Most people believe that once their choices are limited and their back is up against the wall, the bank holds all the cards when it comes to modifying your mortgage - or facing foreclosure.  Fortunately, there are a number of strategies to fight back against the bank and perhaps convince them to modify the loan instead of foreclosing, thereby keeping your real estate holding(s) intact.  This strategy is deceptively simple.

Over the last several years, as banks have been buying and selling mortgages, or chopping them up into little pieces and selling them as securities, one very important document has often been overlooked: the Note.  This is the legal document that the bank holds in order to prove that they are the lender of record, and the money is, in fact, owed to them.

If you live in a court action state (i.e., by state law the lender must take you to court in order to foreclose), as we do here in Myrtle Beach, and your mortgage has been sold at least once, then you’re a prime candidate for this strategy. Here’s how it works.

Once the bank takes you to court to begin foreclosure proceedings against you, the bank must be able to prove that they are legally entitled to collect on your mortgage.  This evidence comes in the form of the Note you signed when you purchased the home.  This may seem silly, but everyone in the room will assume that the bank has your Note unless you challenge them!

Here’s the fun part. Picture yourself as Cuba Gooding, Jr. in the movie Jerry Maguire.  You must demand that the bank Show You The Note!

Most people will assume that OF COURSE the bank has the Note if they’re standing there in the courtroom.  But remember - your mortgage has been sold and/or securitized, perhaps more than once, and we’ve read reports that suggest that as many as 50% of Notes have been lost or destroyed through the transfer process.

So what happens if, in fact, the bank can’t Show You The Note?

An Ohio court dismissed 14 foreclosure filings brought by DeutcheBank when they were unable to prove that they held the Notes.  This is happening all across the country as judges are demanding that lenders follow the strict letter of the law, and are growing tired of banks and attorneys disregarding the rules.

We agree with this, of course.  If your home is about to be taken away, the very least we can expect is that the paperwork is correct!

This is not a long-term strategy to avoid foreclosure. But it might buy you some time, and it might give you some sorely-needed leverage against the bank, so that they will consider modifying your loan instead of foreclosing first and asking questions later.

We have been saying for months that, right or wrong, foreclosure will be the new bankruptcy.  That is, five years from now, lenders will look at a 2008 or 2009 foreclosure on your credit report as more indicative of “victim of circumstance” than “huge credit risk”.  Now it seems that, at least in Chicago, the long arm of the law agrees.

Cook County, Illinois Sheriff Thomas Dart said today that he will no longer evict occupants of foreclosed homes, effective immediately.

Dart told CNN, “The people we’re interacting with are, many times, oblivious to the financial straits their landlord might be in.  They are the innocent victims here and they are the ones all of us must step up and find some way to protect.”

The banks are howling that the Sheriff should be found in contempt of court if he makes good on his threat.

We will follow this story…