Mortgage Modification and Quiet Title Strategies

Newell v. Wells Fargo Bank, N.A., 2012 WL 27783 (N.D.Cal 2012)

The Debtors sought to set aside the foreclosure on their home and quiet title to their mortgage.  Both the bankruptcy court and the federal district court ruled against the Debtors.  The Debtors’ appear to have bought into one of the many “get your house for free legal strategies.”  You can find these strategies in blogs, websites, and forums all over the web.  The basic premise is that there is some kind of problem with how your mortgage was originated, serviced, or foreclosed.  It’s true that there are many problems with mortgage origination, servicing, and foreclosure; however, it is rare for someone to get rid of their mortgage entirely.  As this case illustrates, if your argument sounds like a stretch, it’s probably not a very good argument.

Setting Aside the Foreclosure

The Debtors claimed that the foreclosure should be set aside, because Wells Fargo mistakenly sent them a letter saying that they were current on their mortgage.  If that had been true, Wells Fargo would have had to reset the foreclosure and moved out the foreclosure date.  This letter was sent at the same time as a letter informing them that they had not sent in all the necessary modification documents.

Unfortunately, a letter sent by mistake does not mean that your mortgage is current.  The court will look at the facts.  The fact was that the Debtors had not made a mortgage payment in over a year.  The court rightly concluded that on-time payments make a mortgage current.  If you have not been making your mortgage payment it is irrational to believe, or to argue, that your mortgage is somehow current.

Additionally, the Debtors were not damaged by the mistaken letter.  They had adequate notice of the foreclosure date.  This brings up an important point.  If you want to fight a foreclosure, it is always better to act before the foreclosure date.  Once a foreclosure occurs, it is very hard to set aside.

Mortgage Modification Problems

The Debtors sent in several applications to modify their mortgage under HAMP.  Their applications were denied because they did not provide the necessary documentation.  HAMP is very clear about the required documentation and the submission deadline.  You have to comply with the HAMP requirements.  Missing deadlines will only hurt you and result in your application denied.

One of the Debtors was self-employed and did not have profit and loss statements for the application.  As a small business owner, you need to have profit and loss statements.  They are easy to prepare.  In fact, I’m not sure how they filed bankruptcy without profit and loss statements.  I am not sure how their attorney completed a Means Test or how he was prepared for a trustee document request if he didn’t have profit and loss statements ahead of time.  I routinely represent self employed debtors and I require profit and loss statements before I file.  If you don’t have them, I will help you prepare them.

The Debtors also attempted to enforce HAMP through their lawsuit.  The court ruled that the Debtors did not have a private right of action to enforce HAMP.  Private citizens do not have the power to compel enforcement of a federal statute, unless statute gives them a private right of action.  If you benefit from a contract, but are not a party to it, then you are only an incidental beneficiary.  Under federal law incidental beneficiaries to contracts do not have the right to enforce a contract.  The Debtors’ private right of action argument failed, because Congress did not grant a private right of action to incidental beneficiaries in the HAMP program.

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