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Why It Is Critical to Read Your Mortgage Documents

Posted on Jul 16, 2012 in Bankruptcy, Chapter 13, Exemptions, Real Estate, Wisconsin

When a mortgage is given on a property and the lender files the normal paperwork with the county Recorder of Deeds or Register of Deeds, the lender does this to give notice to all parties that they hold an interest in the property.  It is a requirement to protect the company from otherwise innocent purchasers who wouldn’t otherwise know how many mortgages are in place.

The lenders occasionally make mistakes.  Sometimes the mistakes are considered harmless, especially when a simple search discovers a typo.  However, there are times that these mistakes can prove fatal for the holder of a mortgage.

In a recent Chapter 13 Bankruptcy case out of Wisconsin, this scary situation happened to the holder of a mortgage.  The lender recorded the mortgage documents, but incorrectly listed the legal description of the property.  In bankruptcy law, the trustee can avoid an improperly perfected lien under Section 544.  In plain English, the trustee appointed to hold assets for the estate can move to treat that valuable secured mortgage like an unsecured debt and pay it off through the bankruptcy process, leaving the home free and clear.

For these debtors, what it means is that they can file a lawsuit inside their bankruptcy called an adversary, have a judge declare that the lien of the mortgage lender wasn’t perfected and is therefore just an unsecured loan like a credit card or personal loan.  The debtors will have to pay much more through their bankruptcy, but they wouldn’t have to make a mortgage payment anymore (not on their second mortgage either, since that too wasn’t properly recorded).  By the time they exit bankruptcy, their home would then be free and clear minus yearly property taxes.

Sometimes, mistakes are innocent and can be corrected.  Other times, when the facts are right, mistakes are fatal.  If you think your mortgage lender made a mistake that can be attacked through bankruptcy, please contact us to discuss.  We will review proof of claim documents and other documents to see if these mistakes can be used to your advantage.

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