ADVANCED - Anyone found a way to lookup current mortgage payoff?

13 Replies

Hi all,

This is actually a 2 part question for fellow foreclosure investors:

1. Mortgage Payoff

Has anyone found a way (or pay-service) to obtain a CURRENT mortgage payoff for mortgage/note WITHOUT owners authorization?   (note: this is NOT the recorded trust/note - I've got that already from title search)

Why?  I'm seeing a lot of second notes being foreclosed subject to payoff of the 1st.  Problem is, many note payoffs are actually HIGHER than the original amount recorded in the clerks office.

so this leads to question #2...

2. Any ideas on how a mortgage/note ends up 50% HIGHER than the county recorded amount?  (refi's are recorded as new notes and satisfy the original note so they don't count in this scenario)

Why?  Many investors here in Northern Virginia, are purchasing 2nd position notes/trusts via foreclosure subject to payoff of the 1st.  Problem?  When going to settlement the note, lets say a $300,000 trust recorded in 2004, has now become $600,000!!  Yes, let me repeat, that is not a typo, its over 50% MORE than the original recorded amount.  

This has left many investors scared to purchase 2nd position foreclosures.  When doing our due diligence before the sale, we call up the 1st position(trust) noteholder (located via MERS) and ask them for payoff.  They state that information is private and can only be released with a signed authorization from the homeowner.

In reply, I say to the noteholder, "great idea, let me call up the homeowner who is facing foreclosure, and who is hostile as hell, ask them for their payoff amount on their 1st mortgage, or, authorization to contact their bank to find out." <click>   The noteholder of course says, "sorry sir, we cannot release that information without authorization."

ANYONE else encounter these 2 problems??

Rodney

15 year investor

Just a fact of life.  No way to get an actual payoff without owner's cooperation.  $300k becoming $600k is a little extreme, but of course years of accrued interest, insurances, taxes, etc. do add up.

No such list exists.  That data is private between the borrower and lender.

I find it curious that a mortgage/note with its $$ value when originated and recorded is public information, but that amount becomes "private" the day after recordation.

It's even more appalling, when a bank sells a 2nd mortgage/note at foreclosure, subject to the first, knowing full well there is no way for a buyer to find out what the payoff of the first is.  That has GOT to be grounds for a legal action challenging  the owners right to privacy vs. a buyers need for due diligence.

Imagine buying anything, lets say a car, like that.  Owner #1 is selling his 30% share in the car.  You have to pay Owner #2 his 70% share but wait -- Owner #1 is not telling you what is owed on that share -- you just have to find out after you buy the 30% share -- could be more, could be less.  wow...

Jon, I've heard whispers of some investigation companies (websites?) who offer such services for a fee but haven't found one yet.  Wanted to see if any other investor had...

Wayne, yes it was extreme.  I believe the example I saw last week was a 2004 note/trust for $510k open up at foreclosure for a full-debt bid of $830k!  That boggles the mind - a $320k increase in 11 years.  Usury laws have to come into play at some point.   What is worrying is that I'm seeing these more and more often and can't explain it.

-R

There is a guy down the street from my shop who has a tree company , original mortgage was $ 425.000  ( bought in 2004 ) he hasnt made a payment in 4 years . The balance of the loan is now over $ 600,000  with fees , late charges . The house is a P.O.S 

If it's not recorded the best source would be the lender/note carrier. Second best: the owner

@Rodney D. As for bidding on a second mortgage foreclosure, nobody has a gun to your head.  There's no grounds for any legal action.  If you don't like the risks, don't bid.

Anytime banks are involved there are a lot federal banking regulations they are required to follow.  Violating them has pretty serious ramifications.  The only way is permission from  the borrower.  the rules may seem unfair to folks trying to buy a 2nd mortgage, but this is one of the reasons non performing 2nd mortgages are so cheap.  The rsiks can be very high.  

@ Rodney - How is protecting the borrower's federal right to privacy, and not disclosing the history to every yahoo that calls, appalling? You consider that an actionable event? EVERY buyer finds out what the balance is if it's an open market transaction and goes through title/escrow like most normal transactions go through. That's ridiculous that you feel a buyer has any right where the buyer is not working in conjunction with the seller. Your car analogy is not apples to apples. Also, usery? WTH does usury have to do with an increased balance? Just because YOU can't explain it doesn't make it ilegal. Original Balance $300M. Current Balance $500M? Hmm...let's see; what is a neg am loan? Did the borrower go delinquent in the past and had their delinquent interest capitalized, only to redefault again? Are they delinquent now and subject to that interest and legal fees/costs? Finally, if you heard whispers of companies getting that information, I would suspect there is a reason they are whispering...because they can't legally obtain that information without the borrower providing consent. There is no way they could obtain that information without borrower's consent unless they were performing some sort of ilegal act.

Here's why its appalling...

In an open market transaction, everyone knows the price. If, at the settlement table, the seller surprises the buyer and says the price has now increased $150,000, the buyer walks away (appalled). This is a version of what is happening when an investor (you, me, whomever) buys a 2nd note, subject to the first, then finds out, at settlement, that surprise! -- the first is $150,000 higher than what was recorded at the county. So the investor walks away right? Wrong. He looses his 10% deposit (here in VA/MD) and is legally liable for any difference in price when it is resold by the trustee weeks later.

The trustee/seller claims the investor did not perform his/her due diligence by researching the payoff of the 1st note so the trustee/seller is exempt from wrong doing.  But the investor has no avenue to obtain the payoff due to privacy laws.  Both parties do not know the final price.

I take issue because the recordation of any note/mortgage/trust has been the law since before the United States was even a country.  I've researched title back to the original land grants by the English Crown.   It has always been public information as to what anyone paid for their home (including the loan).    Not too long ago, you could call the bank/noteholder to get a payoff.  It is only recently that privacy laws expanded to curb this release of information.  This cripples purchasers of foreclosures.   I believe that the lawmakers, while well intentioned, did not take this into consideration when expanding the privacy laws.  They, most likely, as you stated, wanted to prevent "every yahoo" from knowing their mortgage.  I believe they would have even made the recordation of the mortgage private if they could.

Think of the one time purchaser who wants a home for his family.  He does his homework and finds out the recorded amount of a superior mortgage.  Bids on the second trust believing that the first mortgage is at or below the recorded value.  Wins the auction, puts his deposit down, then at settlement is surprised by the $150k bombshell.   That $30-$50k deposit loss represents an entire years salary.  Does anyone think thats "just the risk of the game"?  Later, when he starts asking how he could have avoided that bombshell, to research the payoff, its all "oops... sorry kid, no one gives that out anymore."

Whats so wrong with requiring a valid business license, or even a realtors license, in order to obtain mortgage payoff information?  It would limit the yahoos and put sensitive information where needed.

BTW, thats a good bit about the neg am loan and delinquent interest being re-capitalized.   This is exactly why I asked the question.  To see if other investors have 1) seen this and 2) could explain it.

In discussion with other investors that was mentioned but it "seemed" to be not enough to explain away a $200k-$300k increase in the note. Possible tho.

I too didn't believe that anything illegal was going on.  I know the banks/noteholders are being scrutinized after the robo-signing debacle.  Knowing that usury laws were restrictions to a lender just charging outrageous interest rates on defaulting loans, I wondered what else could be driving those severe increases?

Any other theories?

Originally posted by @Rodney D. :

I find it curious that a mortgage/note with its $$ value when originated and recorded is public information, but that amount becomes "private" the day after recordation.

It's even more appalling, when a bank sells a 2nd mortgage/note at foreclosure, subject to the first, knowing full well there is no way for a buyer to find out what the payoff of the first is.  That has GOT to be grounds for a legal action challenging  the owners right to privacy vs. a buyers need for due diligence.

Imagine buying anything, lets say a car, like that.  Owner #1 is selling his 30% share in the car.  You have to pay Owner #2 his 70% share but wait -- Owner #1 is not telling you what is owed on that share -- you just have to find out after you buy the 30% share -- could be more, could be less.  wow...

Jon, I've heard whispers of some investigation companies (websites?) who offer such services for a fee but haven't found one yet.  Wanted to see if any other investor had...

Wayne, yes it was extreme.  I believe the example I saw last week was a 2004 note/trust for $510k open up at foreclosure for a full-debt bid of $830k!  That boggles the mind - a $320k increase in 11 years.  Usury laws have to come into play at some point.   What is worrying is that I'm seeing these more and more often and can't explain it.

-R

 When the banks made second loans they knew the rules and when buyers take over or buy second loans from those banks they have to follow those rules. No one is forcing you to buy these seconds.  

Privacy laws versus buyers right to due diligence. I have never heard of the law that discusses the buyer's right to due diligence. In your example you are discussing shares of something. There is no guaranteed share of anything when you make a second loan.  

Cleaning up some thoughts on this matter.  When an investor bids at auction they are not purchasing a note, they are purchasing an interest in the real property which was granted via the mortgage or deed of trust.  Only that interest is up for auction.  As such, a bank/lender is not actually selling a lien at all at auction.  Nor do they overly control the process or its outcome.  

What is actually happening is the right of redemption, which in Virginia is pre-auction, is being extinguished.  Any party with interest in the property is subject to notice requirements and has a right to redeem the property from the debt.  That party has a right to know the balance in order to redeem.  That said, with no current interest, a third party has no right to that information.  

If an investor does purchase said interest at auction they automatically step in to a position where they must be granted a right to redeem which will also include notice requirements.  So for the record technically it does not mean the investor looses, he/she can redeem if they so choose.  If they choose not to redeem, they choose to loose their capital.  I acknowledge it is a funky form of equity but it is what it is.

This also means, while your frustrations are not without some merit, the actual process and system is not specifically designed to create a property sale.  Rather, it is designed to terminate the redemption right of interested parties.  Hopefully we can start to see how these two things (property sale versus termination of redemption) are not the same.  The two parties, the auction bidder and the lien holder are not acting with the same intentions.

There are numerous reasons why a balance would jump up so high which has been sort of stated.  All interest arrears, which can be at the note rate or in some instances a separate legal "default rate" may apply.  In addition all advances are subject to recovery which includes legal fees and tax and insurance advances.  When larger balance mortgages or deeds of trust foreclose it is not uncommon for the payoff to become much larger than the balance simply by nature of the math on a large number and the high costs that would be associated with a high value property.  Now add time and you get a big number.  

In the example given we have 10 years between the two figures.  Does that mean it was 10 years of interest accruals?  Maybe not but it could happen in some certain setting where a Borrower defaulted and was granted a forbearance or modification which only forgave previous interest and fees upon successful completion of payments.  If that was not accomplished then the entire balance would become due again.  A couple years back (4 or 5) this was a common structure of modification with a couple major servicers.  

Could a loan have stumbled along for over 10 years?  To some extent yes, even though it would not be overly common.  It could also be a perfect storm of sorts where it was negative amortization and this same type of agreement that went south.  Ten years at 10% interest is going to add up if it is all due.  Moral of the story, we will never know without seeing the note terms or any other agreement made which relates to such things.  Again, the trustee has an obligation to make sure the math is correct.  The backup to that is to sue based on some type of injury if one is taking place because a balance is too high.

To repeat one other idea that was stated, second liens are not very valuable for this exact reason.  The chances of any type of recovery are simply not that high.  

To obtain a payoff statement from a superior lien or any lien holder for that matter, you would need consent.  The whispers you hear are probably more BS than reality.  I suppose someone could try and work the system by going through an interested party and obtaining either a payoff statement or a redemption balance or maybe math based on a credit report trade line but again somewhere there has to be a party with interest in the property with a right to redeem cooperating.  I don't see a list of such things being overly available as that likely takes a bit of work.





Originally posted by @Dion DePaoli :

Cleaning up some thoughts on this matter.  

@Dion,  OUTSTANDING contribution!!  Thank you sir!   That was so good I re-read it thrice.  Something "clicked" when you stated

"The two parties, the auction bidder and the lien holder are not acting with the same intentions."

To add, in another thread with a similar topic @Brian Burke had this to say:

Originally posted by @Brian Burke:

 Beware that after the mortgage crises some lenders didn't enforce their loans for YEARS so I've seen first loans with several hundred thousand in back payments that you would also have to pay. Beware.

I suspect this is whats driving the frequency and stratospheric heights of 1st note increases.  Combining discussions from other threads, investors, and forums I've summed up, in order, what I now believe is making a note payoff higher than its origination:

1. Defaulting payments & Foreclosure Legal Fees  -  still the most common scenario resulting in small to moderate increases over the original recorded note amount.

2. Non-Enforcement of Loans  -  "probably" second most common.  Resulting from lenders hitting the pause-button during the robo-signing/mortgage crises in an effort not to get sued by borrowers who were victims of either predatory lending practices or illegal foreclosure proceedings (robo-signing).  Coincides perfectly with the outrageously increased 2005-2009 notes I'm seeing hitting the auction block.

3. Re-Capitalization on Negative Amortized Loans - could run the gambit from low to outrageously high increases in the note.  Probably more a rarity but certainly thrown into the mix.

4. #1 + Legal Fees Associated with Clearing Up Title --  probably the least common.  Where owners/mortgagees file for bankruptcy, lis pendens, or otherwise intentionally cloud title in an effort to prolong the foreclosure process as much as possible.  Accruals = Legal Fees + Prolonged Time owners aren't paying their mortgage.

That taps me out, unless someone has another idea to add to the list....

Thanks to everyone for an awesome, intelligent, high-level discussion!  It truly shed some light into the dark corners of my knowledge.

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