If you live in a judicial foreclosure state and stop paying your mortgage, you will eventually become the defendant in a civil lawsuit.
The plaintiff, which is the party suing you, must go through the court system in order to foreclose on your house. But who will the plaintiff be?
It could be one of a few different parties or some combination of them. It could be the investor in your loan, your loan servicer, or a trustee that represents the parties with an interest in your mortgage.
Let's examine who those parties are, and what it means for you when fall behind on your mortgage.
The investor is the owner and end-user of your mortgage debt. They earn a return based off of the interest paid on the loans they own. As the owner of your promissory note, which is the promise to repay the money you borrowed, the investor is the party that's entitled to foreclose on you when you stop making mortgage payments.
The investor/s purchased your mortgage to make money off of the income stream it generates, not to do a bunch of work managing the loans. For that, they contract with a loan servicing company.
Mortgage Loan Servicers
A loan servicer handles the day-to-day needs of your mortgage like taking your payments, crediting your account, and passing money on to the investor. They're the only party you'll need to have contact with if you always pay your mortgage.
You don't get any choice about who your loan servicer is, and it can change over time. Servicing rights for your loan can be sold to different companies multiple times over the life of your loan, sometimes in the middle of a trial loan modification.
When a loan goes into default, it's the servicer that will send the homeowner a notice of default. If the loan isn't brought current and foreclosure starts, the servicer gets an attorney involved. And if you apply for a loan modification, the servicer will be involved in evaluating and approving or denying the application. A servicer could be the plaintiff in a foreclosure case as "holder' of the note acting on behalf of the owner of the note, the investor.
Many mortgages today are securitized and held in trusts. The trustee is like a custodian of the mortgages in the trust, and they work on behalf of the investor/s. Sometimes the trustee will be the plaintiff suing the homeowner on a summons and complaint.
The book Chain of Title, by author David Dayen, details the case of a Florida homeowner who had a loan that was originated by DR Horton's financing division and serviced by Chase. After defaulting, she was told that Wells Fargo was also involved in her mortgage, and was preventing her from getting a loan modification. But when she was served a summons and complaint, the plaintiff was US Bank NA, as trustee. She had no idea US Bank was even involved in her mortgage until they sued her!
That's not uncommon. The modern mortgage can be a complex financial product with a lot of different parties involved. A recent client of our firm was in foreclosure with Wells Fargo as the plaintiff as trustee for One Mortgage Trust. Here's how the plaintiff is listed on her documents. (My X's):
WELLS FARGO BANK, NATIONAL ASSOCIATION, AS TRUSTEE FOR OPTIONS ONE MORTGAGE LOAN TRUST 20XX-3 ASSET-BACKED CERTIFICATES, SERIES 20XX-3
What Does It All Mean?
You don't know who the plaintiff will be until you default on your mortgage and fall into foreclosure. In some ways it doesn't really matter who the plaintiff is. The only thing you can control is how you respond. If your bank has an attorney (they do), you should too. Representing yourself is like bringing a knife to a gun fight.
A loan modification is often the only way a homeowner can get the plaintiff to drop the foreclosure case against them and get their loan back on track. But sometimes the parties involved in your mortgage can make a loan modification difficult to obtain, such as when:
The Servicer Changes During Trial Loan Modification
As I mentioned earlier, sometimes servicing rights will be transferred in the middle of a trial loan modification, which can cause problems for a homeowner. If the information for the loan isn't transferred properly, the new servicer could say that they were unaware the borrower was in a trial mod at all, or that the payment date is different than what the previous servicer told them. These issues could delay or prevent approval of a final modification, and the plaintiff could advance the foreclosure case against you.
Our firm takes measures to make sure our clients get a loan modification even when the servicer changes in the middle of a trial loan modification. Our processors immediately send a third party authorization letter to the new servicer, which gives us permission to talk to them on behalf of our clients. We also remind them that the loan was transferred to them under certain conditions, which we document with a copy of the trial agreement and proof of past payments so there is no misunderstanding about what their obligations are and what we expect of them.
The Loan Modification Denial Is Blamed On Someone Else
Sometimes a servicer will deny a loan modification and blame the investor for it.
We had a case where our client was denied a loan modification, which would have been their second, and the servicer said it was because the investor's pooling and servicing agreement prohibits second modifications. But they weren't able to give any proof that the agreement contains that language. We fought them on that issue and demanded that they either show us proof or approve the loan modification.
If you don't have an attorney, you're not going to know when the plaintiff trying to foreclose on you is lying or taking an unethical shortcut, or how to to effectively challenge them to get what you want. Unless you have extensive experience with foreclosures, you should seriously consider working with someone who does, such as a foreclosure defense attorney.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net