Observations On Mortgage Lenders' Failure To Deliver Docs In Foreclosure Actions

In the February, 2008 Bloomberg News article (referenced earlier in this blog) on the problems foreclosing mortgage lenders are facing resulting from their inability to physically produce the actual homeowner promissory notes, as well as other required paperwork, the following choice excerpts may reflect how big the problem may be:

• Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages.

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• "I think it's going to become pretty hairy,'' said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. "Regulators appear to have ignored this, given the size and scope of the problem.''

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• Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom, from 2003 to 2006, that assignment of ownership wasn't always properly completed, said Alan White, assistant professor at Valparaiso University School of Law in Valparaiso, Indiana. "Loans were mass produced and short cuts were taken,'' White said. "A lot of the paperwork is done in the name of the original lender and a lot of the original lenders aren't around anymore.'' More than 100 mortgage companies stopped making loans, closed or were sold last year, according to Bloomberg data.

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• "All these loan documents are being sent to the inside of a mountain in the middle of America and not being checked very carefully,'' [real estate lawyer Stuart] Saft said. "The lenders can't find the paper. We're dealing with a lot of paper produced in a mortgage closing.''

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• Judges are becoming increasingly impatient with plaintiffs who produce no more proof of ownership than a lost-note affidavit or a copy of the note, said Michael Doan, an attorney at Doan Law Firm LLP in Carlsbad, California.

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• U.S. District Judge David D. Dowd Jr. in Ohio's northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their "cavalier approach'' and "take my word for it'' attitude toward proving ownership of the mortgage note in a foreclosure case.

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• Federal District Judge Christopher Boyko dismissed 14 foreclosure cases in Cleveland in November due to the inability of the trustee and the servicer to prove ownership of the mortgages. Similar cases were dismissed during the past year by judges in California, Massachusetts, Kansas and New York.

• "Judges are human beings,'' said Kenneth M. Lapine, a partner at the Cleveland law firm Roetzel & Andress LPA. "They no doubt feel the little guy needs all the help he can get against the impersonal, out of town, mega-investment banking company.''

• U.S. Bankruptcy Judge Samuel L. Bufford in Los Angeles issued a notice last month warning plaintiffs in foreclosure cases to bring the mortgage notes to court and not submit copies. "This requirement will apply because developments in the secondary market for mortgages and other security interests cause the court to lack confidence that presenting a copy of a promissory note is sufficient to show that movant has a right to enforce the note or that it qualifies as a real party in interest,'' the notice said.

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• "I can't believe the handling of notes is worse than it was five years ago,'' said Guy Cecala, publisher of Inside Mortgage Finance. "What we didn't have back then were armies of attorneys out there looking for loopholes. People are challenging foreclosures and courts are paying a lot more attention to foreclosures than they ever did before.''

For the article, see Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish.

For a related story, 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