Can a bank pursue forclosure and judgements when a mortgage was given to a party that had no legal title interest in the property?
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Can a bank pursue forclosure and judgements when a mortgage was given to a party that had no legal title interest in the property?
There was a construction loan processed to a property that my wife and I owned directly in our names. Not until we had gone through a complete foreclosure process on this same property, that we noticed that the borrower on the loan was in one of our corporations rather than in our name personally. We signed all mortgage papers as agents to this corporation which had no legal title to the property, and in addition, we became guarantors to the loan. All documents were recorded in the county with these errors. So is the loan legally binding? Should the bank have done a title search before proceeding with foreclosing on an incorrect mortgage? What rights do they have and not have? Can they foreclose and seek judgments? Is the title company liable? Could the court consider this loan unsecured?
Asked on April 27, 2011 under Real Estate Law, Florida
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
Technically, you may be right--if the corporation did not have title to the property, it can't grant a security interest in it. On the facts you describe, however, a court may impose an equitable duty on you to convey a security interest as the property owners; that's because since you own and control the company; signed the mortgage on its behalf; own the property; and guaranteed the loan, it is clearly "your" mortgage in all but the technicalities and you were the beneficiaries of it. When that is the case, a court may exercise its equitable powers, which are very broad, to in some fashion or another impose a mortage. That's not to say that you shouldn't raise the argument at need, or that you might not prevail, especially in the current (anti-bank, anti-foreclosure) climate, but when someone had all the power and reaped all the benefits, courts are often disinclinded to let technicalities of who signed what stand in the way of enforcing obligations.
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