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Bank Shot

You’ll never believe the latest “outrage” by “an activist judge” – banks are being required to prove they actually hold the mortgage when they foreclose on a someone’s home.

This was noted by the Pensacola Beach Blog in The Bank You Know…, and Susie Madrak in Roadblock linking to an article in the New York Times: Foreclosures Hit a Snag for Lenders

“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.

So financial institutions have been wandering the country foreclosing on properties that they may not technically own, and no one noticed before now? These guys own some portion of a financial entity of some kind that supposed bought the mortgages from banks, but it is not exactly clear which mortgages are contained in the financial entity and one mortgage may be owned by more that one entity? And this is considered legal? Don’t even the fake judges on television want people to have receipts to prove they own something, but a bank can foreclose on someone’s house without proving they hold the mortgage?


1 Badtux { 11.16.07 at 1:43 am }

Out here nobody has a mortgage on their house. Instead, a scheme called “Deed of trust” is used. The deed to the house is actually held by a title company, which is merely allowing you to use the house as long as you make your payments to the mortage company. The mortgage company says you aren’t making your payments, the trustee sells “your” house out from under you at auction via a non-judicial foreclosure (no judge needed because they already had the deed to the house) and pays off the bank and gives you any left over money. ,Well, at least that’s the theory, the reality is that the only bidder at the Sheriff’s auction will be the bank because the auction is “cash only” and who hauls around $500K worth of cash, and the bank will be bidding the amount of the outstanding loan on the house, which they will then pay themselves, sell the house, and keep any profit for themselves. Your only recourse is to sue them for damages if they foreclosed fraudulently or in violation of the original loan contract.

It’s a really evil scheme. The person who devised it undoubtedly is roasting in hell right now, which is probably why deed-of-trust is illegal in most states east of the Mississippi River. But it’s how things are done out here in the West, and nobody questions it, because, well, nobody does, that’s all.

2 Bryan { 11.16.07 at 12:53 pm }

“That’s the way we’ve always done it” is one of the bedrock principles of American law. It is annoying down here that people in most cases don’t own the mineral rights to their property and you can end up with a natural gas well because the state decided to lease it to a corporation. You have the dangerous ugly contraption in your yard, but you aren’t making any money off of it.

That is, if the property was not an original Spanish land grant, in which case you own not only the mineral rights but any streams or rivers on the property. We have a wonderful amalgam of Spanish, French, and English property law in Florida. It keeps the lawyers off the streets.

3 Badtux { 11.16.07 at 4:56 pm }

Oil and gas is another issue altogether. In Louisiana, even if you don’t own your mineral rights you still own your surface rights, and if someone wants to put an oil derrick on your property they have to pay you for the privilege. Of course, unless you own several square miles of surface this doesn’t get you much, since they just stick the derrick on your neighbor’s property if you try to hold’em up and slant-drill to suck the oil from under your own property.

4 Bryan { 11.16.07 at 5:22 pm }

That’s what they used to do in Florida, until the oil companies had the law “adjusted” to make it unnecessary. Not that there’s a conflict of interests or anything, but in my county, the county is the natural gas company.