Missing Loan Docs Preclude Foreclosure On $1.5M Mortgage; Homeowner Continues "Living Large" 5+ Years After Default

A story in Bloomberg News late last month reported on the increasing problem mortgage companies are facing as a result of the screw-ups in the chain of custody in physically handling essential mortgage loan documents when mortgage loans are sold from investor to investor and, in many cases, end up as part of a mortgage securitization trust. Such screw-ups have resulted in an inability to physically produce the documentation (ie. promissory notes, assignments of mortgage) necessary to commence a foreclosure action when attempting to repossess real estate. The story begins with this short anectdote:

• Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002. That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork. "If you're going to take my house away from me, you better own the note,'' said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

For more, see Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish

For actual court cases that provide real life illustrations of the problems foreclosing lenders have faced in the past when these types of screw-ups occur, see:

• State St. Bank & Trust Co. v. Lord, 851 So. 2d 790; (Fla. App. Ct. 4th Dist., 2003),
• In re Shwartz, (Bankr. Ct., Mass. April 19, 2007),
• Terwin Advisors LLC vs. Balbachan (New York Supreme Court - Queens County; April 16, 2007) (Note: For those unfamiliar with the New York judicial system, the "New York Supreme Court" is simply what the state calls its trial courts - not to be confused with the New York Court of Appeals, which is the state's "highest court."),
• Lasalle Bank Natl. Assn. v Lamy, 2006 NY Slip Op 51534(U); 12 Misc 3d 1191(A); (New York Supreme Court, Suffolk County; August 7, 2006).

For a related post, see Foreclosure Legal Work: A Shoddy, Assembly-Line Practice?

For other posts that reference the failure of some mortgage lenders and their attorneys to file the required loan documents when starting foreclosures, Go Here, Go Here, Go Here and Go Here. missing mortgage foreclosure docs alpha