Foreclosing Lender Can't Prove Ownership Of The Note? So What's The Big Deal???

The following excerpt out of a recent article on MSNBC.com addresses the importance of establishing the ownership of a promissory note in foreclosure (or, for that matter, not in foreclosure):

• [M]aking an issue out of the actual ownership of the securitized title might strike some as a shameless stalling tactic aimed at abetting a debtor who, after all, owes the money. But [Florida attorney April] Charney said that if such basic legalities aren’t adhered to, a homeowner could pay his or her way out of a foreclosure jam only to wind up in another when a new plaintiff emerges claiming to own the debt. She described cases in which homeowners have been sued for foreclosure by two different trusts, each claiming they owned their house, and cases where trusts have been sent documents on the same case by two different servicers.(1)

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• Bert Ely, a longtime analyst of the financial services industry and a scholar at the conservative Cato Institute who was among the first to predict the S&L scandal of the 1980s, said lenders may detest tactics like the ones Charney employs, but “this is well-established in bankruptcy practice, that you have to properly perfect the security interest, and if you haven’t, you’re screwed. … Debtors’ lawyers immediately start looking for flaws in how the debt is protected. Creditor attorneys always worry about this.”

• “It kind of boggles my mind that this is even an issue” in the nation’s current mortgage mess, he said. “I don’t understand how lawyers let this happen in the first place.” Mortgage-lending and servicing is “a matter of dotting the I’s and crossing the T’s. … That’s what puts the discipline in the process.”

For the story, see 'Angel' of foreclosure defense bedevils lenders (Florida attorney trains hundreds of others to help troubled borrowers). (for the entire story on one web page, try here).

(1) For an account describing this (apparently growing) phenomenon, see The Wall Street Journal Law Blog: Foreclosure Mess: Two Different Plaintiffs Claim to Own Same Mortgage.

According to the MSNBC story, Charney points out that, because of the way mortgages have been securitized, it’s often unclear who actually owns the debt, and further, found that in many cases, the originating lenders only pledged these loans and didn’t actually transfer ownership of them to the trusts that are supposed to hold them and issue the securities. KappaMtgDocsMissing