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 FBI recently raided the office of the Dorean Group, a big promoter of the mortgage elimination scheme. Click here to read about it.
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:
- Pay it off in full
- File for chapter 7 bankruptcy (in which case you will not be liable for the mortgage note, but you will also lose the house)
- 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.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551
DIVISION OF BANKING SUPERVISION AND REGULATION
SR 04-3 January 28, 2004
TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION STAFF AT EACH FEDERAL RESERVE BANK AND DOMESTIC AND FOREIGN BANKING ORGANIZATIONS SUPERVISED BY THE FEDERAL RESERVE
SUBJECT: Debt Elimination Scams
Board staff has become aware of various illegal schemes being offered to the public that purport to eliminate outstanding debt through the use of specially prepared documents. The organizers of these schemes concoct specious legal documents based on the borrower's debt, which are then presented to the borrower's bank, mortgage company, finance company, or other lending institution in an attempt to satisfy the debt. The scams are reminiscent of the tax protesters' tax evasion schemes seen throughout the 1990s.
The purported legal documents used in the current scams include fake financial instruments that claim to eliminate the borrower's debt obligation. The instruments usually question the authenticity of financial obligations, and often refer to a specific government agency (such as the Federal Reserve) in an attempt to support their claims. Some of the literature seen by Board staff questions the legitimacy of the Federal Reserve and the validity of United States currency. The literature may selectively cite from passages of government publications, statements by politicians, constitutional provisions, court decisions, various statutes, and private newsletters to support claims and to ultimately conclude that a specific government agency sanctions these debt elimination programs. For example, some of the documents specifically refer to the elimination of debt through the use of a "Federal Reserve approved" procedure.
Debt elimination programs that claim Federal Reserve approval or acquiescence and the satisfaction of legitimate debts through the presentation of suspicious documents are totally bogus. The Federal Reserve does not approve and is in no way involved in any program aimed at eliminating anyone's debt obligations.
These schemes are proliferating on the Internet, and the organizers are charging borrowers substantial up-front fees and commissions based on the total amount of debt that can be forgiven. Members of the public are being harmed as borrowers generally pay significant amounts of money without eliminating or reducing their overall debt obligations - which of course is not in fact possible through any of these programs. Also, the cessation of legitimate loan payments increases the risk of a foreclosure or other legal action being taken against the borrower, and in addition could negatively affect a borrower's credit rating. Financial institutions may find that the use of the specious documents complicates the collection process, and may at least temporarily prevent any final action against the consumer.
Examiners and banking organizations should be cognizant of these scams, and the public should avoid becoming involved with them. Bank holding companies and state member banks should modify their policies and procedures as needed to ensure that staff involved in any way in a lending function is able to identify and respond appropriately to these current schemes. If an institution supervised by the Federal Reserve is presented with fraudulent documents as described in this SR letter, the institution is expected to file a Suspicious Activity Report (SAR) in accordance with the Board's suspicious activity reporting rules. The banking organization must also retain the written materials associated with the purported debt elimination scheme as supporting documentation to the SAR, as required by the Board's SAR rules.
Reserve Banks are asked to distribute this SR letter to domestic and foreign banking organizations supervised by the Federal Reserve in their districts. Questions regarding apparent fraudulent debt elimination schemes can be directed to Leonard Zawistowski, Senior Special Investigator, at (202) 452-6488.
Richard Spillenkothen
Director
http://www.federalreserve.gov/boarddocs/srletters/2004/sr0403.htm ALERT from the Office of the Comptroller of the Currency.
Subject: Illegal Financial Activity Description: Fictitious Debt Elimination Schemes
Date: October 1, 2003 TO: Chief Executive Officers of All National Banks; All State Banking Authorities; Chairman, Board of Governors of the Federal Reserve System; Chairman, Federal Deposit Insurance Corporation; Conference of State Bank Supervisors; Deputy Comptrollers (districts); Assistant Deputy Comptrollers; District Counsel and All Examining Personnel
RE: Debt Elimination Schemes using Fictitious or Worthless Bonds, Due Bills and Bills of Exchange
Please be advised that worthless instruments entitled "Bond for Discharge of Debt", "Bill of Exchange," "Due Bill," "Redemption Certificate," or other similarly titled documents continue to be presented to financial institutions, mortgage companies, credit card issuers, and retail establishments throughout the United States in an effort to eliminate legitimate debts. Many of these schemes are premised on baseless or fraudulent claims against the United States Treasury, the Secretary of the Treasury, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Internal Revenue Service, or other federal or state agencies. (See also OCC Alert 2003-7 and OCC Alert 99-10).
Regardless of how such instruments or documents are titled or whether they appear authentic, they are worthless, have no legal validity, and are not payable through the United States Treasury, the Secretary of the Treasury, the Comptroller of the Currency, or any other federal or state agency. The OCC is aware of the following organizations and Web sites promoting these fraudulent schemes: · America's Advantage · eliminatemortgages.com · goodbyemortgages.com · mortgageelimination.net · the7thfire.com · Financial Dynamics · remedywithredemption.com
The creation and presentment of these fictitious instruments may be a violation of Title 18, Section 514, Fictitious Obligations, or other federal criminal statutes, and any person(s) using such fictitious instruments with the intent to discharge valid debts may be subject to criminal prosecution. If a fraudulent document such as those described above is presented to your financial institution, do not return it. Instead, retain the document and file a Suspicious Activity Report. Deliver the instrument and a copy of the SAR to the local office of the Federal Bureau of Investigation.
Please direct any questions or provide further information to the attention of the OCC at:
E-mail: occalertresponses@occ.treas.gov Mail: Office of the Comptroller of the Currency Enforcement & Compliance Division, MS 8-10 250 E Street, SW, Washington, DC 20219 Telephone: (202) 874-4800 Fax: (202) 874-5301 Internet: http://www.occ.treas.gov/
