Which has happened to many people, myself included. Just because that happens does not absolve the loan recipient of having to pay back the loan.
My mortgage was with First Bank of Tennessee, I live in Illinois. By doing business in Illinois, First Bank of Tennessee is subject to the established banking rules in Illinois, just as any other lender in Illinois would be.
First Bank of Tennessee sold my loan after holding it 8 years to another bank, who sold it to another bank, who sold it to Wells Fargo in California. All these transactions occurred within the 2009 calendar year.
I was notified by Wells Fargo in June of 2009 that they held my paper. Up to that point, my mortgage payments went to First Bank of Tennessee who was responsible to administer any mortgage payments I made, even if my loan was sold, until I received notice that my mortgage was held by another lender/processor. That's the law.
When I received the Wells Fargo notice, I requested and received proof that they held my mortgage, and my payments went un-interrupted.
It's not rocket science to figure these things out, and a bank or other mortgage holder is required to provide proof that they hold the paper when a mortgage is sold.
As I said above in a previous post, the issue that keeps coming up is a burden of proof. Some courts/states demand the original paper and physical transfer documents. Others are satisified with digitized images of those documents. Until there is a standard by which the courts across the country will accept "proof" then we're going to have this kind of crap.
Please consider the implications of UCC 3-501.