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Can Error by Lender Result in Foreclosure?

September 15, 2002|ROBERT J. BRUSS | SPECIAL TO THE TIMES

Since 1997, Paul made on-time monthly payments on his home loan to mortgage lender Chase Manhattan Mortgage Corp. But in August 2000 he stopped making payments after he received a letter from Chase acknowledging his mortgage payoff.

Through a Chase customer service representative, Paul notified Chase of its error. However, on Aug. 15, 2000, Paul received a check from Chase for an escrow refund. On Oct. 12, 2000, Chase recorded a satisfaction of mortgage.

But on Nov. 14, 2000, Chase sent Paul a "loan reactivation" letter with a new loan number on which to make payments. During this time, Paul placed his regular monthly payments into a bank account, which he later transferred to his attorney's trust account.

As a result of Paul's failure to resume payments to Chase, Chase notified the credit bureaus about Paul's default status and began foreclosure. In April 2001, Chase's attorney advised Paul to resume payments to Chase. Chase recorded a Vacatur, Revocation and Cancellation of Satisfaction of Mortgage. When Paul asked for a copy of the original promissory note, Chase was unable to find it.

Paul sued Chase for violation of the federal Fair Debt Collections Practices Act, slander of credit and declaratory relief. Chase filed a counterclaim for foreclosure and reestablishment of the lost promissory note.

If you were the judge, would you reinstate the mortgage or allow Chase to proceed with foreclosure for nonpayment? The judge began by explaining Chase does not have a right to foreclose on Paul's home because Chase erroneously recorded its mortgage satisfaction, followed by recording of the Vacatur, Revocation and Cancellation of Satisfaction of Mortgage. Such action was improper without court approval, the judge noted. However, Paul is not blameless, the judge continued, because he should have paid the disputed payments to the court (rather than to his attorney's trust account). Paul claims he attempted to make the payments to Chase but was refused because there was no mortgage loan number upon which to apply the payments, the judge noted.

Equity requires a balancing between Chase's right to a security interest in Paul's home and Paul's attempts to make timely payments, the judge explained. Therefore, Chase's request to foreclose is denied, the judge ruled.

Evidence shows Chase held a promissory note signed by Paul in 1997, which Chase has lost, the judge continued. The court will reestablish Chase's note and the recorded mortgage through a Vacatur, Revocation and Cancellation of Satisfaction of Mortgage, he added.

Paul is ordered to tender all previously escrowed mortgage payments to the court within 10 days and shall henceforth resume monthly payments to Chase under the reestablished promissory note and mortgage, the judge concluded.

*

Based on the 2002 U.S. District Court decision in Cherry vs. Chase Manhattan Mortgage Corp., 190 Fed.Supp.2d 1330.

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