"The Mortgage
Elimination Scam."
By Attorney William Bronchick
You've seen the emails:
"Legally eliminate your mortgage"
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.
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