Can You Live Mortgage-Free?

Based on a New York Times article published on October 24, 2009, apparently it is possible to buy a home with financing  and end up “hitting the lottery” against a mortgage lender allowing you to live DEBT FREE in your home.

It seems the “wild west” landscape of mortgage lending business a few years ago is catching up with a few banks these days.

For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.

On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.  

Now, as many more people are unable to make their monthly mortgage payments, they attempt to first engage their lender looking for modification or mitigation to avoid the blemish of foreclosure and bankruptcy.

Once in a while, they discover something very lucrative… the banks have lost track of the underlying debt note!

One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.

The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some mortgages were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.

So, if you are in the unfortunately situation of not being able to keep up with your mortgage payments, do your best to work out something honestly with your bank, but you may also want to look for a silver lining in a mistake or sloppiness in the way your bank handled your mortgage in the first place.  You never know…