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Brent Blanchard
Brent Blanchard, Lawyer
Category: Real Estate Law
Satisfied Customers: 1975
Experience:  Thirteen years of experience in real estate matters, HOA disputes and drafting HOA documents
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Can a mortgage servicing company commence a non-judicial

Customer Question

Can a mortgage servicing company commence a non-judicial foreclosure with only a trust deed after the underlying note has been discharged in Chap 7, if the note has not been endorsed to them or to their Beneficiary?
Submitted: 2 years ago.
Category: Real Estate Law
Customer: replied 2 years ago.
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Customer: replied 2 years ago.
Can a mortgage serving company prevail with a non-judicial foreclosure if based only on a Deed of Trust which is not supported by a collectable promissory note (Note was previously discharged in bankruptcy. Servicing company has not perfected PETE rights as neither they or their principal has possession, or endorsement of the note ( no valid standing to collect or enforce the original note, and no note to enforce). They only have a Trust Deed and an agency contract as a substituted Trustee).
Expert:  Brent Blanchard replied 2 years ago.

Thank you for your question.


Bankruptcy discharges the PERSON from the debt, not the collateral or "security". Foreclosures on property which remains in default under the note and deed of trust after the debtor has been discharged happen all the time.

The rights of the servicing company to initiate foreclosure proceedings should be based on the Deed of Trust, which remains a valid lien on the property even though no one on the planet can try to collect from the bankruptcy debtor. IF the servicing company is not also the trustee of that Deed of Trust, the lender (or whoever has succeeded to the lender's interests in the note) must first record a document titled "Substitution of Trustee" in order to have a right to start the process. A few companies that bought loans secured by real property a few years ago got into trouble for recording the Notice of Default BEFORE they recorded the Substitution of Trustee document, if they even bothered to substitute in for the original trustee.

I hope this helps you understand how that part of the financing world works.

Thank you.