Mortgage Assignments are not legal. Post 163

Warning – Mortgage Assignments are not what you think.

Duncan Wierman  Jan 27, 2011

“Mortgage Assignments” are a dangerous, deceptive and short-term strategy. Use it at your own risk.  I am on the war path and very alarmed about many real estate information marketing gurus who are promoting this strategy.   These so called real estate gurus are glossing over the real risks – to the buyer, seller, and “broker” – inherent in this strategy, I am appalled!!!

What is a  “Typical” Mortgage Assignment,

Suppose Sam Seller…needs to sell.  But he’s having a hard time in this market because he has a real problem… the house is worth less than the $100,000 he borrowed…It’s only worth $90,000 today, making it “upside down” by $10,000.

Ivan Investor…says he’ll buy the house for the full $100,000 Sam owes,…Sam is thrilled. The only catch? Sam must agree to sell “subject to” his existing mortgage.

Overpaying For Mortgage Assignments?

Who’d pay $100,000 for a $90,000 house? Ivan Investor would…“sub to” sellers are nearly always sellers in some form of distress…they’re desperate to sell.

Sam Seller knows “sub to” deals are high risk and should be avoided, but he also knows he needs to get the house sold so…he contracts with Ivan Investor to sell the house for the full mortgage balance and knows that from here on out, whomever Ivan sells the property to gets to make the payments.

Ivan [Investor]…has no intention of buying it. Instead, he markets it on Craigslist by advertising “No Qualifying – Take Over Payments” where Barry Buyer sees it and makes a call. Barry can’t get a loan because he’s got terrible credit. But what he does have is $10,000 in cash and that’s all it takes to qualify in Ivan Investor’s eyes. They quickly put together a deal that has Ivan agreeing to sell the house for $110,000 with Barry agreeing to buy it at that price, paying $10,000 down and taking over payments on the $100,000 loan…it’s the only way Barry can get into a house with his poor credit.

What could possibly go wrong now? Let me tell you what…

Mortgage assignments have nothing to do with assigning mortgages. The term “mortgage assignment” refers to a document commonly used in the mortgage industry to transfer a note and mortgage from one mortgage company to another…An “Assignment of Mortgage” is the legal document used for the transfer, and it’s signed, notarized and recorded with the county whenever a mortgage assignment takes place.
No one can [legally – ed.] assign a mortgage, or sell it, or even hypothecate it (offer it as security) or any of the things typically done with mortgages without having physical possession of the instrument itself.
So, Ivan Investor can’t really “assign” the mortgage to anyone. And since he doesn’t even own it, how could he possibly assign it? The simple answer is he can’t.  It’s a Misnomer.

In reality, Sam Seller remains on the hook for the loan because nothing Ivan Investor does changes the fact that there is a signed note in the lender’s vault with Sam’s signature on it. Sam will remain liable for the life of that loan…

DO YOU WANT THE REAL SHOCKING TRUTH ???

An  audio of  JACK STERNBERG interviewing a retired HUD Investigator and current Mortgage Compliance Training Officer and an attorney (Jeff Watson).  READ  the report and GET  the audio interview. http://www.mortgageassignmenttruth.com

selected excerpts from “The Truth about Mortgage Assignment” interview…

Participants:
Dr. Gary Lacefield, former HUD compliance officer
Jeff Watson, practicing attorney & real estate investor
Jack Sternberg, moderator

Watson defines “subject-to” aka “mortgage assignment”

I would describe it as where the homeowner or borrower deeds the property out of their name where they no longer have any ownership interest in the property, yet they remain obligated on the existing liens and mortgages that are still being paid.

Dr. Lacefield’s initial response:
…From a regulation standpoint, I would look at this as a potential scheme to defraud the person who is still retaining the liability and giving up their asset.

On the insurance fraud issue:

Sternberg: So one of your statements, Dr. Lacefield, is that, at the very minimum, taking over a property constitutes fraud on the mortgage insurance level, and secondarily on the property insurance level. Is that right?

Lacefield: I think it’s fairly clear that it would be on both.

Watson: It would be both on the homeowners insurance and on the mortgage insurance, yes, if you fundamentally alter the risk that the lender made, and you change the participants in the insurance relationship.

On mail and wire fraud:

Sternberg: …You’re still making a misrepresentation that is ongoing every month when you make the mortgage payment…tax payment and when you pay the homeowners insurance… Are you sending the money by mail? Then you’re using the United States mail to make that representation. Are you doing it electronically by online banking? Then you’re using wires that are established under the control of the United States government to make that misrepresentation. So you’re subjecting yourself to mail and wire fraud.

Lacefield: I would even take it a little deeper than that… I would say that, from the date that intent started, that for every day that your intent is to perpetuate that fraud – which it truly is fraud – it is misrepresentation. Then, for however many days you are doing that, you are perpetuating the fraud. It’s not just 12 times a year.

On the predatory nature of the transaction:

Sternberg: If you have to put all that in writing – “Hey, you have this potential and that potential and this kind of problem” – that’s an abnormal transaction. The investor is being taught to prey on people who don’t know that this is the largest investment they’ve ever made. They don’t know enough about the workings of a transaction like this to defend themselves. It borders, in my mind, on a predatory kind of action.

Lacefield: It certainly meets the definition…the term predatory comes from the lack of knowledge or the lack of sophistication of a person or individual in a certain field…

Most accurately, you see it in predatory lending practices where,…you get a seller who is in a distressed situation and can’t make the payments for whatever reason, so they need to get out from under that note.
So these entrepreneurs who are promoting this product are certainly preying upon not only the lack of knowledge and lack of sophistication of these sellers, they’re also taking advantage of the fact that they are in some type of distress situation.

Then taking it to the next level, the people who are buying these distressed properties from these investors, they also are being preyed upon because, if they can’t qualify on their own to get into their own property, then ultimately what you see happening is them overpaying for the commodity that they’re actually receiving because this middle person, this investor, is receiving his compensation where there is no equity involved. So they’re having to inflate the price of the property for these new incoming buyers in order for these folks that are perpetuating this scheme to reap the compensation.

On the link between the “due-on-sale” clause and mortgage fraud:

Lacefield: …if I’m the compliance officer for the lender, I’m going to tell them to protect their investment and their right to that asset – that they have no choice but to pursue that avenue. If they are made aware that someone has violated the contract – the note – that they have no choice but to, in order to protect their asset.

Watson: Well, I think that they may be required under a servicing agreement, if it’s a servicer rather than the actual lender, and then that brings in the possibility that it’s going to result in a higher mortgage balance because of the actions that the lender has to do in accordance with the mortgage to protect their collateral.

Sternberg: That’s what brings in the PMI. At that point, when the loan is called, the PMI or MI, or mortgage insurance, is called upon to make whole. There’s the insurance fraud.

Lacefield: Once the MI discovers that [a mortgage assignment-ed.] has taken place, then they’re going to drop the coverage.

Sternberg: So are you saying that if the mortgage insurance company discovers that a property has been sold in violation of the covenants of the mortgage, they’re going to drop the insurance coverage, which will result in the default of the loan?

Lacefield: Absolutely.

Sternberg: So it’s not a question of “if”; it’s “they have to.”

Lacefield: Yes. If they are made aware of it, they have to because what they’re insuring is not what they based the coverage on originally. They would have no choice but to.

On racketeering:

Watson: I would now say we’re into that dicey area where perhaps people are conspiring to commit fraud, or colluding, or cooperating together, or whatever you want to say. Your investor or entrepreneur says to the homeowner, “No, don’t tell your homeowners insurance carrier this. Don’t tell your lender or servicer this.” You’ve got some real implications there.

Lacefield: You think that rises to a racketeering or organized crime violation?

Watson: Well, about the time you do that on the fourth or fifth property, I start to see it as a pattern of corrupt activity, yeah.

See the entire article: Duncan Wierman’s review of Jack Sternberg’s Mortgage Assignment interview

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 Coach Mitch’s REFLECTIONS™

 

Great job

Thank you Duncan Wierman and Jack Sternberg for doing the public a service, i.e. exposing the Subject To myth.Viewers should read Duncan’s entire blog and listen to Jack’s interview. I have excerpted heavily to provide the essence of the argument, but their full presentations are necessary to take in.

I have had serious misgivings about Subject To for a very long time. In my free report, “Ten Ways Coach Mitch’s “Ridiculously Simple System…”™ is an extraordinarily profitable way to invest,” I outline my apprehension with this method of real estate investing. When speaking to the nation’s top Subject To guru, he admitted that his biggest issue was to continually find new persons who could pay a down payment and lessen the constant 25% vacancy he endured each month.

LESSON #1

Lease the property

Leasing the property from the distressed owner is a much more honest approach. The seller does not make a sale, but he does get his mortgage payment situation resolved, and he does not lose ownership. The lessee, the investor, can then release the property to someone else, at a profit. This is called a “Sandwich Lease.”

Lease/Option the property

Add an Option to Purchase to the lease. As the investor, you can purchase the property at a price certain. All that is needed is a renter who also wants to be a purchaser. When ready, the security deposits and other option monies can act as the down payment.
The lease/option strategy is tried, it is true and it’s legal. I have used it many times.

LESSON #2

Stay away from properties that are upside down

Why in the world would you try to do anything with a property that is upside down? If you want to do something that is difficult and a virtual waste of time, then try to negotiate the peace in the Middle East.

LESSON #3

Only deal with those who are ABLE to deal

Your best bet is the time you spend locating a seller who is truly needy and who has equity. You want a seller who is WILLING to do a good deal AND who is ABLE to do a great deal. Why bother with anything else.

The only database of sellers that fit this category is the Tax Delinquent database. Coach Mitch’s “Ridiculously Simple System…” ™ concentrates on locating the most motivated of all motivated sellers™ and providing the tools for you to help them move on with the rest of their life.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Be careful out there.

Another day, another 25?