False Hope False Promises - Does Loan ReModification Prevent Foreclosure?

Oct. 12, 2010 - PRLog -- Quite often clients come in for a consultation and they tell the same story: they endured the difficult process of attempting to obtain a re-modification of their loan, but during what they thought was a re-modification process, foreclosure was initiated against them.

The purpose of this article is to tell the sad story of one such client whose identity has been protected: I will call him "John Homeowner." John is a solid, hardworking American who participates in a reserve branch of the military. John went through a divorce and suffered some financial setbacks. He then committed the greatest American sin- he couldn't pay his mortgage.

John was not a shameful “deadbeat,” on the contrary; he stepped forward and made significant efforts to enter into a “re-modification” with Chase Home Finance, LLC. John thought he had a chance at re-modification when he obtained a "Forbearance Plan Agreement” from Chase in April 2010.

Based on the title of the document "Forbearance Plan Agreement," John reasonably believed that if he made payments under this agreement, Chase Home Finance, LLC would not initiate foreclosure. Pursuant to this Forbearance Plan, John attempted to make payments to Western Union as instructed; however, the payments were rejected. Chase Home Finance, LLC had begun foreclosure proceeding months before John Homeowner entered into the "Forbearance Plan Agreement."

eTitle Insurance Agency, a Salt Lake City foreclosure shop, acting as the "Attorney in Fact" of Chase Home Finance, LLC had filed a Substitution of Trustee in December 2009; this substitution of trustee appointed eTitle as foreclosing trustee. To be clear: acting in various capacities, eTitle Insurance Agency appointed itself as the foreclosing trustee of John Homeowner’s trust deed.

That same day, eTitle, now in its capacity as a foreclosing trustee, filed a Notice of Default and Election to Sell. Another authorized agent of eTitle, this time acting in her capacity of Mortgage Electronic Registration Systems, Inc. (MERS) as nominee for Case Home Finance, LLC, recorded an Assignment of Trust Deed "with the indebtedness secured thereby" to Chase Home Finance, LLC.

Neither the trust deed nor the "indebtedness secured thereby" (i.e., the promissory note) was in the possession of Chase Home Finance, LLC, until after eTitle had initiated foreclosure at according to MERS. Based on the MERS assignment, Chase Home Finance, LLC, had no authority whatsoever to initiate the foreclosure against John Homeowner.

On behalf of John, I initiated litigation against eTitle, Chase Home Finance, LLC, and MERS. Lundberg & Associates, a law firm whose members act as eTitle and MERS, entered an appearance on behalf of eTitle and other parties.

Because Lundberg & Associates attorneys act in the capacity of eTitle, and essentially as the attorneys of Chase Home Finance, LLC, John Homeowner filed a motion to disqualify Lundberg & Associates as defendants’ counsel. John Homeowner also filed a motion for summary judgment.

According to the summary judgment motion, despite the fact that MERS purported to assign the promissory note – as manifested by the assignment in which it transferred the "indebtedness secured [by the trust deed, i.e., the note.]” – MERS never held the promissory note. In fact, MERS was never mentioned as a party in the promissory note and has no actual interest in the promissory note.

The summary judgment went on to argue that John Homeowner's promissory note was held by an unknown third party while the trust deed was held by MERS. It noted in particular, the United States Supreme Court opinion of Carpenter vs. Lonagan, 83 U.S. 271, 274 (1872) which stated that “[t]he 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 is a nullity.”

While a decision has yet to be rendered by the court in John's case, it serves as a warning to homeowners attempting a loan re-modification: just because it appears that a good-faith re-modification is being considered or is actually effective, the home may be foreclosed upon at any time.

Hang in there homeowners.

-Walter T. Keane

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Salt Lake City, Utah Real Estate Attorney & Broker with over 20 years experience in real estate matters. Commercial and Residential Solutions, free consultations. Quoted in SLC Tribune as foreclosure expert. First Attorney in the nation to successfully nullify trust deeds with proven legal techniques.