If it was illegal, what can I recover from the lender?
 
Nothing.
 
Quote:
3) Can my parents simply stop making payments?
 
No.
 
Quote:
4) Can the lender repo their home with me on title?
 
Yes and no.
 
Quote:
5) Do I really need an attorney to handle this matter?
 
Yes.
 
Quote:
6) What is the statute of limitations to do something about this?  
 
Since there isn't likely to be a valid cause of action, limitations is irrelevant.  You are asking the wrong question, as explained below.  But, TIME is important as further explained.
 
Your Parent's Right To Contract
As a preliminary matter, it is important to realize and distinguish that a typical mortgage loan transaction involves two separate key unilateral undertakings by the borrower.  First, the borrower executes a promissory note, which is a negotiable instrument under the UCC (despite what some scam artists and swindlers at this site and elsewhere want you to believe).
 
Second, the borrower executes a mortgage, deed of trust, security deed or other similar mortgage security instrument securing the repayment of the loan with the subject property.
 
Other loans might be secured by other forms of property.  For example, one could pledge inventory, goods, crops, intangible rights (such as patents, copyrights and trademarks), jewelry, furniture, or even another note and mortgage as security for a loan.
 
The right to borrow based upon one's promise is a rather fundamental one.
 
As long as your parents remain competent, they are probably entitled to borrow money on their own credit, whether you want them to or not.
 
*
 
Here, it is also helpful to distinguish a couple of other nuances.
 
People are generally presumed to be competent unless a court finds them otherwise.  This presumption is not absolute.  If the counter-party has serious doubts about a person's competence, then the counter-party should enter into the transaction with greater caution.
 
There are probably some limits on the presumption in most places.  For example, suppose that a person was laying in a hospital ward in a coma and essentially unresponsive.  If a notary were to visit this person and to undertake an honest assessment of the person's fitness to acknowledge an instrument, the notary ought to notice that the person could not communicate, read or even sign a document without help.  In such a case, the person's state would seem to overcome the natural presumption that a person is competent. 
 
The example given is purposefully stark.  There might be a wide range of other circumstances, particularly with elderly or impaired persons where a person has periods of lucidity and other cloudy periods when ability to make independent decisions might be in doubt.
 
Here, a counter-party is at somewhat greater peril, but able to generally rely upon the presumption of competence.
 
However, should the counter-party observe at the time of the transaction that the borrower is not sane, then the validity of the transaction might be in doubt.  Suppose, for example, that you came to visit me to obtain my signature and addressed me "t, would you please sign this note".  Should I reply -- "But I am not t, but, rather, the King of Spain!  This is my court and yonder is my jester." -- this might put you on some notice that the instrument I execute would be of uncertain validity.
 
By contrast, I might be quite feeble and of addled brains, willing to sign almost anything, and yet be friendly and conversant.  It might not be readily apparent to a stranger that I am NOT competent.  The stranger is entitled to PRESUME that I am competent and usually need not call upon me to PROVE THAT I AM.
 
*
 
Generally, the law will enforce agreements freely entered into by parties with the capacity to contract, even if one of the parties enters into a bad bargain.
 
By contrast, if the party is misled and deceived, this can form the basis for a robust affirmative defense of fraud.  But it is going to be the borrower's burden to show that he was defrauded.  This will NOT be presumed and must be proven BY EVIDENCE.
 
*
 
So here are some central questions.  Were your parents actually competent to enter into a new loan?  Did your parents freely enter into a bad bargain and then squander away the loan proceeds?  Or were they deceived and defrauded into entering into a loan transaction that they would never have entertained, absent the lender's deceit?
 
-- MORE -- 
 
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Unregistered

Guardianship

You and your siblings are generally in a far better position than most creditors or potential creditors to assess your parent's competence.  Even so, it is not uncommon for different members of a family to have differing assessments and opinions on this.

 

In some cases, the answer will be clear to everyone.   But very often, particularly in respect of issues with the elderly and senility, competence can be a very close question and a matter of degree.

 

Clearly, AGE is not the key issue.  There are bright, lucid and vibrant elderly people well able to manage their own affairs well into their 80s and 90s.  There are also some folks who are mentally retarded, borderline retarded or have other sorts of deficits which indicate a lack of competence.

 

Nor is competence something that can be demonstrated simply upon the basis that a person might be victimized or easily preyed upon.  Lets face it, Madoff ripped off some very sophisticated people of billions of dollars.

 

Similarly, here at the Forum, swindlers like Mike H. and Maher Soliman prey upon distressed and vulnerable borrowers.  Simply because someone has been a mark for a swindler, it does not follow that the person is incompetent.

 

The real question is whether a person can exercise reasonably good judgment presented with good information.

 

The legal definitions will vary from place to place.  You would need to consult a capable attorney well familiar with probate and guardianship issues to explore this topic further.

 

If you and your siblings believe that your parents are no longer competent, then the approach well established in the law almost everywhere is to seek to have your parents declared legally incompetent through a guardianship proceeding. 

 

This is NOT something to be done lightly.  While an uncontested guardianship proceeding in a case where incompetence is clear, where the matter is a subject of dispute, it can be very, very costly.  I am aware of a guardianship matter undertaken by a family of modest means where the proceeding cost all parties about $100,000 and ended with an agreed dismissal of the case.

 

This is a matter to discuss with the siblings and a lawyer.  There is no single correct answer.

 

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t

I realize that you didn't ask about guardianship.

 

But I wanted to present this point, because this WOULD be a valid means of PRECLUDING a lender from preying upon your parents.

 

IF you or another sibling was appointed by court order as your parent's guardian, this would DISPLACE their right to independently contract.

 

A guardian typically has powers not dissimilar to a person holding a power of attorney to act on behalf of another, however, the guardianship not only confers the right to act on that person's behalf, but also displaces that person's right to act independently on their own.

 

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t

Nemo dat quod non habet

 

In prior threads, Mr. Roper has introduced us to the principle of Nemo dat:

 

Nemo dat quod non habet

(You cannot give what you don't have.)

 

The central question you present affords us an opportunity to revisit that principle.

 

Let us begin with a simple example.

 

I think we can agree that YOU are entitled to borrow money on the strength of your own promise (presuming you to be competent).

 

Suppose though that you take my gold Rolex watch off my dresser and go to a pawn shop and pledge my watch as security for your loan?

 

A question arises as to the security interest obtained by the pawn shop in my watch.

 

(Perhaps Texas can comment on the security interest under the UCC.  I will admit that I am shooting from the hip here.)

 

But generally speaking, if you sold a stolen watch, the purchaser could NOT ordinarily obtain good title to it through the sale.  Nemo dat quod non habet.  YOU DO NOT OWN THE WATCH.  YOU CANNOT SELL THE WATCH.  THEREFORE YOU ALSO CANNOT PLEDGE THE WATCH.  You have no interest to pledge, sell or mortgage.  (A pledge of personal property has historically also been called a chattel mortgage.)

 

Let us take another example.  Suppose that Texas and I are cattle rustlers.  We cut your barbed wire fence and steal a herd of 50 cattle.  We drive the cattle to Forth Worth, where we sell the cattle to John Wayne.

 

Does John Wayne obtain good title to the cattle?  Of course not!  These are stolen cattle!  YOU are entitled to the return of your stolen cattle if you can only find and identify them (though you may have a proof problem).  This is, of course, WHY we have cattle brands!

 

Suppose that Texas and I drove the herd to Fort Worth and then pledged the cattle instead of selling them.  Does the bank get a good security interest in the cattle?  I think NOT.

 

*

 

Now let us move to a more complex question.

 

Suppose that you and Forum contributor Texas together own an undivided interest in Blackacre, a small (50,000 acre), but misnamed, ranch near Amarillo.

 

Texas, being the notorious gambler he is, wagers his interest in Blackacre in a card game in Waco and loses his interest.

 

Can Texas gamble away Blackacre in a poker game?

 

Setting aside for a moment the question as to whether wagering land is actually lawful in Texas, we return to the concept of Nemo dat quod non habet.  Texas CAN SELL his undivided interest.  He can also GIVE AWAY his undivided interest.  (Presuming gambling to be legal) he can wager his interest in Blackacre.  And so Texas can also pledge his interest in Blackacre, either by mortgage or deed of trust (within the State of Texas).

 

But what Texas can sell or pledge is his interest, NOT yours.

 

What the buyer, donee, winner of the poker hand or grantee of the mortgage or deed of trust is getting is Texas' interest in Blackacre, NOT YOUR INTEREST.

 

Hopefully, you are now beginning to see where this is going.

 

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t

Mortgaging One's Undivided Interest

 

From the exposition above, it should be clear that where there are several co-owners to a property, each owner can ONLY PLEDGE OR MORTGAGE HIS OR HER OWN INTEREST.

 

In posing the initial questions then, ciola seems to have the question almost BACKWARDS.  While it certainly might be true that a Lender was engaged in some sort of misconduct or fraud in procuring a loan from ciola's parents, a more troubling question is whether ciola's parents might have engaged in fraud in misrepresenting that they were the co-owners of ALL of the fee interest in the property.

 

That is, IF ciola's parents TOLD THE LENDER that they held absolute fee title to the property and the Lender lent them money on this basis, there would seem to me to be a far greater danger that fraud might be ascribed to ciola's parents!

 

Let is put this another way.  Suppose that ciola had taken his Dad's Rolex watch down to the pawn shop and pledged it to obtain a loan.  While the pawn shop probably cannot have a valid interest in the watch, by contrast if ciola pledged something that didn't belong to him, then ciola probably committed criminal fraud in most places.  Similarly, ciola probably committed civil fraud in defrauding the pawn shop by falsely representing that the watch he was pledging was his own.

 

But the police are unlikely to take an interest in this matter UNLESS the pawn shop presses charges.  This presents the problem that IF ciola's father demands the return of his watch, pledged without his authority, then the pawn shop is going to be more inclined to press charges if the loan isn't otherwise repaid OR other suitable collateral belonging to ciola isn't substituted for the watch.

 

As a practical matter, the situation with the pledge of real property by deed of trust is a little different, since a lender typically undertakes a title examination and obtains a Lender's Title Insurance policy.

 

The problem is further clouded by the age of ciola's parents.  The jails are already filled with other hardened criminals and a space needs to be reserved for Maher Soliman and his confederates.  California probably has little interest in prosecuting a geriatric couple for a non-violent crime, even if criminal intent could be proven.

 

*

 

Under these circumstances, ciola's outrage at the lender is mostly misplaced.  

 

Even so, the mortgaging of real property rather than chattels is also distinguishable almost everywhere by the statute of frauds.

 

The undivided interest of ciola in the subject property can probably ONLY be mortgaged by ciola himself OR a person with a valid written power of attorney.

 

So UNLIKE the situation with the watch, ciola's interest in the subject property is actually UNIMPAIRED by the transaction!  The loan transaction has probably effectively bound ciola's parents to repayment of the note on the terms recited therein.  And ciola's parents have also pledged their interest in the subject property and no doubt done so by a deed of trust.

 

But a either a judicial or a non-judicial foreclosure under the deed of trust CANNOT EXTINGUISH ciola's interest in the property.  At best, after foreclosure, the lender ends up with the interest held by ciola's parents, because they can ONLY mortgage or otherwise pledge the interest they actually OWNED. 

 

-- MORE --

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ciola
Thank you T for the extensive information. You posed the question if there could be fraud on the part of my parents. No, they are just old and have poor memory. They didn't think I was on title because a couple years earlier we had discussed me possibly taking myself off the title of the house. From that conversation it ended up with them a couple years later thinking I was off the title.

However, I think that is all a moot point because the lender knew I was on title by the fact that a notary called me to sign the loan docs. Despite not getting my signature, the lender went ahead and made the loan. When I contacted them asking what what was going on with them funding a loan they admitted to having made a mistake, but they would fix the problem. Their solution was to offer to prepare documents to remove me from the title at no cost to me. How generous!

The problem this has created for me is that my parents do not have enough to live on on Social Security. I was going to set something up like a reverse mortgage to supplement their income. They can not manage money and by refinacing managed to squander a good chunk of the equity in their home. Now I face the burden to have to supplement their income with my income if they are to continue making loan payments as I really don't want them eating cat food or ending up homeless.

I don't care that much if the bank ends up with an ownership stake in the property. However, I think it was improper to lend to them knowing they didn't have the means to make the payments. Why would they do that? To me it seems like they figured if they didnt pay they would just take their home away. That bothers me.

I can't see how they could be evicted / forclosed on given I am on title and I did not enter into any contract with the bank / lender.

So maybe it boils down to this. They can't make the payments. What happens if they stop paying? And what would an attorney be able to do for me? I don't mind paying an attorney if I know what they are going to do ahead of time. But I also am not very comfortable simpy paying an attorney a few thousand dollars retainer fee not knowing what he can and will do to fix this problem.

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ciola
I found the info below which appears to say I can rescind the loan up to 3 years as I was never given ""material disclosures" (those listed at 12 C.F.R. §226.23 n. 48) and two properly-filled-out notices of the right to cancel". Not sure if that helps out the situation as my parents have no ability to repay the balance due. So if I rescinded the loan and the lender sued my parents I guess the lender would end up with a judgment on two elderly people who are judgment proof?

---------------------------

Rescission rights

TILA gives homeowners rescission rights when their principal residence is used to secure an extension of credit, other than one for the initial purchase or construction of the residence. 15 U.S.C. §1635; 12 C.F.R. §226.23. The creditor must furnish two properly-filled-out copies of a notice of the right to cancel to everyone whose interest in their principal residence is subjected to the creditor’s security interest. This is not limited to the borrower; for example, a spouse or child who is on title has the right to cancel and must be notified of that right.

The rescission right is not limited to real property, but includes mobile homes and an interest in a cooperative apartment.

The right to cancel normally extends for three days (federal holidays and Sundays are excluded, but Saturdays are not). However, if the creditor fails to furnish the "material disclosures" (those listed at 12 C.F.R. §226.23 n. 48) and two properly-filled-out notices of the right to cancel to each person entitled thereto, the right continues until (a) the creditor cures the violation by providing new disclosures and a new cancellation period and conforming the loan terms to the disclosures, (b) the property is sold or (c) three years expire. The three years is an absolute time limit. Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998).

The right to rescind is a statutory remedy, not to be confused with common-law rescission. Its operation is described in 12 C.F.R. §226.23:

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George Burns
I don't see where this applies to you since it is not your "principal residence " etc, but I am not a lawyer.

I would immediately contact the Adult Protective Services office for that area and also call the Office of the Attorney General. California has many protections in place to combat abuse of the elderly.

Try a Google search using terms such as " California elderly abuse laws".
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t

ciola,

 

I wasn't quite through with my exposition.  A few more points to come.

 

I will, however, first respond to several of the subsequent posts by yourself and others.

 

Quote:
However, I think that is all a moot point because the lender knew I was on title by the fact that a notary called me to sign the loan docs.  Despite not getting my signature, the lender went ahead and made the loan.  When I contacted them asking what what was going on with them funding a loan they admitted to having made a mistake, but they would fix the problem.  Their solution was to offer to prepare documents to remove me from the title at no cost to me. How generous!
 

 

You are certainly correct to note that the call from the notary distinguishes that the Lender CANNOT DENY that it had ACTUAL KNOWLEDGE of your interest in the property.  This could be helpful to you later.

 

You need to memorialize your recollections of this interaction with the notary in some written notes which might come in handy later.

 

Quote:
The problem this has created for me is that my parents do not have enough to live on on Social Security. I was going to set something up like a reverse mortgage to supplement their income. They can not manage money and by refinancing managed to squander a good chunk of the equity in their home. Now I face the burden to have to supplement their income with my income if they are to continue making loan payments as I really don't want them eating cat food or ending up homeless.
 

 

While your distress at this situation is understandable, you have some further rights as will be further elaborated in a subsequent post.  Although supplementing their income may be a burden in the short run, it is probably in your interest to do so to keep the payments current for now.

 

Quote:
I don't care that much if the bank ends up with an ownership stake in the property. However, I think it was improper to lend to them knowing they didn't have the means to make the payments. Why would they do that? To me it seems like they figured if they didnt pay they would just take their home away. That bothers me.

 

For reasons I will elaborate in a coming post, this is a very problematic situation for the lender.  If you play your cards right, you can probably ultimately extinguish the NEW DEBT.  Extinguishing the existing refinanced debt will be more problematic, but NOT impossible as I will further relate in another post.  This will require you to play out the hand with exceptional skill.  You also need to play your cards very close to your vest!

 

You have probably already posted MORE details of the situation than you ought to under the circumstances.  REFRAIN FROM POSTING ANY FURTHER IDENTIFYING DETAILS IN THIS THREAD.

 

See Mr. Roper's post on avoidance of posting distinguishing details, recently discussed within another different thread.  Perhaps someone else can find that thread and point it out to you.

 

Quote:
I can't see how they could be evicted / forclosed on given I am on title and I did not enter into any contract with the bank / lender.
 

 

You need to read and re-read my prior posts several times and to discuss the situation with an attorney.  You parents (if competent) ARE absolutely entitled to either SELL or mortgage their interest in a jointly owned property WITHOUT YOUR CONSENT OR PERMISSION.  What they CANNOT DO, is sell or mortgage YOUR INTEREST.

 

If your parents default on the new loan, then THEIR INTEREST is subject to non-judicial foreclosure and can be sold by private sale.  This DOES NOT EXTINGUISH YOUR INTEREST.

 

YOUR INTEREST could only be subject to foreclosure through a judicial foreclosure, as will be more fully related below.

 

If you screw this up, the Lender probably CAN and WILL foreclose your interest, too.  If you play your hand correctly, you can probably extinguish ALL of the new debt.  You also might be able to extinguish ALL of the debt, but this would require the lender to make several more serious mistakes in proceeding.  Given the carelessness of the foreclosure mills, it seems LIKELY that they will make several more mistakes.  You need to sit back, relax and LET THEM.  In the interim, you probably should at least supplement your parent's income for the present and let the matter season/ripen a little more, as will be more fully explained in another post.

 

Quote:
So maybe it boils down to this. They can't make the payments. What happens if they stop paying? And what would an attorney be able to do for me? I don't mind paying an attorney if I know what they are going to do ahead of time. But I also am not very comfortable simpy paying an attorney a few thousand dollars retainer fee not knowing what he can and will do to fix this problem.

 

If your parents STOP PAYING, the Lender will first initiate a non-judicial sale of their interests.  The non-judicial sale will probably be effective at extinguishing THEIR interests.  The lender will need to bring a much more expensive non-judicial foreclosure to extinguish YOUR INTEREST.

 

If you are FOOLISH and FAIL TO CONSULT AN ATTORNEY, then you will almost certainly LOSE YOUR INTEREST.  If you are smart and play your hand correctly, your chances are probably quite good.

 

If the property is worth LESS THAN the original loan, it might not be worth fighting.  If there WAS and IS equity EXCEPT FOR the additional amount advanced, then YOU MAY BE IN THE DRIVER'S SEAT.

 

UNDER NO CIRCUMSTANCES SHOULD YOU GET DRAWN IN BY ONE OF THE MANY SWINDLERS WHO TROLL THIS FORUM AND OTHER FORECLOSURE DEFENSE SITES.  THEY WILL SELL YOU USELESS REPORTS, OFFER TO PREPARE PLEADINGS AND OTHERWISE SEEK TO FURTHER VICTIMIZE YOU!

 

NEITHER SHOULD YOU EMPLOY AN ATTORNEY FOCUSED ON FORECLOSURE DEFENSE.  INSTEAD, WHAT YOU NEED IS A GOOD EXPERIENCED ATTORNEY SPECIALIZING IN REAL ESTATE.  MORE ON THIS LATER.

 

Many attorneys will discuss a legal situation briefly with you WITHOUT your advancing a retainer.  Usually, the retainer is necessary ONLY when the litigation starts OR when you want the attorney to take action on your behalf.

 

YOU CONTINUE TO THINK ABOUT THIS PROBLEM WRONG.  YOU ARE THINKING ABOUT THIS PROBLEM AS IF YOUR PARENTS HAVE BEEN VICTIMIZED.  TO THE CONTRARY, THE LENDER HAS MADE A VERY SERIOUS TITLE MISTAKE!

 

YOU CAN TAKE ADVANTAGE OF THIS MISTAKE.  OR YOU CAN FOOLISHLY ALLOW YOURSELF TO BECOME A VICTIM, WHEN, IN FACT, IT IS THE BANK THAT HAS THE PROBLEM!

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Texas
Well said t.
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t

Quote:
I found the info below which appears to say I can rescind the loan up to 3 years as I was never given ""material disclosures" (those listed at 12 C.F.R. §226.23 n. 48) and two properly-filled-out notices of the right to cancel". Not sure if that helps out the situation as my parents have no ability to repay the balance due. So if I rescinded the loan and the lender sued my parents I guess the lender would end up with a judgment on two elderly people who are judgment proof?

 

This post further reflects that you are still thinking about the problem INCORRECTLY.

 

TILA is very unlikely to be of any help to you AT ALL.

 

Their is a LOT of nonsense and Internet MYTH about rescission. Much of this is propagated by swindlers who use consumer confusion about this as a pretext to swindle the distressed borrower out of money.

 

George's answer above is partially right, but doesn't go nearly far enough:

 

Quote:
I don't see where this applies to you since it is not your "principal residence " etc, but I am not a lawyer.

 

George is correct that the subject property is NOT your principal residence (based upon your description). This takes the matter out from under TILA.

 

But there is also a much more basic reason. YOU DID NOT BORROW ANY MONEY. YOUR NAME IS NOT ON THE NOTE. YOUR NAME IS NOT ON THE MORTGAGE! (You DO need to VERIFY that your name is NOT on the deed of trust and that the Lender did NOT FORGE your signature!)

 

Even thinking about TILA from the perspective of your parents (who DO seem to be both borrowers and occupying the subject property), TILA affords NO HELP.

 

A rescission means an UNWINDING of the loan transaction.

 

The swindlers present this as a means of CANCELING a loan and simply extinguishing the debt. THIS IS NONSENSE.

 

When a borrower is eligible and rescinds, what is supposed to happen is the borrower notifies the Lender of the rescission. The Lender then tenders back to the borrower ALL AMOUNTS ADVANCED AS PAYMENTS under the loan, etc. The BORROWER in turn RETURNS THE PRINCIPAL AMOUNT BORROWED.

 

Then the note and mortgage, deed of trust or other mortgage security instrument is extinguished. A rescission is the UNWINDING of the original transaction.

 

While it is absolutely true that Lenders/mortgage investors often screw up rescission, for a rescission to take place, YOUR PARENTS NEED TO BE PREPARED TO RETURN TO THE LENDER ALL OF MONEY THEY DREW OUT AS EQUITY. Your post suggests that they have already spent or otherwise squandered the money.

 

IF you are prepared to advance to your parents the amount that they borrowed so that they CAN rescind (IF they are eligible, which is doubtful), this would be one avenue to reinstate the prior loan. Even so, realize that the PRIOR LENDER is an innocent party here and the PRIOR LENDER DOES NOT HAVE TO RESTORE THE PRIOR LOAN. So even with rescission, you would need to advance NOT ONLY THE incremental amount borrowed, but also the FULL PRINCIPAL AMOUNT OF THE LOAN. Good luck with that! If you have the full balance available, feel free to discuss this avenue with an attorney.

 

If NOT, then set TILA aside (discuss it briefly with a lawyer, but DO NOT EMPLOY A LAWYER TO PURSUE TILA UNLESS THE LAWYER CAN SHOW YOU IN WRITING HOW THIS WOULD SOLVE YOUR PROBLEM). 

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t

Joint Ownership with the Right of Survivorship

 

In posts above, I previously explained that ciola's parents couldn't possibly either bind her to a note she didn't sign OR mortgage her interest by signing a deed of trust to which she is NOT a party.

 

While ciola's parents are free to sell or mortgage their own interests, they CANNOT sell or mortgage ciola's interests. 

 

But there is another subtle matter that seems to have confused ciola and perhaps is confusing to some other Forum participants.  This is the nature of an ownership interest that includes a right of survivorship.

 

An interest with a right of survivorship fundamentally alters the ownership interest in subtle but significant ways that ciola seems to intuitively perceive (and therefore feels WRONGED), but also seems to misunderstand.

 

*

 

Leaving ciola's situation aside for a moment, let us explore a simpler situation in which A and B together purchase a property as joint tenants with a right of survivorship.  What precisely does this mean?

 

When parties co-own with a right of survivorship, it means that ownership interest of the other party's interest tends to pass directly to the surviving party, usually outside of probate.

 

That is, if A and B together own a property with reciprocal rights of survivorship and A dies, then B owns the fee interest in the property.  If B dies, then A owns the fee interest in the property.

 

This all seems simply enough.

 

What is more subtle and often misunderstood is that in most places joint ownership does NOT preclude either owner from SELLING OR MORTGAGING his or her interest.  While it is certainly TRUE that neither A nor B can sell the property in totality absent the agreement of the other, it does NOT follow that neither can sell without the consent of the other.

 

Each is usually FREE to sell their interest (in most places), but can ONLY sell their own interest.  Neither can sell the interest of the other.

 

This is easier to understand in terms of joint owners of undivided interest without a right of survivorship.  When a right of survivorship is added into the mix, folks tend to quickly get confused.

 

So what happens if A sells to C A's joint interest in the property with B (with right of survivorship)?  What is C actually getting?

 

Recall that Mr. Roper has taught us that Nemo dat quod non habet.

 

How does Nemo dat apply to survivorship?

 

Well, A can only sell the interest A actually has.  A's has an interest in the property with a right of survivorship based upon B's life.  B has an interest in the property with a right of survivorship in A's life.

 

The sale of A's interest ot C conveys only that which A actually has to convey.

 

C becomes co-owner of the property with B.  But the right of survivorship is NOT based upon C's life.  It is still based upon A's life.

 

This distinction is critically important!

 

It is easy to see WHY this would be so.  And equity demands that the original ownership arrangement between A and B be respected.  This arrangement is actually sacrosanct and usually could never be disturbed, EXCEPT perhaps upon a well supported equitable action for partition.

 

Imagine some different possible circumstances.

 

A might be an elderly person of age 90 and B might be A's grandson.  B might, for example be a strapping young man of age 25.  In such a case, it is easy to see that B's interest is probably much more valuable than A's interest! 

 

Can A simply sell A's interest to C, another grandson and substitute the right of survivorship to C's life WITHOUT B's CONSENT.

 

Of course, if A and B BOTH AGREE and want to RE-DEED the property to B and C with new survivorship rights based upon B and C's life, this is permissible, IF EVERYONE AGREES!

 

Absent agreement, the survivorship right remains on the original parties.

 

*

 

I will leave the matter to further discussion by the Forum and will continue tomorrow!

 

How does the survivorship right alter ciola's problem?

 

-- MORE -- 

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Unregistered

I think that I am tracking t's logic here.  Based upon what Mr. Roper taught us about Nemo dat, ciola's parents could only have mortgaged that which they actually owned.

 

This might have been merely a 1/3 undivided interest as joint tenants each.  Or, possibly, if this was a joint tenancy with a right of survivorship, then ciola's parent's might have an interest with reciprical rights of survivorship on each other's life and that of ciola.

 

Were that to be the case, then even if the lender were to foreclose on the interest of the parents, at best the lender gets a 2/3 interest in the house, with ciola continuing to own 1/3.  That would seem to make the property rather difficult to sell!

 

Moreover, the lender would foreclose on the interest possibly subject to a right of survivorship if that was the form of ownership they had.

 

In that case, the lender could foreclose obtaining 2/3 interest.  Then, if ciola's parents later DIE, predeceasing ciola, then Ciola would succeed to each of their interests DESPITE the prior foreclosure!

 

So if the property was subject to a a right of survivorship, the lender could foreclose by private sale entitling the lender only to pay 2/3s of the taxes.  Ciola probably still has a right to occupy the property.  Ciola could end up with 100% of the property even after a non-judicial foreclosure by private sale.

 

In order to foreclose on ciola, it seems as though the lender would have to bring a judicial foreclosure rather than a non-judicial foreclosure.  But ciola didn't sign the note and didn't sign the mortgage.  What would the basis be to foreclose upon a party who wasn't liable under either the note or the mortgage?

 

That the lender may have engaged in some misconduct in respect of the loan to the parents seems to make their case even weaker!

 

*

 

If I understand t's explanation, the lender is possibly in a hell of a fix here and it seems unlikely to get any better with time!

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ciola
I am going to have to re-read these posts a few times to get at better grasp. However, something interesting happened today. I will be spending a few hours with a real estate attorney in a mediation where a bank made a loan but only the daughter signed the docs, and mom was also on title! How coincidental. I work for a parent company of the bank. Normally I have nothing to do with real estate but they needed someone from the company to be present at the mediation with the attorney defending the bank.

The bank made a claim to the title company for the mess up on the title, the title company sued someone else involved who in turn sued the borrower, and the borrowed filed a cross complaint against the bank. So I should have plenty of time to chat with the bank's real estate attorney. I will read and try to comprehend all the info here so I can ask the right questions and utilize this most fortunate coincidence to get a lot of free legal advice. I've copied the documents from the county recorders office and will take that with me too.

I really appreciate all the information here, and see now how an attorney is necessary to make sure I don't mess things up.
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Unregistered

Quote:
I am going to have to re-read these posts a few times to get at better grasp. However, something interesting happened today. I will be spending a few hours with a real estate attorney in a mediation where a bank made a loan but only the daughter signed the docs, and mom was also on title! How coincidental. I work for a parent company of the bank. Normally I have nothing to do with real estate but they needed someone from the company to be present at the mediation with the attorney defending the bank.

The bank made a claim to the title company for the mess up on the title, the title company sued someone else involved who in turn sued the borrower, and the borrowed filed a cross complaint against the bank. So I should have plenty of time to chat with the bank's real estate attorney. I will read and try to comprehend all the info here so I can ask the right questions and utilize this most fortunate coincidence to get a lot of free legal advice. I've copied the documents from the county recorders office and will take that with me too.

I really appreciate all the information here, and see now how an attorney is necessary to make sure I don't mess things up.

 

Do you own the property merely as joint tenants?  Or do you own as joint tenants with a right of survivorship?   WHAT DOES THE DEED SAY? 

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t

I had intended two more posts to this thread for the benefit of ciola and others.  But since ciola seems to have found some additional counsel elsewhere, I want to add just one more topical addition in the interests of completion.

 

This concerns the topic of subrogation.

 

Subrogation is an equitable concept and can arise in a variety of ways.

 

One classic way that subrogation arises is within the context of a guaranty.

 

Suppose that A borrows money from B, but that B requires a personal guaranty of the loan by C due to A's poor credit, the perceived risk of the loan, etc.  Further suppose that A later defaults on the loan and B looks to C to make good on payment.  When C pays the amounts due to B on A's behalf, usually B's loan to A is said to become subrogated to C and C has a right to collect the amount C has advanced on A's behalf (to the extent that this is collectible, etc.).

 

Note that A didn't really borrow any money to C.  Neither did B necessarily negotiate A's note to C, though a guaranty workout can be structured that way (C pays B the balance and B negotiates the note to C).  Even without such a negotiation, though, at equity, C would usually have a right to step into B's shoes to collect from A through subrogation.

 

A similar circumstance might sometimes arise in respect of a refinance transaction.  Suppose that A owes B on a note and mortgage.  A approaches C to refinance the loan and C advances the funds, paying off B.  Further suppose that C errs in obtaining a valid note and/or mortgage in respect of this new indebtedness.  When C seeks to collect, A refuses to pay or A otherwise defaults in payment.

 

In this latter situation, in a suit to re-establish the debt C would usually allege that C paid off A's loan to B and is entitled to step into B's shoes through subrogation and is entitled to collect from A despite the other defects in the note or mortgage instruments.  This argument also might arise in respect of some question as to priority in respect of another subsequent loan and mortgage to D.

 

Without resolving any of these particular examples, suffice it to say that subrogation is a legal concept that exists.  But there are also certain limits to its application.

 

Suppose that A borrows money from B, giving in return a note and mortgage.  Further suppose that C, a stranger to the transaction voluntarily pays off A's balance without either purchasing the note from B OR being solicited by A to refinance A's loan.

 

In this situation, can C rightfully claim subrogation?  Usually NOT, though this would certainly be fact dependent and outcomes might vary depending upon both statutes and case law from place to place.

 

A's argument is going to be that C is a stranger to the transaction, that C made a voluntary contribution on A's behalf, that A did nothing to induce or defraud C into making this payment, etc.

 

C's argument might be that C had mistakenly made the payment to B, that there was a mutual mistake as to fact, that the transaction should be subject to rescission, that failure to recognize subrogation will result in unjust enrichment, etc.

 

Such a case might turn of some subtle nuances as to facts. 

 

*

 

Permit me to present a totally different example by way of analogy.  Parking meters in a particular jurisdiction charge $0.25 every fifteen minutes.  The charge for an overtime parking ticket is $50.

 

Suppose that A parks his car, neglecting to put money in the meter.  B has a business that involves making voluntary contributions just ahead of the meter maid to help overtime parkers avoid tickets.  B advances $0.50 to help A avoid getting a ticket.  Then B takes down the license number of the car and puts an envelope on the window asking that A repay B $10.

 

A certainly benefits from this service of B's.  If A pays B $10, then A saves $40 and B profits by $9.50.  Suppose though that A declines to pay B.  Can B bring a valid cause of action against A for his injury?

 

If so, is B entitled merely to the return of the $0.50, to the payment of $10, or the amount A has benefited ($50)?

 

I think that everyone can probably agree that under these circumstances while it might be nice if A pays B the $10 or at least the out of pocket expense of $0.50 that A is probably under no compulsion to do so.  A has never agreed to participate in B's service.  B made a voluntary contribution to A's parking meter, etc.

 

Compare the outcome where B goes to the bank and intending to deposit $50 into his own account erroneously puts A's account number on the deposit slip.

 

In the former instance B was making an intentional and willful payment of the parking fee for the spot occupied by A's car.  In the latter case, B simply made a mistake.

 

Equity would tend to require that the bank correct the application of funds.  And if the bank failed to do so (as when A withdraws the $50 and flees to Tahiti with his unexpected windfall), B might be able to bring a successful action against A for restitution.

 

*

 

The reason for my exposition is that the circumstances described by ciola present a rather interesting equitable situation as to possible subrogation for which the outcome is unclear.

 

Suppose that A, B and C borrow $100,000 cash purchase money from D at 6%, giving in return a mortgage (or deed of trust) in respect of a jointly owned property.

 

Later, A and B (without C's participation and assent) approach E about refinancing this loan.  Suppose that A and B refinance exactly the outstanding balance ($95,000) at a lower interest rate (4%), that E advances the funds to D and obtains a note and mortgage from A and B only.

 

In this circumstance, E has a fairly strong subrogation argument against C's interest.  C can hardly complain that C has been prejudiced by a loan of the outstanding balance only at a better interest rate.

 

In this situation, a court might very well find that there exists a subrogation and that E is entitled to the same lien C executed in favor of D.

 

By contrast, suppose that A and B borrower a much larger loan amount ($200,000) from E at a less favorable interest rate (10%) without obtaining C's consent to the payoff of the original loan OR the larger balance, in which C does NOT share.   Does this latter loan entitle E to subrogation as to D's interest in the lien.  Common sense and equity suggests not OR, at least, that C's interest not be prejudiced in excess of the original loan amount.

 

This latter situation can get cloudy quickly.  C has a fairly strong argument that C has been prejudiced not only by the larger loan amount, but by the substitution of a less favorable interest rate and/or more onerous payment terms to which C NEVER agreed.  While A and B are far from blameless in this situation, the legal question is whether equity will admit the imposition of a subrogation as to the valid lien that C actually gave to D.

 

With a good lawyer, C has a fairly strong case that A and B, acting in concert with E CANNOT possibly bind C to the new loan or subrogate C's prior lien in favor of D to E, a stranger to the original transaction.

 

Of course E is going to make the traditional arguments that E is entitled to step into D's shoes and argue that C would be unjustly enriched should it be deprived of the lien.  On the other hand, C can argue that E made a voluntary contribution paying off C's loan to D, that D did nothing to deceive or induce E to enter this transaction and even that C expressly WARNED E of C's interest and C's UNWILLINGNESS to go forward with this loan.

 

Since subrogation is an equitable concept, E can hardly claim to be blameless in this transaction. 

 

Overall, I think that ciola has a reasonably good prospect of a pretty good outcome, however ciola needs to make certain that ciola is viewed as doing the UPRIGHT thing.  Also, a sooner default may be EASIER for the lender to litigate, while a later default, particularly AFTER the death of one or both of ciola's parents could prove to be exceptionally problematic for the lender!

 

To the extent that ciola's parents are extremely elderly and/or in poor health and the loan is for an exceptionally long term, I would generally tend to try to tough it out at least until one of ciola's parents DIES.  The lender probably couldn't do a successful non-judicial foreclosure in any case as to ciola's interest.  The lender is going to need to go into court to re-establish the note and deed of trust using a subrogation argument.

 

Trying to foreclose on a deceased person or an estate presents other complexity.  If the ownership is joint with a right of survivorship (as discussed above), ciola might succeed to the interests of one or both parents BEFORE a default.

 

The bottom line is that the answer is going to be both fact dependent as well as dependent upon unique case law of the jurisdiction.

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