Default: Who’s In First Place?

If a homeowner misses a monthly payment the mortgage servicer is going to cry foul, and make the claim that the homeowner defaulted on the alleged loan, but who defaulted first, the homeowner or the bank?

The answer lies in the definition of default and covenant 16 of your Mortgage/Deed of Trust (Security Instrument).

“default, n. The omission or failure to perform a legal or contractual duty” Black’s Law Dictionary 2nd Pocket Edition (2001) Id. 184.

A default is a breach of contract, one of many causes of action upon which relief can be granted in a court of competent jurisdiction, and the most common cause of action sought by the banks whether the property is located in a judicial or non-judicial foreclosure state. The homeowner may have a contractual duty to make monthly payments to the current mortgage, but the original lender, the title company, the originator, the investors, the mortgage servicer, and any other party directly, or indirectly, subsequently, or consequently involved in the mortgage loan instrument.

In most conventional mortgage security instruments uniform covenant 16 is the covenant or clause of the contract that defines the “Governing Law; Severability”. In other security instruments such as an FHA loan, the Governing Law clause may be found in covenant 14 of the Mortgage/Deed of Trust. This uniform covenant in regard to the law that “shall” govern the mortgage loan instrument usually states as follows:

“This Security Instrument shall be governed by Federal law and the law of the jurisdiction in which the Property is located.”

The severability clause is irrelevant to the topic of default so there’s really no need to cover that portion at this time.

Now let’s look at how the word “shall” is defined in law: Black’s Law Dictionary 2nd Pocket Edition (2001) Id. 643.

“Shall, vb. 1. Has a duty to; more broadly, is required to.”

The word “shall” imposes the legal duty on all parties listed above and there is no escaping this duty because the homeowner did not draft this clause into the contract. It was presented to the homeowner at closing for his acceptance by way of his signature.

Federal law is any law found in the Federal Register i.e. TILA; RESPA; HOEPA; etc.

The law of the jurisdiction in which the Property is located is state and local law.

If the homeowner can prove one or more violation of Federal, state, or local law then the party found to have violated such law has, by legal definition, breached the contract by default.

In the mass majority of the mortgage loan instruments I have seen in the tenure of my career in the foreclosure defense industry the lender breached the contract by default, and in the mass majority of those cases it was before closing. TILA; and RESPA violation are built in before the intended homeowner ever signs the instruments rendering the mortgage instrument unenforceable ab initio (from the very beginning).

Legal Maxim – “A right cannot arise from a wrong.” 4 Bingham’s English Common Pleas Reports  (1822-1834) Id. 639;  John Bouvier’s law Dictionary, Vol II, (“Maxims”), 1880 Edition Id. 134

If you would like to discuss this information in further detail of you are in foreclosure and you are in need of Competent Evidence that can be entered into the record to prove the default of an adverse party please contact me privately and I will be glad to assist you to the best of my ability.

Steve Skidmore

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