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Bank Never Had Valid Mortgage on Home It Sought to Foreclose - Wachovia Bank v. Coffey

July 15, 2013

Vincent Howard and our Claremont foreclosure defense lawyers read a few cases from the height of the foreclosure crisis about banks attempting to foreclose on homes they didn't own. In a few cases, this resulted from a paperwork mistake or possibly a mistake in the database maintained by MERS, the company formed by major banks to keep track of which lender owns which properties. But in Wachovia Bank v. Coffey, the problem was that a non-homeowner borrowed money against a home that was not in his name. Michael and Ann Coffey of South Carolina were married, but their home was in Ann's name alone. Michael took out a home equity line of credit on the home in 2001, and Wachovia, the lender, did not notice that he didn't actually own the home. When Wachovia later tried to foreclose, the South Carolina Supreme Court agreed with Ann that it could not foreclose because there was no valid mortgage.

The 2001 home equity loan expressly said that Michael owned the home and had the right to mortgage it. Ann not only did not participate in this loan, but didn't know about it. In addition, the loan went through without the attorney supervision required by South Carolina law. Using the line of credit, Michael bought a sailboat and put title in the name of a corporation he and his wife jointly owned. He made payments routinely from their joint account until his 2005 death, and Ann continued the payments until she sold the boat. The family contacted a yacht broker, who told them there was no lien or mortgage on the boat. Believing the "boat loan" was paid off, Ann kept the proceeds of the sale and stopped making payments.

In 2006, Wachovia started foreclosure proceedings on the home for nonpayment. On cross-motions for summary judgment, the trial court ultimately ruled for Ann, finding that Wachovia created its own problems by failing to perform a title search or hire an attorney for the mortgage transaction. The court of appeals affirmed, framing Wachovia's loan as unauthorized practice of law. The South Carolina Supreme Court upheld, though it found that unauthorized practice of law was not the controlling issue. Rather, it said, the issue was whether Wachovia may foreclose on an invalid mortgage--which it clearly cannot. Without reaching the remaining issues, the high court upheld the decision. A dissent argued that Wachovia should be allowed to foreclose under equitable principles; Ann now enjoys a windfall.

Vincent Howard and our Orange County foreclosure defense attorneys couldn't agree with the majority more than an invalid mortgage cannot be foreclosed. Indeed, it's surprising that the Court of Appeals used unauthorized practice of law to come to its conclusions. It's true that Ann now enjoys a windfall because of the mistake by Wachovia (and possible deceit by Michael), but as the majority pointed out in a footnote, equitable principles do not benefit or punish people who were not parties to the transaction at issue. Furthermore, permitting banks in South Carolina to foreclose even when they fail to do their homework would imply that banks are not held to any kind of legal standard. In the experience of Vincent Howard and our Perris foreclosure defense lawyers, borrowers with far less money and power are frequently held to higher standards than that when they go to court.

If you're trying to save your home from a foreclosure and you've gotten nothing but excuses from your loan servicer, call Howard Law, P.C., to discuss your legal rights. You can send us an email or call toll-free at 1-800-872-5925.

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