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QUESTION: Legal / Financial
2/14/08 | bear_slayer

Posted on 02/14/2008 7:49:41 AM PST by Bear_Slayer

QUESTION for freeper lawyers & paralegals & wannabees:

If loan paperwork does not specifically state that a loan company can sell a loan, what legal basis could they have to sell it? What legal basis can another loan company buy it?

For example:

If a loan is defaulted, the loan company eventually files bankruptcy, zeroes the loan, and reports it as zeroed on the credit report, what legal basis could they have for subsequently selling the loan, especially if the loan docs do not state that power?

Loan docs do state that whoever they transfer the loan to inherits all legal power & authority that they have. The implication is a transfer to an outsourced collection agency.


TOPICS: Your Opinion/Questions
KEYWORDS: collections; legal; loan
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Thoughts?
1 posted on 02/14/2008 7:49:43 AM PST by Bear_Slayer
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To: Bear_Slayer

They ALL have the right to sell. There’s a document called the Servicing Disclosure Statement.


2 posted on 02/14/2008 7:51:39 AM PST by RockinRight (Supreme Court Justice Fred Thompson. The next best place for Fred.)
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To: Bear_Slayer

The fact that they zeroed it on the books has nothing to do with the debtor’s obligations. It doesn’t necessarily relieve the debtor of all obligation; it may be merely a bookkeeping entry for the loan company or a regulatory requirement for proper reporting to stockholders/customers.

Rights under a contract (even a loan contract) are generally assignable, provided there is no language to the contrary in the document, or no statutory provision. Perhaps there is a statute limiting such rights in the case of residential mortgages, but I’ve never heard of one.

If the loan company is in bankruptcy, a creditor (or the bankruptcy trustee) might assume the company’s rights under the loan.


3 posted on 02/14/2008 7:55:13 AM PST by dinoparty
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To: Bear_Slayer
If loan paperwork does not specifically state that a loan company can sell a loan,

Define "specifically state".

4 posted on 02/14/2008 7:56:54 AM PST by org.whodat (What's the difference between a Democrat and a republican????)
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To: RockinRight

Also, just in terms of basic principles of property ownership, the loan (the right to receive repayment) is the lender’s property and, unless the law states otherwise, the lender can do what he wishes with it.


5 posted on 02/14/2008 7:58:06 AM PST by fightinJAG (Rush was right when he used to say: "You NEVER win by losing.")
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To: org.whodat
Does not state at all that they can sell the loan.

Merely mentions that all power is inherited by anyone they transfer the loan to. In my understanding it gives collection agencies the power to act on behalf of the original loan company.

6 posted on 02/14/2008 7:59:32 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: dinoparty

It is not a trustee, but someone that claims to have purchased the loan.


7 posted on 02/14/2008 8:00:05 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: fightinJAG

What if the lender files bankruptcy and claims a loss on it, then subsequently zeroes the account and informs credit bureaus?


8 posted on 02/14/2008 8:01:06 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: Bear_Slayer
CAVEAT - I am admitted to practice only in Connecticut and New York, and do not offer legal advice except to clients in the law of those jurisdictions with whom a formal attorney-client relationship has been established.

That said, the general rule of contract law is that contracts (other than personal service contracts) are assignable unless the contract contains explicit language that forbids assignment without the consent of both parties.

Even then, in some jurisdictions, such as New York, a contract that purports to forbid assignment may not prevent the assignment being effective, although the assignment is a breach of the contract for which the nonassigning party may be entitled to damages. In New York, for example, to really prohibit assignment, you must specify that any attempt to assign without the requisite consent will be void ab initio. The fact that the lender has written off a defaulted loan on its books, and itself declared bankruptcy does not make the loan contract invalid, and, as a part of the process of realizing as much value for the creditors of the lender as possible, the debtor-in-possession or the trustee in bankruptcy may well sell off the portfolio of loans.

The only way the loan debt would cease to be a valid debt would be (1) if the lender had expressly forgiven the loan in writing (in which case the borrower would have taxable income in the amount of the forgiven principal and interest-warning!) or (2) if the borrower had the secured loan debt (and any deficiency judgment in states that permit them if the foreclosure sale did not yield enough to pay off the loan debt) discharged in the borrower's bankruptcy.

9 posted on 02/14/2008 8:01:21 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: fightinJAG
What if the lender files bankruptcy and claims a loss on it, then subsequently zeroes the account and informs credit bureaus?

What right to they have to those monies?

10 posted on 02/14/2008 8:01:45 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: Bear_Slayer

So what role did the bankruptcy play? Regardless, the rights under the loan are in all likelihood assignable.


11 posted on 02/14/2008 8:02:45 AM PST by dinoparty
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To: Bear_Slayer

“If loan paperwork does not specifically state that a loan company can sell a loan, what legal basis could they have to sell it? “

The lending institution’s name will most likely be stated in the loan documents as “XYZ Bank, it’s Assessors or Assigns” - in which case they can do what they want with the loan.

I am not an attorney, but in the early 1990’s worked in the Commercial Lending Department of two major banks, preparing the loan docs, and it was standard for the instution’s name to say “it’s Assessors or Assigns”.

From dictionary.com , one of the definitions of “assessor” = a person who shares another’s position, rank, or dignity.


12 posted on 02/14/2008 8:03:08 AM PST by Live Free NH
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To: Bear_Slayer

JMHLO - It’s not necessary for the loan documents to state that they may transfer or assign the right to collect on the loan to another person or company, unless it is specific disclosure required by statute. The laws regarding loans are taken as read.

I’m confused as to the second part - did you mean that the DEBTOR files bankruptcy? If the debtor files bankruptcy and the loan is therefore zeroed out, then the creditor has no basis for assigning the collection of the loan to anyone. However, there are bottom-feeder collection agencies that will buy this kind of worthless debt for pennies on the dollar, and spend years trying to collect on them, even though they are not legitimate debts. They hope to finally get someone on the phone who’s frightened or intimidated enough to give them a few hundred dollars.


13 posted on 02/14/2008 8:03:16 AM PST by CaliGirlGodHelpMe
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To: Bear_Slayer
"What legal basis can another loan company buy it?"

Hmmmmmmm.
The note holder owns your loan & can do anything they choose with it including selling it to a note buyer.

Y'know?

...*private property* & all that?

14 posted on 02/14/2008 8:04:18 AM PST by Landru (~& when the band you're in starts playing *different * tunes...)
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To: Bear_Slayer
The loan agreement doesn’t need to state they have a right to sell, that is a given right. As long as the loan is technically the creditor’s property, they have the right to dispose of that property as they see fit. They can ‘sell’ it to whatever collection agency they choose if it is in default.
15 posted on 02/14/2008 8:04:32 AM PST by mnehring (Make your plans to fit the circumstances. - General George S. Patton, Jr)
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To: CaliGirlGodHelpMe

The original creditor/lender filed bankruptcy and informed credit bureaus that the loan was zeroed out. Subsequent communications /w the creditor indicate that they closed the account.


16 posted on 02/14/2008 8:05:50 AM PST by Bear_Slayer (When liberty is outlawed only outlaws will have liberty.)
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To: Bear_Slayer
Does not state at all that they can sell the loan.

It doesn't have to, that is a standard right of property. The only requirement would be the opposite statement, something in the contract preventing the owner of the loan from disposing it. IE, they have the right to sell unless the contract says otherwise.

17 posted on 02/14/2008 8:07:01 AM PST by mnehring (Make your plans to fit the circumstances. - General George S. Patton, Jr)
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To: CatoRenasci

A third way the debt would be no longer valid would be if the lender foreclosed on the mortgage (or took a deed in lieu of foreclosure) in a state with a ‘single action’ or ‘anti-deficiency’ statute that limits the rights of a lender to recover from a homeowner to the value of the primary residence by which the loan is secured. In states that permit deficiency judgments, such as Connecticut, you would not be discharged from the difference between the loan balance (principal plus interest) and the net proceeds of the foreclosure sale.


18 posted on 02/14/2008 8:07:25 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: Live Free NH
Actually, that's "Successors and Assigns"....
19 posted on 02/14/2008 8:08:43 AM PST by CatoRenasci (Ceterum Censeo Arabiam Esse Delendam -- Forsan et haec olim meminisse iuvabit)
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To: Bear_Slayer
The original creditor/lender filed bankruptcy and informed credit bureaus that the loan was zeroed out. Subsequent communications /w the creditor indicate that they closed the account.

A zero out statement on XX companies books doesn't mean the obligation is closed out or zeroed out. That just means that specific company doesn't own the obligation any longer. The debtor still is obligated to the loan, they will just have to determine who is the creditor to pay.

20 posted on 02/14/2008 8:09:14 AM PST by mnehring (Make your plans to fit the circumstances. - General George S. Patton, Jr)
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