Can this possibly be true? Well, I've
read the claims and researched the law and here's what I came up
with.
The Claim
The claim is that you can legally
eliminate your mortgage based on an accounting loophole that goes
something like this...
"If the lender who funded your
loan used borrowed money to fund your loan, then the loan is not
valid. And, since the loan is not valid, the security (mortgage or
deed of trust) is not valid either. All you do is simply march
into court and ask a judge to void your mortgage lien, and you
don't have to pay it back."
Now, without going into the legal
issues, a common sense approach would tell you that the entire
premise of this argument is patently absurd. Think about it... most
lenders use borrowed money to fund loans, that's the nature of the
business.
So, if these "mortgage
elimination" promoters are correct, then millions of mortgages
would be void. The entire economy would collapse. This sounds
vaguely familiar to the "tax protestor" scam where people
claimed that they didn't owe income tax because the government did
not have the constitutional authority to tax them. More on that
later...
The Law
The mortgage elimination promoters
cite various court cases in support of their position. At first
blush, it would seem there are dozens of court cases in which the
judge actually did what they claimed, that is, declare a mortgage
void because the lender used borrowed funds for the loan. But, since
most laymen are not trained in the law, they take this stuff, hook,
line and sinker.
I've read the decisions and they all
have a common theme: they don't support the mortgage elimination
theory. In fact, most of the cases are only vaguely on point.
The "tax protestor"
promoters did the same thing... take a quote from a judge's decision
out of context and cite the case as support for their position. In
the end, the tax protestors all lost in court, paid large fines and
went away with their tails between their legs. The government went
after the promoters of the scam.
Similarly, the government is going
after the promoters of the mortgage elimination scam. The Federal
Reserve recently issued a warning, a copy of which can be found at
the end of this article. The Office of the Comptroller of the
Currency issued a similar warning last year.
The Minnesota
Attorney General has also gone after a company that has
allegedly charged consumers as much as $7,500 for this scheme.
The Cult of Stupidity
As I write this, undoubtedly a few
"followers" of the theory will email me and argue that I
don't understand or that I'm part of the "establishment
mentality" that keeps the little guy down. Of course, these are
likely the same people who are collecting referral fees from the
scammers that are charging thousands of dollars to consumers in
exchange for a false promise to eliminate their mortgages.
On a philosophical level, I
appreciate discussions about how the dollar really isn't backed by
gold, the government doesn't have the right to tax Americans and the
the like. But I wouldn't tell a client to actually rely on any of
these theories in a court of law. Nor would I charge someone
thousands of dollars in exchange for a promise or guarantee that
their mortgage could be eliminated without paying it off.
How to Really Eliminate Your
Mortgage
There are some legal ways to
eliminate your mortgage:
1. Pay it off in full
2. File for chapter 7 bankruptcy (in
which case you will not be liable for the mortgage note, but you
will also lose the house)
3. Find a REAL legal challenge that a
judge is willing to accept as a valid reason to declare the debt
void, such as usury, gross violation of lending laws, fraud,
incompetence or the like.
About the Author . . .
William Bronchick, CEO of Legalwiz Publications, is a
Nationally-known attorney, author, entrepreneur and speaker. Mr.
Bronchick has been practicing law and real estate since 1990, having
been involved in over 600 transactions. Visit his site at http://www.LegalWiz.com
