Foreclosures Hit a Snag for Lenders

The New York TImes ^ | November 15, 2007 | Gretchen Morgenson

[givemELL]

Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize.

[1L]

The mortgage servicer, who may (and probably is) a totally different party.

[Orange1998]

I agree with you. How can a lender who did not originate the loan enforce the foreclosure proceeding with made up documents. Wallstreet has convoluted the whole process to where they don’t have a clue who truely holds the paper. A debtor makes the payments out to one company but another company starts the proceedings when in default? I say let them prove up first.

[RGSpincich]

is a godsend to mortgage holders

Not unless it stops the meter and converts the loan to subprime for life. Looks like a delay of the inevitable to me.

[Alberta's Child]

"I have heard of instances where the same loan is in two or three pools."

This isn't all that uncommon. This kind of innovative approach to creating securitized mortgage pools goes back to the early days of the mortgage bond industry -- when big institutions like Salomon Brothers would create these odd securities called IO/PO bonds. These terms mean "interest only" and "principal only" -- and they referred to unusual collateralized bonds in which the principal payments from one set of loans were bundled together with the interest payments from another group of loans. So a homeowner's mortgage payments -- unbeknownst to him -- may be going to two separate investors who purchased his mortgage from the bank that originally lent him the money.

I'm not an expert in the mortgage bond business, but I believe there are reasons why this type of arrangement works well for certain types of investors. It may have something to do with the inherent "cash-out" risk associated with any mortgage because of the homeowner's right to pre-pay the mortgage at any time without a penalty.

[org.whodat]

You send the payments to who it says in your little payment book, but alway make sure you keep your canceled checks forever.

[TheLion]

Problem is....they can’t prove they own it. This needs to be sorted out somewhere. It just happens to come at a bad time for some of these paper holders.

[givemELL]

So far, really thoughtful, considered responses...thank you all.

[expatpat]

It may end up as a bunch of class-action suits....

[TheLion]

Interesting post. You could end up with more than one company forclosing on you. I can see why the judge ruled this way.

[seacapn]

I think it was the right decision. It's a basic principle of law that if you make a claim against someone based on an obligation owed to you, that you can document that obligation. If you can't document it in the way the law requires, then you can't use the court system to enforce the obligation. That's why we first had doctrines like the 'Statute of frauds' that require certain obligations to be in writing, and to be written in certain ways.

No matter how complex mortgage-backed securities get, if you want to foreclose, you'll still need to prove that you, in particular, have the right to foreclose. The judge is just telling the bank that their documents don't meet the requirements.

[givemELL]

A humorous, and very informational site on this topic is:

http://elainemeinelsupkis.typepad.com/money_matters/2007/11/foreclosed-hous.html

[A CA Guy]

There is no free ride, if the court overstepped anything on the lower level, the higher court will reverse the prior ruling.

[Hydroshock]

Economy/Credit/Housing Issues Ping List

If you want on or off this list let me know

[SShultz460]

bm for later

[jrsmc]

If you could rephrase that in a way that makes sense I'd be forever indebted.

Not if the judge throws it out...

[Brilliant]

The question of who technically “owns” the mortgage is somewhat academic, though, because the “owner” is merely a representative of certain easily identifiable bondholders who are entitled to be paid. Clearly the bondholders have a right to be paid from the properties. They can appoint anyone they want, and who they appoint is between them and the appointee, having nothing to do with the obligations of the mortgagor.

[RipSawyer]

Ok not solely...maybe 95% to blame.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

I used to receive mailings touting how I could borrow up to 120% of the value of my real estate (it was mortgage free). I never took advantage of this but if I had how would you apportion the blame?

[RipSawyer]

your little payment book, but alway make sure you keep your canceled checks forever

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

I don’t have a mortgage to worry about but my bank stopped sending out canceled checks years ago. What do you do then?

[Calpernia]

The shore area of our state (NJ) has been having their home owners insurance dropped. People are in danger of losing their mortgages. The claim is storm related areas and they no longer cover the area.

The shore area had experienced a boom in home purchases during the ARMs frenzy and now the homes are going to end up in foreclosures due to mortgages not being honored without homeowners insurance.

[bert]

Well, that is not entirely true. The article states that the mortage note is physically held by a company that warehouses such documents.

The borrower has not really gained anything but perhaps some time. The forcloser is being forced to produce in the forclosure court the actual mortgge note rather than a document attesting to its existance and actual location.

The forclosed borrower is likely out the legal fees for the first battle and will still lose the war and additional legal fees in the next battle when the actual note is produced.