Wow: Judges Now Nixing Lenders’ Foreclosure Claims Entirely in Court 33 comments
an article to
-
Font Size:
-
Print
- TweetThis
This is probably my fourth post on the tangled web woven by securitization, which puts a considerable distance between home owners and mortgagees which own a mortgage. The issue is causing huge problems in bankruptcy and foreclosure in courts around the U.S.
This morning, Gretchen Morgenson has another good piece out describing how a judge nixed all claims by mortgagee which refused to modify a home owner’s mortgage.
The debtors’ revolt is on.
For decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.
But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
I see this as a watershed case in jurisprudence surrounding mortgage-related bankruptcies and foreclosures. The reason this is huge is that it echoes the case in Kansas I have written about in two previous posts:
- “Why mortgages aren’t modified and what a ruling stopping foreclosures means”
- “What are the legal rights of lenders and homeowners in foreclosure?”)
At issue is the question of what legal rights do lenders or their agents have in foreclosure in the new byzantine world of securitized mortgages. In the New York case the judge nixed the entire claim as the mortgagee could not prove it had legal claim to the mortgage note. With the mortgagee unable to show ownership, the homeowner might even be able to stay in his home mortgage-free, Morgenson attests. That’s huge – and we should definitely expect an appeal.
In the Kansas case, MERS, a mortgage registrar, and a second-mortgage mortgagee were not informed of the homeowners bankruptcy and disposition of assets and claims before judgment was made. Nevertheless, the district court, the appeals court AND the Kansas supreme court all upheld the original summary judgment arguing that MERS was not contingently necessary. While I would expect this case to be appealed because of the precedent it could set, I don’t see how it can be overturned after affirmation in every court – that is except through a politicization of the verdict.
Notice how PHH and MERS, the two lender agents in each cases, are not the actual owners of the mortgages. They are the servicers of the mortgages. This is why these cases have a lot to do with securitization
See also: How much money is Wells Fargo really making? for how some of this affects earnings at money center banks.
Morgenson had another article of merit on this topic last week. See her piece The Mortgage Machine Backfires. This could get interesting.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This securitization of mortgages may be the death of the greedy banksters after all. A significant increase in the numbers of such court decisions could bankrupt the big banks holding the securitized mortgage debt in the end (as it probably should have in the beginning) as the realization sinks in that the securities they hold have huge worthless holes in them caused by court orders that wipe out mortgage debt.
The problem with the complexity involved in understanding these securities may be the eventual undoing of those who hid behind it in the first place. Wouldn't that be poetic justice?
I believe you are right that the banks may have outsmarted them selves, read that fu@ked themselves.
This story is going to be very interesting to watch unfold.
> Wow is right! If this set of "technicalities" resulting in wiping
> out the mortgage debt obligation is not overturned or corrected to
> make sure its appliation is specific to these circumstances, we could
> have a growing lender's revolt too.
>
> Why should anyone in their right mind risk making loans in this invironment?<
Actually 'the Gnome', the original lender of the money would not be harmed if the mortgage is sold to a 3rd or 4th party. It's the idiot who purchased that mortgage as part of a bundled investment who would be at risk if he can't provide the mortgage documents. So theoretically it wouldn't hinder new loans from occurring, but it would hinder the dirty scam of bundling up mortgages and selling them as A-1 investments (which in most cases they aren't). I think overall, this is a very positive development.
> Lenders wanted to "lose" their responsibility for the mortgage (by
> re-selling it) and ended up losing their collateral.
>
> When you "sell," you've got to transfer EVERYTHING to the new buyer,
> to make the sale valid.<
Good point! What you're suggesting is that there is a massive fraud involved here. So I'm thinking that no matter where the courts would find fault, if the documents can't be found, the home buyer (the most innocent actor in the entire play) will ultimately be the winner. I say everybody who has a mortgage should immediately demand that the documents be produced, and if they cannot be produced within 30 days.... stop paying.
Is there a lawyer in the house that can clear this up.
We need a realestate lawyer to comment on this.
“MERS did not even act as the servicing agent to receive the payments and remit them to the lender.”
MERS attempts to act “solely as nominee for Lender” however its authority to act as lender agent is flawed and dubious, which the decision also points out.
www.kscourts.org/Cases...
MERS functions as a cover-up, shielding lenders from predatory claims and thwarting consumer claims of mortgage servicing fraud. By design, MERS was conceived to save costly recording fees and to expedite time line running from servicer fabricated defaults to foreclosure.
It has me sitting up nights thinking how can I game the system, I actually feel like a complete sucker for being honest.
MERS does not record by Assignment each and every transfer of interest in the Note and Deed of Trust. This creates an "Unperfected Title" with regard to Assignments. We are clearly in the process of finding out to what extent this will void MERS role in foreclosure activity.
www.loanfraudinvestiga...
Rocks & Guns - Not only did the big banks do a lot of the securitization, they also ended up trading in these securities and continue to hold hundreds of billions of dollars in face value in these securities on their books. They bought from each other and repackaged, breaking them up and re-aggregating the mortgages into new CDOs, then selling them again to create more fees. They have created a web of complexity that may, in the end, leave them holding securities for which they aren't certain of the underlying assets.
The problem is, as Mutant pointed out, that the ownership of the individual mortgage has not been properly recorded by each owner as the mortgage was packaged within a CDO, broken apart and then repackaged again, again, and again. They own the security, but as far as the county recorder is concerned, there is no record of their owning the individual mortgages that make up the CDO.
So, here's to hoping that all of our mortgages have been securitized and repackaged many time over!
A pox on the banks and MERS.
However, I feel compassion for the individual investors who were told that these were safe investments.
Lawyers engaged in every aspect of these transfers. So, they were relying on professional advice. They should have understood that a mortgage could fail, but not these mechanical issues. So, maybe the individual investors will have recourse against MERS and the companies that packaged these investments.
Furthermore, the existing judgements opine (correctly) that just because someone has an investment in the real property doesn't automatically give him the right to foreclose. Quite right.
As a result of these decisions, I think that MERS will be going back and establishing a paper trail by filing the appropriate documents, then going forward with foreclosure. I do not foresee that they will continue to perpetuate the error that is already costing them dearly.
The next step is for the home owner, now with vacated mortgage in hand, to sue the company that serviced his mortage and recover all mortgage payments paid after the transfer was invalidated, plus damages. If I was a young lawyer, I'd be looking at those opportunities with a keen eye.
Wow, there is an edit button for comments now. Thank you, SA!
The first thing a homeowner should do if threatened with foreclosure is to ask to see the Note.
If I understand the legal aspect correctly, I don't see that there's any particular mystery here. The home purchasers may be in for the biggest break of their lives. Imagine that! Talk about returning wealth to where it rightfully belongs. But at the same time, if millions of mortgages were theoretically eliminated "overnight", that would represent a massive credit contraction, would it not? That would be massively deflationary, causing the dollar to surge in value and the markets to tank.
Let's pretend just for the sake of a laugh that it were to unfold as I think it "could", deflation would cause the cost of all real things to drop, including homes. But the people really shouldn't care because they would own their homes outright, would have no debt now that their mortgage has been "vaporized", and at the end of the day, there would have been a massive, massive shift of wealth from the oligarchs to the real producers in the economy... those who actually work for a living.
That's too good to be true. I must be getting tired.
On Oct 26 02:22 PM User 428779 wrote:
> If the lender cannot produce the original note, how does the consumer
> know it hasn't been sold to someone else and this someone could at
> any time pop up with a legally valid note in his hands?