Make 'em Find the Note!
Our offices are being inundated with notices from delinquent borrowers, obviously drafted by attorneys, demanding the lender and/or title company (as trustee for the lender) produce the original promissory note. The notice stipulates the borrower will pay the loan in full upon presentment of the original promissory note, but if the lender can not produce the note, the debt is forgiven!
Borrowers are contacting law firms across the nation that are advertising on billboards, the Internet and flyers on traffic signs with messages such as "Make 'em find the Note!" The law firm promises to help delinquent borrowers retain their home by sending legal notification to the trustee, beneficiary or mortgagee stating the borrower is in receipt of the notice of default or foreclosure notice from the trustee or lender's attorney. The notice states the borrower is an "acceptor" of the offer to foreclose or collect a payoff demand, but that they have the right to dictate terms under protections they have under the law.
The borrower signs the notice stating they will put up the full amount to payoff the debt with a Notary Public. Once the lender finds the original promissory note the Notary Public will be instructed to release the funds on hold.
Commentary from Lisa Tyler
First of all, if the borrower had the money to pay off the loan, wouldn't they be making their monthly payments in the first place? Secondly, why would they give hundreds of thousands of dollars to a Notary Public to hold? Notary Publics typically have no net worth to back the funds if they are misappropriated.
In addition to producing the original promissory note, the borrower, at the advice of his/her attorney, demands written clarification of various elements related to the servicing of the account from its origination to the present date, which can include:
- Funding source
- Legal and beneficial ownership
- Records and more
The notice from the homeowner makes the claim that they might have been victim of predatory lending and until the lender can produce an accounting of the servicing of the loan from its inception, it can not report any derogatory items against the borrower's credit.
The notice is sent to the beneficiary, servicer and trustee via certified mail and quotes the Real Estate Settlement Procedures Act (RESPA) Title 12 section 2605(e) and the Truth in Lending Act (TILA) 15 USC SECTION 1601. The notice requires that the lender respond within sixty days of its receipt of the notice from the borrower. Most importantly, the notice declares that if the lender fails to respond within the time frame allowed the loan will be completely set off or forgiven, because of the lender's breach of responsibility.
After the sixty day period lapses the attorney drafts additional documents, such as a Constructive Notice from the borrower, stating the original trustee has been relieved of his/her duties and substituting himself/herself as the new trustee. These additional documents further state the beneficiary has been relieved of his/her duties and the new beneficiary is the attorney! After the Notice is drawn, the attorney draws a Substitution of Trustee and Full Reconveyance. The attorney signs the document as the new beneficiary releasing the deed of trust of record. The attorney then delivers the original signed and notarized documents to a title company to record on his/her behalf as an accommodation. Of course, our title company branches have refused to record the documents, which are usually delivered as a bundle of more than 60 documents at a time, affecting 30 loans.
Moral of the Story
If your office receives the notice, you have no obligation to pull the file. The burden of proof is on the lender, not the settlement agent.
According to 12 USC Section 2605 Servicing of Mortgage Loans and Administration of Escrow Accounts there is no provision for cancellation of the debt if the lender fails to provide the requested information within the time frame allowed. Consequences for noncompliance with the requirements is the reimbursement to the borrower for any damages they might have suffered and any additional damages, the court deems necessary, but not to exceed $1,000 – certainly not cancellation of the note balance!
Find out more at HUD's Web site using the link provided below:
Lenders found violating the rules, as set forth in TILA, are subject to a fine not more than $5,000 or imprisoned not more than one year, or both. Nowhere in the rule does it stipulate the borrower's debt is then automatically forgiven.
The details about the Truth in Lending Act (TILA) 15 USC 1601 can be found using the below link:
If a law firm delivers documents to your office for an "accommodation" recording, remember we are not a recording service and we should not record documents that are not specifically related to a transaction we are closing and/or insuring.