Adam Levitin | The Restatement of Property and the Road to Mortgagocracy

Mortgage may not be enforced except by a person having the right to enforce the obligation or one acting on behalf of such a person…[including an agent or a trustee for the noteholder.] The trust or agency relationship may arise from the terms of the assignment, from a separate agreement, or from other circumstances. Courts should be vigorous in seeking to find such a relationship, since the result is otherwise likely to be a windfall for the mortgagor and the frustration of [the noteholder]’s expectation of security. See Illustration 10.


The Restatement of Property and the Road to Mortgagocracy

I’ve never seen anything like this before. The Restatement here is saying that “courts should bend over backwards to make sure that the lender wins no matter how badly the lender has f’d things up.” Is it really an accurate restatement of the law to say “lenders win even if they fuck up and don’t follow the law”? That sure sounds like a Mortgagocracy. I suspect that many ALI members would be pretty shocked to find that’s what the Restatement is saying. But it’s got the ALI imprimatur on it.

I get that the borrower has no right to a windfall, but I can’t see why that means that basic principal of agency law should be disregarded and agency relationships implied where they do not exist; the ALI’s Restatement (2d) on Agency (sec. 15) is quite clear in stating that an agency relationship requirement mutual consent. It isn’t an implied set of fiduciary duties, etc. Current agency is going to be implied from a past course of dealing? What if the scope of that agency varied in the past? Curiously, the Restatement cites NO cases in support of its point.

Let me be clear. I don’t think anyone deserves a free house. But a mortgage is a contract, and a background term to that contract is that the foreclosure has to follow the law. That’s part of the deal, no different from any other (non-severable), material term. Otherwise, why not allow self-help foreclosures and evictions?

I don’t think it’s too much to say that if you’re going to engage in a major financial transaction like making a mortgage loan, you’ll be expected to follow the law correctly or not enjoy its benefits. Both lenders and borrowers have to play by the rules. If you don’t pay the mortgage and the lender follows the law, you lose your house. But following the proper legal procedure is no less important than the default in a foreclosure; both are equally important requirements. It’s not a windfall. It’s part of the mortgage contract.

Check out Adam’s post in full here…


5 Responses to “Adam Levitin | The Restatement of Property and the Road to Mortgagocracy”
  1. lvent says:

    What windfall to homeowners?? Homeowners are the only entity here who have any skin in this mortgage fraud scam!!! Why are there so many people who talk out of both sides of their mouth??? The law is the law and no one is above the law professor levitin..the law is well settled on fraud…any act of fraud in a legal contract nullifies the legal contract…..there is no legal fix for fraud…..they must rescind….God forbid someone did the right and legal thing and rescinded these frauduldent contracts…for the love of God….these financial institutions committed $700 trillion in collateral mortgage fraud…they made hundreds of trillions off of this scam and you have the nerve to say homeowners do not deserve a windfall? ??? How do you people sleep at night knowing this is all true??? Did the Jesuits give you a scholarship to Georgetown??? If they never delivered the notes to the trust and sold these as securities….they committed securities fraud….they should all be kn prison for life…..gees…this backpedaling just had to stop!!!!!

  2. To Tell The Truth says:

    There is no windfall to the buyer…only to the bank repeatedly with funds created by the buyer…and the buyer maintained the home with additional funds etc…so they deserve to have their home free and clear esp if they were paying principal and interest to a fraudulent person…total it all up and the loan is paid off…so there…

  3. Marianne says:

    Well I paid my mortgage to Option One and then it became American home Mortgage and didnt know i was in foreclosure until the person who bought my house came to my door>. I was never served and lost my house. I have attorneys helping me fight. But all in all i lost my house. cant take away my pain i never should have lost my home

  4. lies is all they tell says:

    lieing on the mortgage application and appraisals should be a priority. we were all scammed into believing we could afford these homes. unless there was a job loss or medical problem. we can’t sell. what do we do

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