Original Mortgage Notes Requested In Chapter 13 Cases
It seems simple enough: a lender, holding a mortgage, should have legally valid proof they actually own the note. A Chapter 13 trustee in Tennessee has been causing problems for lenders with this apparently straightforward demand.
Mortgage Loan Bubble
Many of the problems in the current real estate market were caused by the real estate bubble of the early 2000s. During that bubble, many lenders were in such a hurry to get loans out the door and make their commission that they failed to keep track of details like where original loan documents were located. The loans were often transferred multiple times, adding to the record keeping confusion.
This means for some loans, the original documents have been lost irretrievably. The lack of proper record keeping does have legal consequences. In a Chapter 13 bankruptcy, the trustee has an obligation to maximize the payments to creditors who can provide proof of their claims. If a lender or loan servicer does not have proper documentation, the trustee cannot pay their claim.
Bankers often assert that debtors should make good on their obligations and if they took out a mortgage, they should be held to the terms of the note.
What they often fail to mention is their part in the market manipulation, creating the environment where prices inflated far faster than the historic appreciation rates of real estate values for a given geographic area.
Is Your Mortgage Deep Underwater?
Because many borrowers were lured into the market by low teaser rates and purchased property that was greatly inflated, now that the bubble has collapsed and home values have returned to “normal,” those borrowers are now left underwater with a mortgage loan amount far in excess of the realistic value of the home.
These borrowers are often forced into bankruptcy by a combination of mortgage loan payment that ballooned and other financial problems such job loss or reduced hours.
A Chapter 13 can help these borrowers, because they can pay mortgage arrears in the Chapter 13 plan, and eliminate or reduce unsecured debt, freeing up more cash to pay mortgage and car loans.
It may also provide extra leverage to convince a lender to negotiate a modification of the mortgage to a valuation that is more in line with the real value of the underlying asset.
A Bankruptcy Attorney Can Help
If you are considering filing for bankruptcy, contact an experienced bankruptcy attorney at Minnillo & Jenkins. Our attorneys can assess your case and help you decide whether bankruptcy is right for you. For more information, contact us today.