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, incompetency 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
