May 24, 2010
Permission To Speak, Mr. President?
See that smoldering, barely recognizable pile of wreckage over there? That was once your private property rights. Now that the government intends to make you a criminal if you finance the sale of any property other than your homestead, an ashy carcass is all that's left of the right to contract with other individuals.
In an attempt to uncover what all these attacks on private property rights really mean to our bottom lines, there have been meetings with several licensing officials, with more planned in the coming weeks. One such meeting took place in Texas last week, with my friend Tom passing along the sticking points. Below is our conversation as it took place through e-mails:
TOM: Tony Florence, who is head of licensing for Texas Dept of Savings and Mortgage Lending, spoke at another group in Dallas last night. I asked if a note was created by an investor who was supposed to be licensed, and
the note was sold at a later date, would the note buyer be liable for the penalties of the note seller? He indicated note buyers would not be held liable. Since the note was already created, the subsequent owner would be held harmless, because the state would have no other jurisdiction. The state has jurisdiction on the entities who create and modify notes only.
CLINT: It just doesn't seem to make sense. Is he saying that the borrowers only ever have recourse with the original seller? How will borrowers ever be protected (which I assumed was the reason for this law) if sellers can eradicate liability altogether by simply selling the note? Not sure Mr. Florence thought that one all the way through.
TOM: The state regulates the licensing of mortgage lenders only. If a seller finance note is created by someone who should have been licensed, or have had a licensed intermediatry, that note is still valid, legal and enforceable. The fact the seller was supposed to be licensed does not negate the legality of the note. The borrower NEVER HAS RECOURSE as it pertains to the licensing of the seller, only the state.
For example, I asked the question what happens in the event someone does create a note not knowing the new law, and how can that seller correct the situation if he/she finds out later about the SAFE Act? The answer was nothing could be done to correct the situation. There is an enforeceable note and deed of trust in place. The state could go after the seller if they found out, but the buyer really has no recourse, nor ever had
recourse with the respect to licensing, except to demand a licensed person. Along the same lines, once the note is created, the Department of Savings and Mortgage Lending has no authority over the existing note. The note can be sold or traded, without the note buyer having any liability.
CLINT: If it is true the borrower never has recourse, then I'm even more irate than before, because it tells me the guise created by the government to "protect" consumers is complete and total garbage. Instead, they have simply taken control of yet more of the private enterprise pie. So remind me again who the government is "protecting" in this instance???Unbelievable.
TOM: You got it.
So, at least according to this one official, there was never any intent to protect borrowers from the "big bad lenders", although all the talking heads in Washington want you to believe that. Instead, it is simply another power grab ala health care reform, credit card reform, etc. The government now has the power to charge violators with crimes, fine them into bankruptcy, yet the borrowers still have no recourse.
Sounds like we've all been shammed ONCE AGAIN. November's coming, people. Vote 'em out. All of 'em. Your elected officials are spraying gasoline all over this country and only you can keep them from striking the match. Do it.
Make it a great week, and have a great long weekend for Memorial Day. Thank you to all who died serving this great country!
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