How Did I Get Here? Part 2: What Went Wrong With My Mortgage?

There is a limitless list of issues that can arise from a mortgage that might void the mortgage in part or in whole. Many of the issues are built into the closing documents such as violations of consumer protection laws like the Truth In Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), Home Owner Equity Protection Act (HOEPA), Electronic Signatures in Global and National Commerce Act (ESIGN) and several others.

“Consumer Protection Law” is exactly what it sounds like. These laws were enacted for no other purpose than to protect the interests of an “unsophisticated” consumer. Let’s define the difference between “sophisticated” and “unsophisticated” purchasers. A sophisticated buyer would be an individual or company whose primary course of business is real estate transactions. This is an entity that purchases multiple properties for the purpose of financial gains. These entities do not fall into the description of a “consumer”. A sophisticated entity may not be a buyer at all. These are the entities that draft and/or trade complex legal documentation. A sophisticated entity can be defined in a wide range of entities from a title companies to a lender, a trustee or an investor. A consumer (average Joe) on the other hand is not sophisticated in that he has no formal training in these types of financial transactions and is therefore automatically at an equitable disadvantage when dealing with sophisticated entities, hence the necessity for “Consumer” “Protection” Laws.

In regard to real estate transactions in general, TILA requires certain disclosures are made to the consumer prior to a real estate purchase, RESPA generally governs the financing of a transaction and prohibits kickbacks such as unusually high yield spread premiums to brokers, inflating the property value to limit the type of loan product available to a consumer, bait-and-switch and other various other prohibitions, HOEPA was designed to protect any equity a homeowner may have in his property lest he be dispossessed of that equity by trickery. There are several other Acts of Congress designed to protect consumers including but not limited to; ESIGN, FDCPA, FCRA, ECOA, and others.

When any of these laws are broken by a sophisticated entity the action or inaction can damage a consumer and the damage does not have to be apparent to the consumer in order for him to have suffered an injury.

Some of the things that can go wrong with a mortgage can take place in the public record such as failure to file an assignment in a timely manner. Most states have laws that govern the requirement to file assignments of documents that affect real property. This record is for the express purpose of keeping track of who owns what property so that if someone would like to make an offer to purchase a piece of property the prospective buyer can go to the public record and determine from the records who to contact to make the offer. Also if a neighbor is going to do something with his property that will affect his neighbor’s property the first property owner would have to know who to notify and he should be able to depend on the public record for that information. With out recordation requirements the public record becomes of no use.

The failure of a sophisticated entity to file such documentation affecting the interests in real property often creates missing links in the chain of custody of documentation or the property itself and thus places a “cloud” on the title to the property. Nobody knows who to go to, or how an interest in the property got from one entity to the next, to the next, to the next, and so on. A clouded title is generally defined as;

“An apparent claim or encumbrance, such as a lien, that, if true, impairs the right of the owner to transfer his or her property free and clear of the interests of any other party.”

“an actual or apparent outstanding claim on the title to real property. “Clouds” can include an old mortgage or deed of trust with no recording showing the secured debt was paid off, a failure to properly transfer all interests in the real property (such as mineral rights) to a former owner, a previous deed which was improperly written or signed, an unresolved legal debt or levy by a creditor or a taxing authority, or some other doubtful link in the chain of title. Often the “cloud” can be removed by a quiet title action, by finding a person to create or execute a document to prove a debt had been paid or corrected. Title companies will refuse to insure title to be transferred with a “cloud,” or they will insure ownership except for (“insure around”) the “cloud.”
(Source –

A clouded title is not the only injury that a consumer can sustain throughout the course of the alleged loan. An uninterested entity or party not entitled to enforce all rights under the mortgage loan instrument often purports to have a claim against the property. In many cases the negotiable instrument is no longer eligible to be negotiated due to something that went wrong with the note itself. This is covered in greater detail in a previous article titled, “When is a Negotiable Instrument no longer eligible for negotiation?”

If the Note is no longer eligible for negotiation then there are no rights under the note that a claimant can adjudicate. If the Note is essentially void then there is no value attributed to the Note and there are no enforceable rights associated with it and any claim purported under the Note are false claims. A void instrument cannot be enforced.

If the Security Instrument is void, a claimant cannot use the security instrument as evidence of a right to dispossess one from their property. Again a void instrument cannot be enforced, however if the security instrument is deemed void and the negotiable instrument survives, the alleged debt associated with the note is still collectable, and chances are that the only property a homeowner would possess that could be liquidated to cover that amount is the house. In other words getting rid of the security instrument will not stop the banks from coming after the house.

In the final part to this article I will go over what remedies are available to an injured homeowner.

Steve Skidmore

Get Jurisdictionary NOW!!!

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