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.
They ALL have the right to sell. There’s a document called the Servicing Disclosure Statement.
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.
Define "specifically state".
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.
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.
It is not a trustee, but someone that claims to have purchased the loan.
What if the lender files bankruptcy and claims a loss on it, then subsequently zeroes the account and informs credit bureaus?
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.
What right to they have to those monies?
So what role did the bankruptcy play? Regardless, the rights under the loan are in all likelihood assignable.
“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.
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.
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?
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.
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.
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.
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.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.