Going through bankruptcy is hard enough, especially if you're about to lose your home to foreclosure. It could be worse, however—imagine finding out only after you've moved out and turned the keys over to the bank that your current lender didn't even legally have the right to foreclose! If your mortgage was sold and resold over the years from one bank to another, you may be able to stop or delay any foreclosure action by demanding proof that you actually owe the loan. This is what you should know.

Lenders got very sloppy when times were good.

During the housing bubble of the early 2000s, it wasn't unusual for a home buyer to go through the mortgage process with one bank only to have that bank turn around and promptly sell the loan to another bank—sometimes before the first loan payment was even made. As loans were bundled and sold from one bank to another, lenders often got sloppy about making sure that all the proper paperwork was kept and the right documentation procedures were followed.

For example, your loan was actually secured through what's known as a promissory note. Your mortgage is a separate document that establishes your house as the collateral for your loan. Both of those are critical pieces of paperwork—but one or both may have gotten lost or destroyed during one of the transfers in ownership between banks as your loan was sold. In addition, the old bank may have sold so many loans at once when they sold yours, they may have failed to properly sign over the promissory note to the new bank or forgotten to record the assignment of the mortgage to the new bank in your state's records.

This can give you an opportunity to fight the foreclosure.

One study indicates that 40% of bankruptcies that involve foreclosures have missing paperwork, including such critical documents as the original promissory note or mortgage. Attorneys are starting to demand that the bank currently collecting on your loan provide the proof that they actually have the legal standing, or right, to foreclose. In many cases, the banks can't do it.

If your loan was sold and resold over the years before you went into default, you have good cause to be suspicious about the current lender's ability to prove its right to foreclose. An attorney can help you send the appropriate demand letter asking the bank to provide proof of the loan. If the bank is unable to do so, it may not be able to force the foreclosure to go through. This may be particularly helpful if your home is double-mortgaged and you owe more than your home is worth because the bankruptcy trustee may even go so far as to declare the debt invalid.

Don't move out of your home until the issue is settled.

One key to effectively employing this strategy is not leaving your home at the bank's request. Instead, stay put and let your attorney handle the issue. Even if the foreclosure eventually moves forward, you gain financially by being able to stay where you are for as many months as possible, minimizing your housing expenses and having more time to plan your future.

To determine if this could be part of your bankruptcy strategy, talk with a bankruptcy attorney, such as D Derk Demaree Attorney at Law, today to discuss the specifics of your case.

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