A reader pointed to a link that shows that an Ohio judge rejected the foreclosure on 14 properties by Deutsche Bank because they failed to establish that they had the right to foreclose.
Before readers get too excited, remember this is only 14 mortgages and this sets a precedent only for Ohio (foreclosure is a state law matter). However, the article suggests that in securitized deals, the RMBS legal entity may not have done a sufficiently good job of maintaining the paper trail. They need to either hold the mortgage, or have documentation that proves that they are an assignee, trustee, or hold a successor interest. So it also isn’t clear whether this is a widespread problem in the industry, or limited to certain securitizers.
From Iamfacingforeclosure.com:
Judge Christopher A. Boyko of the Eastern Ohio United States District Court, on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.
Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the court would enter a dismissal…..
Apparently Deutsche bank submitted several affidavits that claim that Deutsche was in fact the owner of the mortgage note, but none of these affidavits mention assignment or trust or successor interest…..
While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it is a big blow to the cause of sorting out the high-finance side of the mortgage mess.
The “no standing” argument is pretty straightforward, and could be pursued by alert attorneys (but of course, that persupposes that the poor chumps losing their home can afford to hire a lawyer to defend them). Nevertheless, the Legal Aid attorney, April Charney, who represented the homeowners argued that the issue of the securitized trust failing to own or have the proper rights to the mortgage is pervasive:
This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.
That means that the loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged “sale” to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require.
This also means that many securitized trusts don’t really, legally own these bad loans.
In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing…
This opinion, once circulated and adopted by state and Federal courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.
I am curious to see what Tanta over at Calculated Risk makes of this decision.
Update 11/15, 12:00 AM: Most readers have probably already seen Tanta’s excellent commentary on the case. Basically Deutsche Bank did not present the documentation in their foreclosure filing to establish that they did indeed either own or had the rights to the mortgage assigned to them. The judge told them to produce the documents. Instead of doing that, the attorneys for Deutsche instead drafted some assignment documents that stated the intent to convey the rights. The judge correctly said that didn’t work in a colorful opinion, and dismissed the case without prejudice (that means Deutsche can come back when it gets its act in gear).
Tanta pointed out that the real implication of the story was that all the years of scrimping on the back office was going to come back and haunt these organizations. It will be much more costly to remedy the situation than to have done it right in the first place. Ah, but that “first place” was years ago, on someone else’s watch, and he still probably got a nice bonus for the cost saving.
Now the the New York Times has picked up the story, along with the results of a study of 1733 foreclosures found that 40% did not present proof of ownership. However, even with this avenue, it remains unclear how many financially stress borrowers could contest a foreclosure, even when the bank’s documentation was deficient.
4 comments
Comments are closed.
Sigh.
Tanta over at Calculated Risk has been inundated with requests to talk about this all day. She has also been trying to avoid it.
That blog post is so badly written that I just don’t see the point of speculating about what it might mean.
Now–if you or one of your readers has PACER access and can email me a copy of the Order referenced, then I’ll write about it. But I don’t see the point of trying to unpack the slovenly language of a blog post like this to guess about what it means.
And this April Charney’s a real character, it seems to me. I don’t object to homeowner attorneys finding any trick they can to delay or stop an FC, including making hay out a recording date on an assignment that predates the lis pendens or whatever. But to turn that into some gradiose claim that this is FRAUD?
[Tanta bangs head on desk, heaves another heavy sigh]
Tanta
I share Tanta’s frustration with this blog post. However, just for discussion purposes, what would be the impact if the ruling really does have broad implications, and really does stop a significant portion of foreclosures “dead in their tracks?” What effect would that have on the value of some of these complex financial structures that rest on mortgages?
Though the post doesn’t say this, I would guess what’s happening in this case is Deutsche Bank is using false affidavits to try to skirt around evidence requirements. Third-party debt collectors in credit card cases do this all the time. It’s staggering that anyone would do this on a mortgage, as opposed to a $2,500 credit card debt, but I suppose that’s what we’ve come to.
Buy it. Sell it. Make a profit. It’s All Tuna! Just don’t eat it. “That tuna was for buying and selling, not eating.” It appears that mortgages were for buying and selling not for obtaining a house in which to make a home.