Free House? Maybe.


Let’s look at a few things here….

First, this decision:

The Motion was filed by MERS “as nominee [for] HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3.” Even assuming that MERS as a “nominee” had sufficient rights and ability as an agent to advance its principal’s stay relief request, there remains an insuperable problem. The Motion provides no explanation, much less documentation or other evidence, to show that the Fieldstone Mortgage Investment Trust Series 2006-3 (as an entity) or HSBC Bank USA (as that entity’s “indenture trustee”) has any interest in the subject Note or the subject Deed of Trust.13


Here’s the deal: Unlike “Rocket Docket” courtrooms and non-Judicial foreclosures, in bankruptcy the procedures are pretty much black-letter and actually followed.

If someone asserts in a Bankruptcy that you owe them something, they have to prove it.  This is in conformance with the UCC generally, along with what should be true in foreclosure hearings but often is ignored in the interest of “expedience.”

But in the case of a Bankruptcy, we’re talking about a table that is flipped.  That is, the outcome of a Chapter 7 bankruptcy is the discharge of the debt – those coming in are looking for exceptions.

This is the inverse of the situation where a bank is seeking to foreclose, where the outcome is they take the house back and throw you out – you are, in that case, trying to get the exception.

This is, I suspect, the key.

Let’s take a “base scenario” and then run two possible paths for you, the citizen.

Homeowner with a house that is $50,000 or more underwater.  Five-figures worth of credit-card debt, having desperately tried to hang onto the house.  Hasn’t made a payment in a year or more.

Ok, so here are the possibilities:

  • Let the home foreclose.  You can try to fight it on the foreclosing party not being entitled to foreclose (and you might be legally right) but you’re trying to change the expected outcome.  In non-judicial states you’re unlikely to even get a hearing, as you need an injunction in most cases and these are being thrown out by the busload.  Your odds in a Judicial state depend entirely on whether you get a judge that actually bothers to read the pleadings (for starters); in some places like Florida we have “Rocket Dockets” where they won’t even read the filings.  Ergo, the merits don’t matter, and the bank will win – whether they should or not.  You now have a nasty credit report (and probably have for quite some time) and the credit card company will continue to come after you.  In addition, you’re now homeless, and worse, you have to rent a place with a destroyed credit record.

  • File Chapter 7.  This puts an instant stay on all collection actions.  This doesn’t just apply to your house – it also applies to your credit card and other debts – with a couple of exceptions, notably student loans and child support.  Bankruptcy Courts typically will force anyone who claims you have an actual debt to prove it, and they then share ratably in whatever non-protected assets you might have.  For an awful lot of people, the answer is “none” beyond qualified retirement accounts and similar, which creditors CANNOT TOUCH.  (Incidentally, this is why I have repeatedly told people that they’re IDIOTS to borrow from their 401ks or similar to make a mortgage payment – that money is absolutely off-limits if you go underwater – but the banks, of course, don’t tell you that.)

You want to kill this monster – the banks that abused America?

Then there is only one question to answer: Are you actually underwater – that is, functionally bankrupt?

If the answer is “Yes” then you need to head down to a Bankruptcy Attorney right now, find out whether you live in a state where the bankruptcy court will force the prove-up of debts to be done according to the black letter of the law, and if that’s true, and you qualify for Chapter 7, stick it to them.

This may not work for Chapter 13, and those wonderful banks lobbied hard to change the law so that you can’t choose which way you go any more to anywhere near the degree you used to be able to.

Incidentally, as was pointed out to me by Steph over at FedUp, if you’re unemployed or under-employed you need to do this NOW, because it dramatically changes your standing with regard to qualifying for Chapter 7 rather than Chapter 13!

But for many people today, especially those in the lower-middle class and under who have been far-more seriously preyed upon by the financial industry than those of greater means, this avenue remains available – and if the bank that allegedly holds your mortgage can’t prove it up, well….. welcome to the ownership society – for real this time.

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