Who owns your home? Lost paper trail allows borrower to keep her house
Those complex financial instruments known as mortgage-backed securities, which famously caused so much damage in the banking sector and the nation's economy when the housing bubble burst, are causing another problem for some mortgage lenders: the inability to prove that they have a legitimate claim to homes entering foreclosure. This little problem led to a curious scene in White Plains, N.Y., federal court earlier this month when Judge Robert D. Drain eliminated more than $460,000 in mortgage debt on a delinquent borrower's property after PHH Mortgage failed to prove its claim to the property, as reported by The New York Times. In essence, the judge's ruling made the mortgage disappear.
So how was it that the mortgage company was unable to prove its claim? It goes back to those pesky mortgage-backed securities. Their structures are so complex that it's unclear what's in them. During the mortgage boom, untold numbers of them were bundled and sold to scads of investors, but, according to the Times, notes that left a trail, proving who owned what, weren't maintained.
Citing court records, the Times reports the case involved an unnamed homeowner living with her daughter and son-in-law. The borrower purchased the home in 2001 with a mortgage from Wells Fargo (WFC), and then refinanced the loan four-and-a-half years later with Mortgage World Bankers Inc.
But she fell behind in her payments and in February filed for Chapter 13 bankruptcy with the help of an attorney, to prevent the loss of her home.
In March, PHH Mortgage filed a proof of claim to the debt noting that it was owed $461,263, which included more than $30,000 in past-due payments. The homeowner's lawyer sought to have the loan modified, but after the bank dragged its feet, as the lawyer described PHH's actions to the Times, the lawyer asked PHH to prove its claim.
Unable to do so to his satisfaction, Judge Drain ordered the debt expunged, concluding that PHH had failed to show it had been assigned the mortgage.
The case is being appealed by PHH, but even if the homeowner remains victorious, there remains a problem for her: Without a clear title, the homeowner will likely have difficulty selling her home if she chooses to do so. That would require an amended plan or a lawsuit to secure clear title. Whatever the outcome, it's clear all parties will be spending months tangled in legal maneuvers.
What's further unknown is whether the White Plains case is an anomaly or an example of a situation that may soon become commonplace in the nation's court system. It serves as a warning that the tough-armed tactics used previously by mortgage lenders to prove right to ownership may no longer secure their claims in court, without adequate records.
To paraphrase famed defense attorney Johnnie Cochran, "If it isn't in print, you can't evict."
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Reader Comments (Page 1 of 4)
10-27-2009 @ 5:09PM
aloysius said...
live there for 10 years and you own it anyway... adverse possession is super cool
Reply
10-27-2009 @ 6:17PM
donald said...
It's not that simple.
10-27-2009 @ 11:47PM
Karen said...
Yes and be sure to pay taxes, this is an essential part of cementing the claim.
10-27-2009 @ 6:15PM
donald said...
This case is an anomoly; a special situation. Mortgagors should not get their hopes up.
Reply
10-27-2009 @ 6:30PM
Pierce said...
I don't think it's clear how common this is... I've been hearing rumors from people I know in the business that much of the paperwork is a mess, and she's not the first person to win a case on those grounds -- ISTR one in FL recently, for instance.
And while I have no idea how much of a hand the homeowner has in her own problems, I have no sympathy whatever for a mortgage company or bank that can't keep the paperwork straight. If they messed up badly enough so that they could not establish ownership of the mortgage in court, they have no-one to blame but themselves.
I don't think the paperwork standards should be relaxed, either -- there's too much potential for fraud and abuse if they are.
10-28-2009 @ 1:26AM
PS said...
Donald, you said "mortgagors" should not get their hopes up: Isn't a foreclosed homeowner the "mortgagee"?
10-28-2009 @ 8:38AM
donald said...
Response to PS: No, the mortgagor is the one who executes the mortgage in favor of the lender/mortgagee as security for the promissory note. In a "lien state", it creates a lien on the property. A foreclosure of a mortgage is filed by the mortgagee/lender when the mortgagor defaults on the mortgage.
10-28-2009 @ 12:56PM
JIM said...
Donald,
Pertaining to your title search reply. I agree a title search needs to be performed prior to the purchase of a home to obtain clear title from PAST obligations, however in a foreclosure, the original purchaser is still in the home from the last title search. Thus, we now have the transferrance of the mortgage only and it appears that the mortgage trail has become muddy, so a title search may not help the homeowner. Here is some more information about "producing the note" to proceed with a foreclosure. There are several good links also in this article. http://www.consumerwarningnetwork.com/2008/06/19/produce-the-note-how-to/
10-28-2009 @ 6:17PM
carlo said...
this is no anomaly.....check out all the MERS foreclosures that are being reversed. Everyone that has MERS in their mortgage documents is potentially a reversal
10-29-2009 @ 9:38AM
Gayle said...
This is not an anomaly. I was a licensed abstractor for five years, in a rural county in the Midwest with a population of about 7,000. I was amazed at the number of times the banks had failed to file proper paperwork. The attorney I usually worked with would go to great lengths for his customers' sakes, to get the banks to execute and file the proper documents.
This actually happened to my own mortgage when the bank defaulted in 1989. Luckily, I was in a position to know what to do about that.
Nowadays, I have no sympathy for the banks, because by the time I quit work in 2001, I had begun to witness what was happening in the mortgage industry - even in my small community. It was there to see, and people pretended not to notice. The eventual result was predictable.
10-27-2009 @ 6:21PM
Chris said...
Jim,
How can I find out if my property was part of Mortgage Backed Securities? My loan was originated by WAMU and is an Option ARM.
Reply
10-27-2009 @ 10:20PM
JIM said...
Chris,
1st go to the county and see who is the listed mortgage holder of record. I have talked to my county tax appraisor office and they are proceeding on trying to collect the doc stamp monies. Call the listed mortgage holder and if they say they sold the mortgage then I suspect yours maybe in a MBS. I would then contact a RE attorney to see if you can get a free consultation and have them request a release of lien from listed mortgage holder. If no luck, attorney may want to file in court for release (he may do the first one for free if he sees a business opportunity). Good luck
10-27-2009 @ 7:25PM
ron said...
ask them to come up with the original+++ note this can be a problem for mortgage co.s when u got the home if they cant its yours
Reply
10-27-2009 @ 9:20PM
donald said...
If they can't locate the original, they can usually include in the complaint for foreclosure a count to re-establish the existence of the lost or misplaced original note and/or mortgage. My point is that each case is dependant upon the specific facts and applicable law, and mortgagors should not get their hopes up simply because of an item on the Internet that pertained to a special set of circumstances. Each case will be evaluated by your own attorney. This is a technical area and not subject to sweeping generalizations because of the result of one case at the trial level. Seek the advice of your own attorney in your own jurisdiction.
10-27-2009 @ 7:25PM
elkate said...
As Federal District Court in Ohio pointed out - mortgage securities are very different than mortgage ownership. Only a pro-rata share to a "pool" of mortgage loans was passed onto investors by securities. Investors do not own individual mortgage and do not have a lien on individual homes. Any mortgage-backed security was for "pooled" current receivables pass-through only.
Wall Street firms purchased individual mortgages loans and pooled the receivables to be subsequently sold as mortgage-BACKED securities. Wall Street still has the individual loans on their books (on/off balance sheet) unless the whole loans have already been sold to distressed debt buyers - which was promoted by the Federal Reserve/Treasury to remove the "toxic" assets/loans from Wall Streets balance sheets.
Again, "investors" do not own individual mortgages and do not have a lien on individual homes. The Federal Reserve will verify this if confronted with the issue.
Lastly, mortgagors should continue to fight like crazy. The media has put forth the notion that the people are to blame for buying too much house. Only the bank could qualify a borrower for a mortgage loan, only the bank could falsely appraise the homes, only the bank made profits. The people were led to believe their homes were worth far more than the actual value. Wall Street took advantage of credit reports (loaded with error) to assess high (loan sharking) interest rates against "subprime" borrowers. The mess spilled over to prime (good credit) loans as housing values collapsed. Europe was the first to discover the Wall Street housing fraud mess and cried foul. Otherwise the US, with compliant legislators, would still be profiting from the well-thought out plan.
Most of the original mortgage contracts in question were "table funded" by originators for Wall Street. The actual lender, in violation of RESPA was never disclosed to the borrower - making the mortgage contract fraudulent from the onset.
There are continued scams to make borrowers pay through the nose for mortgage loans laced with lender fraud. A new "idea" is for a firm to front payments to borrowers in exchange for 50% share in the future equity of the home. Do not buy it.
The government does not know how to fix the mess. One thing is for sure - the American people were scammed. Wall Street attacked the heart and soul of America - for profit only - Wall Street bit the hand that fed them and then had to suffer the consequence. But, as some say, Wall Street will be back - with more to sell to the American public - and, again, all at the expense of the American economy and our financial future.
Keep fighting mortgagors - eventually all will surface as courts are becoming increasingly aware of the fraud - and the consequence the fraud holds for our country.
Reply
10-27-2009 @ 9:56PM
Izi said...
Wonderfully put!!!!!!!!! If your an attorney for foreclosures I would hire you right now.
10-28-2009 @ 12:10AM
ND said...
Good post Elkate. I sincerely hope that the woman wins her case and an avalanche of loan sharks bite the dust for fraud. It is poetic justice. Better yet, I hope they get jail terms for trying to purpetuate the fraud in foreclosure. As you note Elkate; this has taken a big piece of the American soul.
10-28-2009 @ 1:15AM
Ann said...
Excellent Post elkate!
Is this a warning to buyers as well? Many buyers are reporting that banks show little interest in selling (especially the owner occupied foreclosures): Maybe it's because they can't prove ownership. Cities also comlain that they can't find mortgage holders of abandoned homes that require maintanence (taxes were not addressed in the report).
10-27-2009 @ 8:05PM
jake said...
if my mortgage was sold twice and it's with a bank now is this fraud possible
Reply
10-27-2009 @ 8:50PM
r e v v said...
"Render unto Caesar that which is Caesar's" God is saying pay your bills and be responsible.
Reply