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On verge of foreclosure, some homeowners are demanding: Show me the note!
Saturday, April 4, 2009 6:28 AM PDT
Good news is on the horizon for homeowners facing foreclosures. But the origin of the glad tidings is curious, to put it mildly.
What’s emerging is that financial institutions in their race to rack up ever-increasing profits neglected the most basic bookkeeping tasks.
As reported in the New York Times by Gretchen Morganson, “notes that underlie mortgages placed in securitization trusts must be assigned to those trusts soon after the firms create them. And any transfers of these notes must also be recorded.”
In comparison with bilking the public out of billions, formally recording a change in ownership is tedious and time-consuming — stuff for the grunts to do.
But suddenly, for those who didn’t bother, it looms as a huge problem.
For institutions too lax to tend to details, and bankruptcy courts are discovering many that were means that if they cannot prove they own your mortgage, they can’t throw you out.
Think of it this way: A borrower in arrears on his payments gets a letter from the ABC Bank saying it’s foreclosing and he has 90 days to vacate. But he replies, “Who are you? I got my loan from XYZ Bank. Prove to me that you hold my mortgage.”
Here’s an example given by the Times.
On Feb., 11, a Miami-Dade circuit court judge set aside a judgment against Ana L. Fernandez, a borrower whose home had been foreclosed and then repurchased on Jan. 21 by Chevy Chase Bank, the institution claiming to hold the note.
But Chevy Chase couldn’t produce evidence that the original lender had assigned the $225,000 note to it.
As a result, Fernandez remains in her home.
The potential for chaos is enormous.
According to Inside Mortgage Finance, during 2005 and 2006, eight million sub prime mortgages with an aggregate value of $1.6 trillion were put into securities pools for resale to investors. Even if only a small percentage has incomplete documentation, endless litigation could result.
Adding to the probability of increased lawsuits is a growing group of consumer attorneys who have argued for years that the process of pooling residential mortgages into securities is too haphazard to be reliable. Those lawyers now train their peers nationwide to alert them to the litigation possibilities.
Careless bookkeeping is on the American Bankruptcy Institute’s annual spring meeting agenda beginning on April 3.
A paper titled “Where’s the Note, Who’s the Holder: Enforcement of Promissory Note Secured by Real Estate,” co-written by the Honorable Samuel Bufford and R. Glen Ayers, a former federal bankruptcy judge in Texas, analyzes the problem in more detail.
Ayers, a lawyer at Langley & Banack in San Antonio, said documentation problems will prevent a lot of foreclosures.
The report cites another expert who estimates that as many as one-third of “securitized” notes have been lost or destroyed.
In such cases, those who may claim to hold the note but cannot prove it therefore do not have the right to foreclose.
In the meantime, when the court is not convinced that the documentation is proper, delinquent borrowers can remain in their homes.
I asked Ayers exactly how long a person caught up in these strange circumstances might expect to stay.
Ayers replied, “If a lender goes to a court to foreclose by judicial foreclosure and cannot prove that he/she/it owns the note or is an authorized agent of the note holder, and the case is dismissed, I think that the landowner continues to occupy the property and makes no payments to anyone until someone comes along with the right evidence.”
In what would be an amazing twist of fate, instead of being foreclosed upon, the homeowner stays put — possibly indefinitely and rent free — until someone can produce the note.
For the luckiest of them, that day will never come.
Joe Guzzardi, who is current on his payments on his unsold home, is keeping his fingers crossed for some good news in the housing market. Accounting messes aren’t it. Contact him at guzzjoe@yahoo.com.
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Rhodie wrote on Apr 5, 2009 10:22 PM:
P.S. Yes we are currently looking at the pros and cons for the low interest market and wieghing the real benifits and how it will fit in with having the house paid off in a few years. "
Cogito wrote on Apr 5, 2009 6:55 PM:
Patricia wrote on Apr 4, 2009 9:14 PM:
Gator wrote on Apr 4, 2009 9:06 AM:
The payment comes, insurance, property Taxes ,Maintenance Utility
cost Water, Gas and electricity which can double your payment. And on
top of that no money down, it was a bomb just waiting to explode and that
It did. Countrywide took advantage of these people along with others and
It cost everyone. Speaking of Countrywide, 20 of the managers who were
Fired by BofA have formed a new company and are buying foreclosed homes for pennies on the dollar. But as for Sub Prime, if you dont have
a good down payment and a low paying job RENT!!! "
Rhodie wrote on Apr 4, 2009 7:52 AM:
So why not the same for the morgages? Why are investors buying something they can't prove they own? It's called due diligence. If you are buying prperty then you want proof the seller has a right to sell it before you buy, right?
Just an aside. This story makes me wonder how many "morgages" are sold that are legit. That is, how many are a bridge in Brooklyn for sale kind of thing. People selling morgages for houses they don't own the morgage to. "
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