Foreclosure Defense Lawyers

Understanding the Mortgage Process

In order to truly understand the possible defenses a land owner may have, one needs to first understand the process that takes place before leading up to that point.  So below is an overview of a financed real estate transaction and the mortgage process that unfolds from there.  For more details or if you have any questions, please feel free to call or e-mail us.

In every real estate deal in Florida in which there is a loan, there is a note, signed only by the borrower, and a mortgage, signed by the borrower and notarized.  A note memorializes a specific promise, made by one party, to repay money being lent by another party.  The note contains terms like how long the loan is for, the interest rate, where payments should be sent, and what happens if the borrower doesn’t pay on time.  By law, anyone who signs a note could be liable for the payment according the terms therein, so for this reason, notes are neither witnessed nor notarized.

A mortgage, on the other hand, is the collateral or security interest that the buyer signs, pledging the property and giving the lender the right to foreclose, should the buyer not fulfill his or her obligations under both the mortgage and the note.  Among other various clauses, the mortgage typically also addresses things like requiring the borrower to pay insurance and taxes, keep the property in good condition and what happens in the event of an early “pre-payment” or lack of payment, which is called default.  A note is an I.O.U. and a mortgage is a legal pledge stating that if “I” don’t pay, then “U” can go to court and foreclose on the property.  Also, the note is not recorded in the county recorder’s office, while the mortgage is.

Another tidbit worth mentioning here is that Florida is a “lien theory” state as it applies to the lender’s interest in the subject property.  Individual states mostly fall into one of three categories on this; lien theory, title theory or intermediate theory.  In Florida, a bank acquires a “lien” on the property or a security interest.  In “title theory” states, the borrower is granted possessory rights from the bank, who actually holds legal title to the property until the debt is repaid.  In “intermediate theory” states, the borrower holds title but the lender has an easier path than foreclosure to regaining title in the event of a default.

Secondary Market and Securitization

After the closing, sometimes within minutes or hours, notes with their corresponding mortgages are sold and resold through a “secondary” mortgage market.  Part of this can involve “securitization.”  This is the process in which mortgages and notes get pooled together via a very complicated process into a trust or other entity.   Shares of ownership, known as Mortgage Backed Securities (MBS) are then sold either privately or on Wall Street, “publicly,” to investors.  These trusts are also referred to as Real Estate Mortgage Investment Conduits or REMICs.  There are several reasons why mortgages are securitized in this manner.

First, it provided banks with a way to sell their loans, get cash and then re-loan money to more borrowers so that it can make more and more profit.  This cycle repeats and repeats itself to this day, despite its flaws being part of the reason our nation’s economy was brought to the brink of collapse.   Second, REMIC’s, if set up properly, are tax exempt; only the investors pay taxes on their gains.  Third, the complexity and multitude of transfers is required so that the investors are “bankruptcy remote.”  Typically, if a corporation goes bankrupt, its assets are subject to be sold by the bankruptcy trustee.  Also, its creditors or lenders might be barred from receiving their payments so that other higher priority or secured creditors get paid first.  However, if a bank conducts a “true sale” of its assets which is what it attempts to do in the multi-party process of securitization, then those assets are severed from the corporation and cannot be claimed by a bankruptcy court or bankruptcy trustee.  Therefore, securitization also is supposed to provide added protection to the investors by making the “trust” and its Mortgage Backed Securities “bankruptcy remote.”   For a detailed explanation of how securitization is supposed to work, please visit our chart.

The above is just an overview to help understand the mortgage process, which should also then help you understand some of the defenses available depending upon your specific situation.  For more details or if you have any questions, please feel free to call or e-mail us today.  If you are a property owner concerned about losing your property in foreclosure, we are here to serve you!”

We are a debt relief agency.  In addition to other legal services, we help clients file for bankruptcy relief under the Bankruptcy Code.