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".
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.
“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?
There is beginning to be a stink over foreclosures by Real Estate Trusts who purchased large bundles of home mortgages. Judges are requiring that the trust actually prove that: (1) there is a promissory note, (2) the promissory note has been duly assigned, in writing to the Real Estate Trust, and (3) the deed of trust has been duly assigned, in writing recorded in the real property records, to the Real Estate Trust.
That is all basic stuff. I mean the kind of nuts and bolts commercial paper (loans) and real property (liens) law you get as a second year law student, or as an on-the-job trained clerk, checking real estate records for a title company.
But apparently it is all a mystery to the high finance geniuses who have been bundling thousands of home mortgages together. Rather than go through the trouble actually physically assigning the thousands of notes and liens to the Real Estate Trust, then recording those assignments in the real property records, many of them have just "assigned" the notes to Real Estate Trusts via the internal book keeping of the lender. So long as every body pays on time, that works great. Saves time. Saves money. Its more efficient. Increases the bottom line.
But what does the Real Estate Trust do when they are not paid, and a foreclosure in order? They wander into court with a computer printout that says they are owed money, and are astounded that a judge won't take a person's home away without proof that the homeowner really owes the money, that they owe it to the Real Estate Trust, and not somebody else, and that the Real Estate Trust actually has a valid lien that can be foreclosed.
What if the promissory note was never assigned to the Real Estate Trust? Or what if it was assigned to three other Real Estate Trusts, all of whom want to foreclose? Where is the promissory note? Has the promissory note been paid off? Who is the recorded lien holder?
Those questions are easy answer if the original promissory note, with an assignment to the Real Estate Trust, and a written assignment to the lien, are produced in court. Without them, Judges are, very properly, telling Real Estate Trusts to pound sand. I think the bundling and selling of mortgages as book keeping transactions, without actually transferring promissory notes and liens, is going to turn out to be about as effective a cost saving strategy as never changing your motor oil, but just keeping it topped up. It will save a little money for a short while, and cost a lot of money in the long term.
I believe the principle of TANFL applies.