Is This Too Good To Be True?

[MSbklawyer]

This is sort of convoluted, so bear with me:

About 2 years ago my client took a $20,000 second mortgage on her home with "Friendly Family Finance Company, Inc." at a ~ 30% interest rate. Naturally, she fell behind and now the finance company is initiating foreclosure proceedings. A recent appraisal shows about $5000 in equity above the first mortgage, so there's no way we can strip the second off.

The note signed by my client, the deed of trust, in fact every piece of paper connected with the transaction refers to the lender as "Friendly Family Finance Company, Inc." The prommisory note says "I promise to pay Friendly Family Finance Company, Inc. . . " and so on.

So today, in an effort to find out who the company's attorney is, I went to the corporation page on the Mississippi Secretary of State's website and looked up "Friendly Family Finance Company, Inc." What I found was, there is no such company! It hasn't existed in over 10 years. It was administratively dissolved by the Secretary of State long ago because the owner didn't pay the annual corporate fees.

So essentially, my client promised to repay a non-existent entity. The mortgage is held by a non-existent entity. So, to whom, if anyone does my client owe her payments? Can a non-existent entity file a valid proof of claim?

Is the second mortgage enforceable by ANYONE?

[BobMango]

My understanding is that when a company is administratively dissolved by the state, any property owned by the company will revert to the principals of the dissolved company. At least this is how it works in Washington state, based on my experience.

My guess is that whoever was cashing the checks would be that person or persons.

[flyinbroke]

You're the lawyer, you tell us! ;-)

[MSbklawyer]

My understanding is that when a company is administratively dissolved by the state, any property owned by the company will revert to the principals of the dissolved company. At least this is how it works in Washington state, based on my experience.

My guess is that whoever was cashing the checks would be that person or persons.

That's true, but see, it was already out of existence when she took out the mortgage. It didn't exist when she promised to repay it.

You're the lawyer, you tell us! ;-)

I'm researching it. I just ran across this an hour or two ago.

[momofthree]

I'm intrigued. Keep us posted.

[HakunaMatata]

At first, I was appalled by the 30% and "friendly" combo. Who knows...maybe these folks were truly friendly family?!

Very interesting. Keep us posted! (Oh, and if you find out HSBC didn't exist ten years ago, let me know!)

[DeadManCrawling]

I wonder, too, whether the debt is owed. At the least, there should be UCC violations that take this to another court, and could result in sanctions there. Perhaps even removing the debt.

In our Corp it is vital to file certain things and so on, as you all know. If we did not file those things, and were dissolved, it would presumably break not only UCC but result in a total mingling of funds, and should put the principals personal assets at risk in state court.

[BobMango]

That's true, but see, it was already out of existence when she took out the mortgage. It didn't exist when she promised to repay it.

I missed that in the first read, that's definitely an interesting wrinkle. I'll certainly be interested to learn how this turns out.

I wonder if there is some claim related to false representation when the loan was made?

[MSbklawyer]

I just found a Mississippi statute that says that if a corporation has been administratively dissolved for less than 5 years, that it can be reinstated retroactively. But it has been more than 5 years since it was dissolved.

[tigergem]

Let me know what you find out, please. I have a very similar situation, but even more convoluted than this. It involves multiple assignments and TWO defunct companies. As soon as my deadline to file objections to confirmation has passed, I need to file something on this... I think I am looking at a Motion to Determine Secured Status.

[Dst1]

I don't see how a non-existent entity can file a proof of claim as it has no legal standing to do so.

But there might be some entity that could. Just because she has a contract with XYZ company doesn't mean that XYZ company is the only one with an interest in property. It's entirely possible that someone has bought the assets of XYZ company and the owner then just let the entity dissolve.

Who has the owner of the property been sending funds too? Is the bank account also in the name of XYZ company? If not, who is it.

BTW, I would not fight this in BK. I would fight the foreclosure and claim the company has no standing to foreclose since it doesn't exist.

[tigergem]

Well, in my case, an apparently functioning company has made a claim on behalf of a defunct company. But that defunct company is not the other defunct company that I was previously making payments to. Yeah it's all weird and convoluted. None of the assignments they presented as proof of claim actually work in their favor either.

[BKDefender]

Just because the company doesn't exist in Mississippi doesn't meant it doesn't exist in another state somewhere. The complaint should include the address of the attorney who filed it. Since it is a corporation, it has to be represented by an attorney and cannot be represented by a shareholder if it's not a publicly traded company. At least that's the rules in Nevada, and I would hope most states too.

Also, contact Mississippi's Division of Banking (if that's what it is called?) to ask them whether that entity was licensed to make real estate loans in your state at the time the loan was made. See if they know of any particular opinion issued by MS's Attorney General's office regarding validity of loans by unlicensed entities.

In Nevada, if they weren't licensed, then they can't have a valid enforceable contract, nor a valid secured lien and would have to sue your client in state court first for unjust enrichment, breach of oral contract, etc - but it would be an unsecured loan dischargeable in bankruptcy. Hopefully it's the same in MS.

--William

[MSbklawyer]

Just because the company doesn't exist in Mississippi doesn't meant it doesn't exist in another state somewhere. The complaint should include the address of the attorney who filed it. Since it is a corporation, it has to be represented by an attorney and cannot be represented by a shareholder if it's not a publicly traded company. At least that's the rules in Nevada, and I would hope most states too.

Thanks for your input William. What they have done is file a proof of claim in her bankruptcy listing the nonexistent corporation as a secured creditor. Mississippi is a non-judicial state for foreclosures, so they haven't had to file a complaint.

I seriously doubt he's organized in another state. I checked the states bordering Mississippi and it's not organized in any of those states. The owner is a small time, local, loan shark wannabe who runs a couple of payday loan places and a couple of finance companies.

Also, contact Mississippi's Division of Banking (if that's what it is called?) to ask them whether that entity was licensed to make real estate loans in your state at the time the loan was made. See if they know of any particular opinion issued by MS's Attorney General's office regarding validity of loans by unlicensed entities.

Done that, and he's NOT licensed. But the law provides that this does not affect the obligation of the borrower

In Nevada, if they weren't licensed, then they can't have a valid enforceable contract, nor a valid secured lien and would have to sue your client in state court first for unjust enrichment, breach of oral contract, etc - but it would be an unsecured loan dischargeable in bankruptcy. Hopefully it's the same in MS.

--William

I've been looking all afternoon and I cannot find an on-point case in Mississippi. There are several in Texas though that say that an administratively dissolved corporation is a nullity; a non-entity; that for legal purposes it is just like a dead person; that cannot enter into any contract and cannot enforce any contract it attempts to enter into.

My thinking is that I should object to the proof of claim in the bankruptcy court on the basis of the non-existence of the creditor corporation. If that is successful, the best he would have is a general unsecured claim.

GOD I would love to have the court treat this as unsecured, because she's not paying unsecureds anything.

[justbroke]

MSbklawyer, I would just attack standing.

(I'm actually working on this myself, but for an existing lender that is now defunct, but that filed the original Mortgage with MERS, but kept the Note. But then sold the Note at least 2 times, but trying to foreclose as the 3rd noteholder, but no assignments or traceability as to their standing to foreclose.)