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Observations from my own personal experience:
when I purchased my home in 2006, the price negotiations involved a small ($22k, 18 mos.) mortgage to the seller. No bank or mortgage company was involved. Instead, a title company (then Lawyers Title, became LandAmerica, now is in bankruptcy or something) handled the paperwork, received the payments from me, skimmed off their fees, and sent the balance on to the seller.
They made mistakes in the paperwork, several of them. Some of them I caught and got corrected prior to signing; others I had no way to know were errors. I just mailed my checks every month and assumed they were being credited to the correct account.
I had no idea where or how to contact the sellers -- and I had no desire or reason to do so.
At the end of the 18 months I attempted to make the final balloon payment but discovered the various errors in the original paperwork essentially prevented me from doing so. After approximately 15 days of frantic and often very angry phone calls in Oct '07, I finally received the pay-off amount and instructions on how (cashier's check) and where (LandAmerica's office, in person) to make the payment.
The payment was made 48 hours prior to the beginning of foreclosure proceedings, which would have commenced on 11/01/07. ALL previous payments had been made; there was no arrears. NOTHING was late, except the final balloon payment, and even with all the problems, that had been made prior to the default date of 10/31/07. I was given a receipt and was told that any necessary paperwork -- deed, cancelled lien papers, etc. -- would be mailed to me.
They never were. I began calling LandAmerica, which now had another arm called NoteWorld, to get the paperwork. I was told my account did not exist, had never existed. I had account numbers, I had names of people I had talked to, I had the receipt from my bank for the cashier's check I had purchased AND I had the receipt from LandAmerica for the cashier's check. Over the next several weeks I dealt on an almost daily basis with these people, and as angry as I got I never once lost my temper or even used foul language! (That is a first for Tansy Gold.) I eventually received written confirmation of all my claims AND a refund of various fees that LandAmerican agreed I should not have been assessed.
In very late February of '08, four months after I had paid the loan off and four months after NoteWorld said they had no record of me, my loan, or my property, I received a "statement" from NoteWorld showing my account number and that my "next" payment was due 4/1/08. It took another five or six days of screaming phone calls - and at this point I *did* use foul language -- before I found someone high enough up at Lawyer's Title/LandAmerica/NoteWorld to resolve the problems. I was finally able, in May of '08, to get the original documents and "clear title" to my property.
What needs to be remembered, however, is that the mortgage itself is not the only legal contract involved. There are matters of insurance and taxes, too. If monies have been put into escrow with a mortgage servicing company for the payment of property taxes and/or homeowners' insurance, those monies must be appropriately released or the "owner" could be held liable. A bankruptcy court may wipe out a mortgage, but that doesn't mean the "owner" is relieved of all responsiblities. If your mortgage servicer is supposed to be responsible for collecting, escrowing, and then paying property taxes and/or insurance, it behooves you to make sure they really did. (The original holder of an earlier mortgage I had sold that loan several times over the first couple of years, back in the late 80s. The last purchaser never adjusted tax and insurance escrow amounts to reflect actual liabilities, and ended up the subject of a class action suit for withholding more money from thousands of borrowers than was ever paid out. IIRC, a law was passed limiting the amount of the balance a mortgagor could hold in such an escrow account, in part because of this particular lender and their practices.
So it's not just a matter of only needing a clear title if and when you want to sell the house. Living in it rent free as a result of a bankrupcy that erases the mortgage may still leave property taxes in limbo. Depending on how the paperwork is handled, the "owner" may not even be able to pay the taxes, only to have the property go up for tax sale and be purchased by someone else. Inability to prove "ownership" may result in cancellation of insurance, and leave the "owner" uninsured and liable for any losses. I do freelance work for a number of auto and casualty insurers, and it's pretty heart-rending to listen to someone recount losing everything they owned in a fire and then discovering that their insurance had been cancelled a month before because their mortgage company didn't pay the premium. Some (not all) insurers will require proof of "ownership" before issuing a policy; if ownership is in question but you're the one living there, you could be at severe risk. (Many lenders require insurance to protect their own interest, but sometimes that insurance ONLY covers their exposure and affords the "owner" nothing. So it pays off the balance of the mortgage, which may be only 50% of the replacement cost of the house and NOTHING for personal property, temporary living expenses, etc.)
I agree with holding the mortgage companies and their various lackeys accountable for their actions. But there's a lot more to the homeownership game than just that one dotted line.
Tansy Gold, free and clear
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