Foreclosures

Discussion in 'Economy' started by indago, Nov 18, 2007.

  1. indago
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    indago VIP Member

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    Know anybody having foreclosure problems?

    Journalist Gretchen Morgenson wrote for the New York Times 15 November 2007:
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    A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.

    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.

    The pooling of home loans into securities has been practiced for decades and helped propel real estate prices in recent years as investors sought the higher yields that such mortgage trusts could provide. Some $6.5 trillion of securitized mortgage debt was outstanding at the end of 2006.

    But as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes, consumer advocates say.

    Now, the Ohio ruling indicates that the intricacies of the mortgage pools are starting to create problems for lenders as well. Lawyers for troubled homeowners are expected to seize upon the district judge's opinion as a way to impede foreclosures across the country or force investors to settle with homeowners. And it may encourage judges in other courts to demand more documentation of ownership from lenders trying to foreclose.

    The ruling was issued Oct. 31 by Judge Boyko, and relates to 14 foreclosure cases brought by Deutsche Bank National Trust Company. The bank is trustee for securitization pools, issued as recently as June 2006, claiming to hold mortgages underlying the foreclosed properties.

    On Oct. 10, Judge Boyko, 53, ordered the lenders' representative to file copies of loan assignments showing that the lender was indeed the owner of the note and mortgage on each property when the foreclosure was filed. But lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages rather than proof of ownership as of the foreclosure date.

    Saying that Deutsche Bank's arguments of legal standing fell woefully short, the judge wrote: "The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the court to stop them at the gate."

    A spokesman for Deutsche Bank declined to comment on the ruling. But the inability of Deutsche Bank, as trustee for the pools, to produce proof of ownership at the time of the foreclosures will fuel borrowers' concerns that they are being forced out of their homes by entities that may not even hold the underlying loans.

    "This is the miracle of not having securities mapped to the underlying loans," said Josh Rosner, a specialist in mortgage securities at Graham-Fisher, an independent research firm in New York. "There is no industry repository for mortgage loans. I have heard of instances where the same loan is in two or three pools."

    The process of putting together a mortgage pool begins when a home loan is originated by a bank or mortgage lender. That loan is typically sold to a Wall Street firm that pools it with thousands of others. Once a pool is packaged, it is sold to investors in different slices, based on risk. A trustee bank oversees the pool's operations, ensuring that payments made by borrowers go to the appropriate investors.

    Lawyers who represent troubled borrowers complain that trustees overseeing home loan pools often do not produce proof, usually in the form of a mortgage note, that their investors own a foreclosed property. And a recent study of 1,733 foreclosures by Katherine M. Porter, an associate professor of law at the University of Iowa, found that 40 percent of the creditors foreclosing on borrowers did not show proof of ownership. Such proof gives a creditor standing to foreclose against a borrower and is required by law.

    "The big issue in all these cases, whether we are dealing with a bankruptcy court, a state court or a federal court, is who really owns the mortgage note, and that is allegedly what they securitized," said O. Max Gardner III, a lawyer who represents borrowers in foreclosure in Shelby, N.C. "A collateral question is, has that mortgage note really been transferred and assigned to the securitization trust? If not, then they really don't have standing. It's Law School 101."

    When a loan goes into a securitization, the mortgage note is not sent to the trust. Instead it shows up as a data transfer with the physical note being kept at a separate document repository company. Such practices keep the process fast and cheap.

    Because most foreclosures proceed without challenges from borrowers, few judges have forced trustees like Deutsche Bank and Bank of New York to prove ownership by producing a mortgage note in each case.

    Borrower advocates cheered Judge Boyko's ruling.

    The plaintiff's argument that "'Judge, you just don't understand how things work,'" the judge wrote, "reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process." The cases could be filed again in state court, however.

    April Charney, a consumer lawyer at Jacksonville Area Legal Aid in Florida, who has been practicing foreclosure law since the late 1980s, said she rarely sees proof of ownership in cases involving securitization trusts. Her group has 30 to 50 such cases and not one of the lenders' representatives has produced proof of ownership predating the foreclosure action.

    "We see a trend toward judges having enough of this trampling of the rules and procedure and care and reverence with which lawyers and litigants and participants in the judicial process should comply," Ms. Charney said. "Hopefully this will convince everybody that the time to work out these home loans is now."
     
  2. indago
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    indago VIP Member

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    Journalist Gretchen Morgenson wrote for the New York Times 17 November 2007:
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    Judge Demands Documentation in Foreclosures — After the recent dismissal of 14 foreclosure cases by a federal judge in Cleveland, another federal judge in Ohio has given lenders 30 days to prove that they own the properties they intend to seize from troubled homeowners in 27 other cases.

    The second judge, Thomas M. Rose of Federal District Court, in Dayton, ruled Thursday that while the lawyer filing 26 of the cases had claimed his clients owned the properties at the time the foreclosures began, he had not submitted the necessary proof to the court.

    “Failure in the future by this attorney to comply with the filing requirements,” Judge Rose said, “may only be considered to be willful.”

    Taken with Judge Christopher A. Boyko’s dismissal of 14 cases in Cleveland last month, the latest ruling indicates that some courts are growing tougher on lenders foreclosing on delinquent borrowers without providing proof of ownership.

    It has long been a common practice for lenders to bring foreclosure proceedings without attaching proof of ownership of the underlying note. Tracking down such documentation may be more challenging because of securitization, the pooling of mortgages into trusts that are subsequently sold to investors.

    Citibank is trustee in one case overseen by Judge Rose; it represents a securitization trust sold in 2005 by First Franklin, a loan originator now owned by Merrill Lynch. At issue in the case is a mortgage on a property in Miamisburg, Ohio, for $191,000. The borrower defaulted in August 2006.

    Another case involves HSBC, which is foreclosing on a $144,000 mortgage on a property in Dayton. The mortgage was underwritten in 2004 and has been in default since October 2006.

    A Citigroup spokeswoman said the company did not comment on pending litigation. An HSBC spokeswoman said the bank had not studied the ruling and could not comment.

    An estimated two million families may lose their homes to foreclosure in the coming years, specialists say. A recent study of 1,733 foreclosures by Katherine M. Porter, an associate professor of law at the University of Iowa, found that 40 percent of the creditors foreclosing on borrowers did not show proof of ownership.

    Such proof gives a creditor standing to foreclose against a borrower and is required by law.

    Judge Rose cited Ms. Porter’s study in his ruling.
     
  3. RetiredGySgt
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    RetiredGySgt Platinum Member

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    It only delays the inevitable. The trusts or banks will crunch the numbers and decide which is cheaper, making a deal or paying for the documentation and refiling forclosure.

    The obvious problem now will be the increase in home costs as this becomes more common. Banks won't be lending money the way they did if they can not be sure they can then reclaim the property on the loan if failure to pay occurs.

    This is a good thing and a bad thing. it is good because it will potentially stop the speculation that fuels higher prices and easy loans that are likely to default. Bad in that actually cost WILL go up and getting loans will become harder.

    Legally the Judge did the right thing. But it is not some moral victory for anybody. The reality is the money is owed and failure to pay should result in forfieture of property that does NOT belong to the borrower unable to pay.
     
  4. indago
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    indago VIP Member

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    RetiredGySgt wrote:
    The gravamen of the articles was proof of ownership, not weaselling out of paying.
     
  5. jillian
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    jillian Princess Supporting Member

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    I agree that the judge did the right thing legally. Debt gets assigned all the time. Certainly, nothing is inherantly wrong with that. But these companies go to court, without proper documentation, and think the Court is going to act as their collection agents. That isn't the role of the Court.

    I don't have sympathy for anyone here. The banks knew they were giving loans to people who really couldn't afford to pay them. And, yes, these people didn't pay the debt they promised to pay. Perhaps everyone in the equation needs to think more carefully about lending and borrowing money.

    You also have to ask yourself how much return the banks got on their loans while they WERE being honored. I truly have no sympathy if they make a little less money because they were greedy.
     

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