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Christopher B, Esq
Christopher B, Esq, Attorney
Category: Estate Law
Satisfied Customers: 2983
Experience:  Litigation Attorney with education focus on estate planning and tax
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I refinanced my mortgage in 2007. The county recorder shows

Customer Question

I refinanced my mortgage in 2007. The county recorder shows that my first and second loans were paid off at that time, but the refi company did not put a new lien on the property. What are my options? I'm pretty sure, here in california, I cannot be foreclosed on, if the mortgage company does not have a deed of trust, but what other options do I have? Could I sell the house? Could I just not pay the bank when I know they can't foreclose?
Submitted: 2 years ago.
Category: Estate Law
Expert:  Christopher B, Esq replied 2 years ago.

My name is***** and I will be helping you with your question today. This is for informational purposes only and does not establish an attorney client relationship.

The concept of recording mortgage documents in a central place should be pretty obvious. By recording the mortgage, the world at large will known if there is lien against a certain piece of property. This guards against the risk that the borrower might sell the property without paying the mortgage and it guards against other mortgages or liens attaching to the property ahead of the mortgage. This is called the “borrower risk” and the “creditor risk”. The system works to make sure that a lender gets paid in the proper order when secured by a piece of real estate. Similar concepts govern lending against personal property. When a mortgage isn’t recorded, there is no guarantee the lender will ever get paid.

All jurisdictions follow this logic in one form or another. However, borrowers don’t get away free and clear if a lender messes up and either forgets to record its mortgage or records its mortgage in the wrong place. Most courts will enforce the ‘transfer’ that takes place when a mortgage is signed to the extent that they can. Normally without recording a lien, the debt would be unsecured and you are still personally liable as you signed the mortgage documents even though the lien was not recorded. At this point since there is no filed lien, if you did sell the property or refinanced the property the buyer would not see a lien on the property.

Actual notice consists of express information of a fact. Constructive notice means notice given by the public

records. By means of constructive notice, people are presumed to know the contents of recorded instruments.

Publicly recording instruments of transfer/conveyance or to encumber/lien the title to real property imparts

constructive notice. For example, Civil Code Section 2934 enacted in 1872 states in part, “Any assignment of a

mortgage and any assignment of the beneficial interest under a deed of trust may be recorded, and from the time

the same is filed for record operates as constructive notice of the contents thereof to all persons...”.

The Government Code of California provides that, after being acknowledged (executed in front of a Notary Public, or properly witnessed as provided by applicable law), any instrument or judgment affecting the title to or possession of real property may be recorded. See Government Code Sections 27201, 27201.5, 27287, and 27288. The word “instrument” as defined in Section 27279(a) of the Government Code “...means a written paper signed by a person or persons transferring the title to, or giving a lien on real property, or giving a right to a debt or duty.” A similar definition is set forth in a historic 19th century case. See Hoag v Howard (1880) 55 Cal. 564-567. The definition of an “instrument” does not necessarily include every writing purporting to affect real property. However, the term “instrument” does include, among others, deeds, mortgages, leases, land contracts, deeds of trust and agreements between or among landowners/property owners.

To answer your question, you are still personally liable for the mortgage even though a lien was not recorded. You could sell the house or refinance the house and since the lien was not recorded the mortgage company would not be able to enforce the lien. The mortgage company would still have a personal claim that is unsecured against you and you would have to repay the loan.

Please let me know if you have any further questions and please positively rate my answer if satisfied. (There should be smiley faces or numbers from 1-5 next to my answer, an excellent or good rating would be fantastic.)

Customer: replied 2 years ago.
I realize that they could come after me in court if the issue was just that they didn't put a lien on the house. But what if they can't find the deed of trust? Don't things change at that point? Wouldn't it be harder for the bank to get their money if they don't have the deed?
Expert:  Christopher B, Esq replied 2 years ago.

Yes that does change things a bit if the lender does not have the deed of trust at all, California is a nonjudicial foreclosure states, so the lenders' legal ability to even foreclose is in question in a situation such as this. For example, in a state such as California in which deeds of trust paired with promissory notes provide evidence of mortgage debt. The deed of trust contains a "power of sale," giving the trustee the ability to foreclose. Once the deed of trust is created and recorded, if there is a default, the beneficiary routinely changes who the trustee is by recording a "substitution of trustee," putting a new trustee in the job. An important court decision has held that without ownership of a property's trust deed, the lender may not be able to foreclose that property.

"Veal v. American Home Mortgage Servicing, Inc.," a June 2011 decision by the United States 9th Circuit Court, affects nonjudicial foreclosures. Basically, the 9th Circuit held that if a foreclosing lender can't prove it possesses a property's trust deed it can't foreclose. Evidence of property ownership, the trust deed is typically the lender's best proof that it actually has a right to foreclose. The U.S. 9th Circuit Court's decision is valid only in California and other states in that court's jurisdiction.

The U.S. 9th Circuit Court's decision is important to homeowners being foreclosed because it addresses promissory notes as well as trust deeds. The court's decision held that trust deeds follow their promissory notes. Lenders holding promissory notes but not their trust deeds usually aren't able to prove they have ownership and a legal right to foreclose a property.

Homeowner lawsuits have been filed that bring up lack-of-standing arguments against foreclosing lenders. For trust deeds and foreclosure, lack of standing on the part of a foreclosing lender can occur when the lender doesn't actually possess the trust deed. In trust deed states like California, trust deeds can be assigned several times to different lenders as they take over mortgage servicing. For lenders, trust deeds occasionally aren't legally recorded during assignment and can even be lost.

Contesting foreclosure based on a lender's missing trust deed requires the services of skilled real estate attorneys. Experts advise homeowners facing foreclosure to seek legal advice. State and various federal courts often allow holders of trust deeds missing just their promissory notes to foreclose. Cases dealing with missing trust deeds often deal with nonjudicial foreclosure. Lenders in nonjudicial foreclosure states are free to pursue judicial foreclosure even if they're missing trust deeds.

In Shuster vs. BAC Home Loan Servicing LP (formerly known as Countrywide Loan Servicing) Shuster borrowed $670,000 to buy a house in Simi Valley. Mortgage Electronic Registration Systems, Inc. (MERS) was named beneficiary; but there was no trustee named in the document. Shuster ended up in default, MERS recorded a Substitution of Trustee, and the new trustee foreclosed. Shuster brought this action.

Shuster argued that, with no trustee, there was no one to receive the conveyance of bare legal title. This transforms the deed of trust into a standard mortgage. Under California law, a mortgage that is not standard deed of trust (with a power of sale) may only be foreclosed by judicial foreclosure - filing a lawsuit for foreclosure and obtaining a court order.

The court said no. A deed of trust is not like a grant deed. With a grant deed, failure to name a grantee makes the deed void. However, in the case of a deed of trust, the instrument only conveys the bare legal title for purpose of foreclosure, and "carries none of the other incidents of ownership of the property." Here MERS, as beneficiary, appointed a substitute trustee prior to the foreclosure, that was enough.

This is a case of first impression in California, meaning it is the first time a court of appeal has ruled on this issue. As is common, the displaced homeowner made every argument they could find to get the home back. This was a good argument to make, but it didn't work.

The point of all of this case law is that many times Judges will make an equitable decision regarding a situation such as this. Some Judges might just go by the letter of the law and allow a home owner such as yourself to have the property free and clear (this is very unlikely) but with a non-secured debt. Therefore it is possible that the property cannot be foreclosed upon, it is likely that a court will not allow a nonjudicial foreclosure, but it might also be likely that a judicial foreclosure will be enforced simply with the promissory note. The court will normally try to find the "right" thing to do and if you got a mortgage and are trying to sell, avoid foreclosure, etc., the court will normally not allow you to get away free and clear. I hope this makes sense.

Please let me know if you have any further questions and please positively rate my answer if satisfied.

Expert:  Christopher B, Esq replied 2 years ago.
Do you need help with the rating system? We answer these questions with the expectation that our work will be compensated by the site. Without your positive rating that won't happen, so if you could take the extra step and help me out, I would appreciate it. There should be smiley faces or numbers from 1-5 next to my answer, an excellent or good rating would be fantastic.
Expert:  Christopher B, Esq replied 2 years ago.
I see you viewed my answer, do you have any further questions? If not, please positively rate my answer if satisfied.
Expert:  Christopher B, Esq replied 2 years ago.

Any chance for a positive rating?

Expert:  Christopher B, Esq replied 2 years ago.

Any chance for positive rating?