Posted by Kevin/Ct on 11/23/08 8:22am
Msg #270367

Outrageous LO explanation to borrower

I just heard the most ridiculous explanation of a borrower's liability on a mortgage foreclosure that I have ever heard from an LO. The borrowers were a husband and wife. Both were on title to the property. The husband wanted to apply for a home equity line of credit. The wife did not want to be obligated on it, and did not want to sign off on the edocs. There was a first mortgage recorded in line ahead of the home equity line of credit.

When the wife questioned the LO on her liability the LO told her she would have no greater liability than had she not signed the mortgage contained in the edocs. He told her that the second mortgagee would have to pay off the first mortgage in a foreclosure in order to have clear title....correct so far. He told her that she would have no greater liability on the home equity line of credit than she would have if the first mortgage had been foreclosed, and that the liability would be entirely her husband's because he signed to note alone ...wrong.

While it is true that payment of the first mortgage may make a foreclosure of the second mortgage unattractive, it is not a complete deterent. In many if not all states there is a remedy for the lender called a deficiency judgment in a foreclosure action. It becomes of great concern in the current economy where in many cases the equity in the property has dropped below the amount of the mortgage.

The note and the mortgage provide for different remedies for the lender...at least in Connecticut. The note provides for the recovery of money damages as an action under contract law. Only the those who have signed the note are liable. So far the wife would not be liable.

However, the foreclosure action is a separate equitable remedy which provides in part for the loss of the property. In the case of a property whose value has sunk below the amount of the mortgage...a deficiency judgment is available to the lender for the difference between the value of the property and the remaining debt of the mortgage. All those who had signed the mortgage are liable. In this event the wife would be liable both for the loss of the property as well as the deficiency. The lender can enforce the deficiency against the wife's wages, bank account or other personal property and real estate.

Hope the wife got the LO's statement in writing. It gives rise to an excellent defense to a foreclosure action called...fraud in the inducement. Just one more reason why borrowers should seek the advice of legal counsel and be represented at the closing table by legal representation.

Reply by Linda_H/FL on 11/23/08 9:15am
Msg #270368

Just curious, Kevin

Did she sign?

And, as an attorney, do you not have an obligation to set the LO straight (in private, surely) but in time so he can correctly advise the clients? By not being sure the signers are advised correctly are you not at risk of some complicity?

I may be looking at this all wrong but I don't see how an attorney can take off his attorney hat when he sees or hears people being given bad advice, especially if it can cost them down the road, by someone who obviously doesn't know the law as this LO obviously didn't.

Like I said, just curious.

Reply by Kevin/Ct on 11/23/08 10:07am
Msg #270372

Re: Just curious, Kevin

I answer to your questions...

1. I do not know whether the wife signed. It was not my client, but had she been I would have advised her not to sign in view of her concerns.

2. In terms of advising the LO or the wife... it would depend on who I was representing in order to give advice. In short the LO should not be making statements like this. It borders dangerously close to a UPL. This is the province of attorneys.

3. Whether I am at risk depends on whom I represent. I can assure you that my clients are properly advised. There is no risk of complicity if the client has been given the correct advice. It is not a matter of taking off an attorney's hat as it is a matter of properly representing an attorney's client. You seem to be confusing the issue of who is the client.

Reply by Linda_H/FL on 11/23/08 10:32am
Msg #270377

Re: Just curious, Kevin

I don't think I'm confusing the issue - you're an attorney and you go to a signing as a signing agent - you hear the LO giving outrageously incorrect information - isn't there some obligation on your part as an attorney to set the LO straight so these people are not mislead? What if she had signed? What if later on down the road they end up in trouble with the loan, turn to the LO for remedy, and the LO says "well, there was an attorney right there who didn't do a thing!" - in today's litigious society, don't you think you'd end up on the wrong end of that lawsuit?

" There is no risk of complicity if the client has been given the correct advice. It is not a matter of taking off an attorney's hat as it is a matter of properly representing an attorney's client"

I'm not confusing it - as a signing agent you have no clients - you don't represent anyone - doesn't mean that can't come back to bite you. And in your scenario the signers have NOT been given the correct advice, and you as an attorney know it... you did remove your attorney hat and not correct the situation - that's what I was getting at.

Reply by Kevin/Ct on 11/23/08 10:55am
Msg #270378

Re: Just curious, Kevin

1. Slow down, and think.... don't jump to conclusions...don't try to play attorney without a law degree and a license to practice. There is a difference beween the duties of a signing agent and those of an attorney. Whether there is a duty to set the record straight depends on whom I represent. If I represented the borrower...my obligation would be to advise her as to the state of the law, and to advise her in accord with her desires. If I represented the LO my obligation would be to correct him in his statement of the law, and to advise him that such representations constitute a upl. My liability would depend legally on the identity of my client and the advice given to that client.

2. Removal of the hat is addressed in the above paragraph. Whether I act as a signing agent or an attorney...the attorney's hat is never removed.

Reply by Linda_H/FL on 11/23/08 11:14am
Msg #270380

Re: Just curious, Kevin

Okay, to put this to rest cuz this could go on all day ad nauseum..<G> ...first off I apologize for coming off as playing attorney - I'm not and never meant to imply that....

Second..I guess your attorney role takes a back seat to your signing agent role ...at least that what I think you're saying...

Won't say I agree it should be that way under certain circumstances, especially like the above situation you posted, but I guess that's the way it is...

Thanks for the input, Kevin..

Reply by Kevin/Ct on 11/23/08 11:18am
Msg #270381

Re: Just curious, Kevin

Sounds good, Linda with one exception... the attorney's role never takes a back seat to the signig agent's role...the reverse is true.

Reply by Linda_H/FL on 11/23/08 11:21am
Msg #270382

STOP IT!! You're gonna get me started all over again!!

That was my point!!!...

Reply by BobbiCT on 11/23/08 9:43am
Msg #270370

Warped CT Foreclosure Humor ...

This is when I'm glad I don't have Esq after my name and don't have to deal with these issues. Problems I heard at two recent CT attorney and paralegal seminars re foreclosures and other actions, which you are probably aware of.

Thank you National Title companies who did NOT have a search overseen by a CT attorney and did not have a CT attorney sign the title insurance policy and record the mortgage deed. Current debt holders of the "National Get 'er Done and Sell that Loan Quick Lenders" are now dealing with formerly rare or never before seen issues of:

Who "owns" the loan or holds the mortgage deed; i.e., who has the authority to foreclose or negotiate the debt?
Oops - We can only foreclosure on 50% of the real property. We can only foreclose on 25%? We can foreclose, but mom still has a life use and did not sign any documents or know about the loan. Oops - We can foreclose, but someone else purchased the property and their lender thought they had a good 100% first position lien.
Oops - Our legal description doesn't include the property we thought it did? Or, what the he77 is our security?
Oops - Sorry - you're not first, missed a mortgage and wasn't paid off.

The best: HELOC lenders who took the "payoff check", but since there was no "authorization and request to close by all customers on the HELOC" or "we never received the request to close (hmmm .... one servicer got the check and applied it to the loan but someone along the "transmittal" line to the servicer that releases mortgages the letter asking to close the account and release the mortgage disappeared). Result: 4 months later borrower gets a marketing call, "Don't you want to use your LOC? We have a special deal?" Bad news: Borrower who refinanced takes a draw from the HELCO. Worse news: Title companies seeing where borrower who SOLD house and moved out-of-state to ???, took a draw and the security for that draw is someone else's house .... who just found out they couldn't refinance until the seller's new draw is paid off.

Kevin: Got lucky on one. The refinance client didn't draw on the HELOC. Called the CT refinance lawyer because HATED company, wanted marketing calls to stop. (What! HELOC not closed and company calling you regularly to ask you to draw on it!) Six months later: THREE authorizations to close account and release the mortgage have been lost by servicers (skip the number of calls, "new" CSR because last CSR not there or different department now, or "new" address, or "we don't have a record of that request). Servicer has now added an "annual fee due" because account is still open; that we've been trying to close it for six months does not matter. Good news: client is NOT responding to continued calls to draw on funds and refinance lawyer and local title company office WILL Get 'er Done and closed. Multiply this on a national level and the mortgage industry gets really ugly out there.

Reply by Kevin/Ct on 11/23/08 10:08am
Msg #270373

Re: Warped CT Foreclosure Humor ...

Excellent, Bobbi. Thank you.

Reply by 101livescan on 11/23/08 10:26am
Msg #270376

Re: Warped CT Foreclosure Humor ...

Excellent exchange of thinking and reality. The LO must be an idiot, how self serving. All he wants is his commission. He would say anything to close a deal, right? These are scary people. I believe the government is trying to squeeze out mortgage brokers, and this is a classic example of why they are on this path. Unless things have changed, the Mortgage Broker house gets about $1000 for heloc of $50K, $1500 on $100K, and so on. The LO gets 70%, house gets 30%. LO not representing his clients with integrity, anything for the almighty buck. And he has really overstepped his professional boundaries here, not being an attorney. In CA this kind of broker and LO could definitely come under scrutiny of the Department of Real Estate. This is irresponsible and giving advice the they have no power to give.

Reply by dickb/wi on 11/23/08 1:24pm
Msg #270384

it gets even a little more confusing in.......

wi.....we are a marital property state.....with out going in to details ebven if a wife does not sign the note she will be responsible for 50% of it shoud the mortgagee go for the deficiancy judgement.........she of course must sign the mortgage in all cases to protect the mortgagees ability to foreclose all of the interest of the home.......it is amazing how many title co's/lenders i have had to set straight as they never checked the state statutes or even had an idea......in regards to some of the ?'s put forth here by others who are not involved in the legalities of real estate [ i am not an atty but a wi real estate broker and by wi supreme court ruling in the dinger case we have the right to practice limited real estate law] most do not understand the law of agency......as a real estate broker i have a fiduciary relationship with my client but am obligated to treat all parties fairly and to disclose all material facts to all parties even if my client has told me not to......as an atty you can and do take an adversarial postion for your client...........i always appreciate your comments and posts kevin and hope you keep them comming............

Reply by LKT/CA on 11/23/08 1:40pm
Msg #270385

<<<1. Slow down, and think.... don't jump to conclusions...don't try to play attorney without a law degree and a license to practice.>>>

Your statement was arrogant and snide.

<<<Whether there is a duty to set the record straight depends on whom I represent.>>>

I've read the rest of the thread.

The best answer from you or any attorney would be: Linda, I set the record straight regardless of who I represent. It is ALWAYS my obligation to correct erroneous info. I don't need a license or a law to tell me it's the RIGHT thing to do to correct bad information. As a human being, still walking around and breathing, I do that.

Attorneys have reputations of being just above used car salespeople.

Reply by Kevin/Ct on 11/23/08 4:15pm
Msg #270389

If you wish to offer a legal opinion you really need to obtain the proper credentials ( law degree and license to practice).

If the wife in question were represented by legal counsel it would be his obligation to instruct her ...not mine. I would not be permitted to to infringe on his representation of his client. I would not be permitted to further the misrepresentation of fact, but there may be circumstances in which I would be prohibited from saying anything... in which case the only course of action would be for me to withdraw from the transaction.

When representing a client we are carefully schooled to maintain client confidences. One example that is used in law school is the case of the lying client at trial. I have never been faced with this scenario thankfully, but it does occur.

This is the case in which a client may insist on taking the witness stand and perjuring himself. The attorney can only request the client not to do this, but if the client refuses the only course open to the attorney is to request that the judge permit him to withdraw from the case. He is not permitted to explain why to the judge. Some judges are sharp enough to understand. Others are not, and may not grant the attorney's motion. The attorney then has a real problem because he is required to competently represent the client, but he can not violate attorney client privilege. At the same time he can not further the perjury. At best he can request that the court to allow the client to testify in narrative rather than through the use of questions on direct examination. The court may or may not permit it. The opposing counsel is almost certain to object....a very prickly problem.

On the other hand if someone other than the client perpetrates a fraud on the tibunal the attorney he is required to disclose the fraud.

So, before you cast aspersions you should make certain that you fully understand the problem and the limitations placed upon the attorney by law.

Reply by lindetteh_PA on 11/23/08 6:46pm
Msg #270393

Maybe I'm missing something but what is the point of having an Attorney only State if the Attorney can't give out anymore info than a Notary would be able to give. I always thought the purpose of an Attorney being present was to eliminate the possibilty of the borrower getting mis-information

Reply by Linda_H/FL on 11/23/08 6:50pm
Msg #270394

CT's not attorney-only...at least not yet n/m

Reply by Pat/IL on 11/23/08 7:02pm
Msg #270396

This is a great thread.

I could not agree more with Kevin's original premise, that it serves a borrower well to obtain the representation of an attorney when refinancing a mortgage - I would extend that to practically any real estate transaction.

Many problems could have been avoided had more borrowers spent a coupla hundred bucks for the services of a competent real estate attorney. In many cases, a good lawyer could likely have saved the borrowers more on the front end than they were paying for the legal representation.

Linda's questions were well-placed (I had the same questions in mind while reading the original post). Kevin's responses were also appropriate and informative. It's not very often that you get such informative posts on these message boards. I, for one, thank everyone who contributed.

Reply by Kevin/Ct on 11/23/08 7:54pm
Msg #270402

Each party to the transaction has the responsibility of securing his own legal counsel. The borrower's attorney is the one charged with the responsibility of protecting the borrower's interest.

Reply by LKT/CA on 11/23/08 7:03pm
Msg #270397

<<<If you wish to offer a legal opinion you really need to obtain the proper credentials ( law degree and license to practice).>>>

I've got a lot of "brownie points" for watching Law & Order, LA Law, The Practice, The People's Court - twice a day, Judge Judy, etc. Plus, it's more fun to play dime-store attorney than to be a real one.

If you were a signing agent at a closing hired by a TC - LO officer there too with borrower, no other attorney's present and the LO made erroneous statements to borrower, I believe you, Kevin CT, as the signing agent (with attorney license) would speak up and correct erroneous info.

Reply by Kevin/Ct on 11/23/08 8:01pm
Msg #270404

In that case since the lender/TC/LO were my clients...I would take the LO to the side, explain his error to him, and ask him to correct it. If he refused I would withdraw from the transaction. The deal would not go forward, and the borrower would not be at risk.

Reply by Linda_H/FL on 11/23/08 8:04pm
Msg #270406

Isn't that what I said earlier? That was my point!! n/m

Reply by MistarellaFL on 11/24/08 9:24am
Msg #270447

Re: Isn't that what I said earlier? That was my point!!

I think Kevin's point is that he is not there to represent the brw, he was hired to represent the TC.

Reply by Linda_H/FL on 11/24/08 4:56pm
Msg #270508

Yes, of which the LO is a part....that's what I asked

should he not let the LO know (on the side out of the borrower's presence) that the LO is wrong.

Reply by Linda_H/FL on 11/24/08 4:58pm
Msg #270509

Wait..let me clarify

I know the LO isn't part of the TC...but I know Kevin's obligation isn't to the borrower so isn't it safe to assume if he hears bad info coming from TC/LO side he should correct it...

Reply by MistarellaFL on 11/24/08 5:58pm
Msg #270523

Re: Wait..let me clarify

I don't think he should have corrected him right then and there, because he wasn't hired to represent the brw, but ominiously say to the LO when they departed:
You'd better hope they don't call me as a witness if they get foreclosed....

Reply by Kevin/Ct on 11/25/08 5:56am
Msg #270550

Re: Wait..let me clarify

Hi Misty,

Actually I would be required to simply withdaw from the transaction without explanation to anyone other than my client. I would have to think that this would be best for everyone with the possible exception of the borrower losing his rate lock. The deal could not go forward without me, and the borrower although he may not be my client is spared the unfortunate consequences of not fully understanding the transaction.

In terms of testifying against a former client at trial...in most cases attorney's are bound by attorney client privilege. The client is the holder of the privilege. There are very limited circumstances under which an attorney is permitted to break privilege. Again withdrawal from the transaction early enough to prevent a problem makes the testimony of an attorney unnecessary.

Reply by Kevin/Ct on 11/25/08 5:43am
Msg #270549

Re: Wait..let me clarify

You really need to take a course in legal ethics before expressing an opinion. It is quite complicated, and imposes far more obligation on an attorney than those that would be encountered by a notary. Quite often fact patterns arise which bring into conflict differing obligations.

Reply by ananotary on 11/23/08 7:14pm
Msg #270399

Kevin, Great explanation!

Too bad so many on this board cannot understand what you have CLEARLY explained as your limitations according to the laws in your state.

In January I start the path to my new career. Attorney. Really looking forward to it!

Reply by Hugh Nations Signing Agents of Austin on 11/23/08 8:04pm
Msg #270405

Re: Kevin, Great explanation!

***In January I start the path to my new career. Attorney. Really looking forward to it!***

Everybody wants to be a lawyer. There are other, and legitimate, forms of prostitution, you know.

Reply by ananotary on 11/23/08 8:16pm
Msg #270408

Hugh, Ignorance must be bliss for you.... n/m

Reply by Hugh Nations Signing Agents of Austin on 11/23/08 9:01pm
Msg #270411

Re: Hugh, Ignorance must be bliss for you....

***Hugh, Ignorance must be bliss for you....***

Ana, there are those who would say bliss is not having to deal with lawyers. Myself, I think bliss is not having to deal with my ex-wife. Ignorance was what led me into making her my wife to begin with.

Reply by Kevin/Ct on 11/23/08 8:05pm
Msg #270407

Re: Kevin, Great explanation!

Congradulations. I think you will enjoy the practice of law....a lot more fun than law school.

Reply by ananotary on 11/23/08 8:17pm
Msg #270409

Re: Kevin, Great explanation!

I haven't decided what field of law I would like to pursue however my love of children has me leaning that way.

Reply by Kevin/Ct on 11/23/08 9:19pm
Msg #270412

Re: Kevin, Great explanation!

Family law can be a very interesting field. Although divorces are an emotional roller coaster for your clients. You might enjoy trial work. It is very much like a game of chess.