Can a bank pursue forclosure and judgements when a mortgage was given to a party that had no legal title interest in the property?

UPDATED: Apr 27, 2011

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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


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 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.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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