Up to $6.5 trillion in mortgage-backed securities debt may be in jeopardy. Subprime borrowers may have an escape hatch — no paperwork providing standing to sue!

A federal judge in Ohio has ruled that a Deutsche Bank trust failed to show standing to foreclose on 14 mortgages held as mortgage-backed securities, since it hadn’t produced original assignments from the mortgagors.  The problem is, original assignments may not actually exist.  Signed hard copies are required to foreclose, and the original signed mortgages have been left in a file somewhere, while the mortgages have been slice and diced and rehypothecated until no single investor or pool can prove ownership.  If the mortgage-backed securities holders don’t hold enforceable mortgage notes, who does?  Arguably nobody!  Think of the fallout if ALL these defaulted subprime mortgages can’t be foreclosed on.  Outstanding securitized mortgage debt now comes to $6.5 trillion.  Once borrowers catch on, they may not bother to pay their mortgages even if they can; there’s no one with standing to foreclose!

Gretchen Morgenson, “Foreclosures Hit a Snag for Lenders,” New York Times, November 15, 2007

http://www.nytimes.com/2007/11/15/business/15lend.html

18 Responses

  1. Wow! Even if the banks can muster an appeal, and eventually establish legal standing, the time until this is decided once and for all adds one more degree of uncertainty to the financial markets. The implications are mind boggling.

  2. I agree!

  3. […] I was doing some Redditing tonight and found and interesting article on this blog called “web of debt“.   In the post she talks about a judge’s ruling in Ohio that kept a bank from […]

  4. It will be interesting to find out the total fees collected from one foreclosed mortgage loan.

    1. The loan broker gets a fee for making the loan,
    2.the bank gets a fee for selling the loan to a fund,
    3.the fund package the load (perhaps “slicing and dicing” the loan )with other loans and then sells the loan to an institution;
    4.the institution that brought the loan package has to pay legal fees to foreclose on the loan and pay another fee for selling the house,
    5.and on and on.

  5. It will be interesting! I’m wondering how a borrower could find out if his mortgage was still in the possession of the original lender? If the case is in court, he could seek discovery; but what about people who aren’t in default? Could they do discovery or file suit to find out? Another question: who should bear the fallout? I think the banks or funds that sold the fraudulent securities. The institutions that bought them would have a whopping class action, and so would the borrowers.

  6. I have a question to throw out in hopes of getting an answer.

    When a person takes out a mortgage or another form of loan with a bank does that loan automatically become a vehicle that can be sold or put into another institution without the original lendee being made aware of such a major change in the original agreement between the two original partners?

    Thank you.

    Regards, Gerry

  7. Hi Gerry, I’m not actually a real estate attorney, but from what I’ve read, the answer is “yes.” Here’s a website where you can apparently find out who currently holds your mortgage:

    http://www.foreclosureforum.com/articles/0304MERS.html

  8. Thank you. Regards, Gerry

  9. How can the Deutsche Bank decision be used by those folks in states
    that don’t have judicial process as part of the foreclosure process ?

    Any thoughts ? Thanks !

    Harvey
    mentor2@gmail.com

  10. Hi Harvey, not being a real estate attorney, I can only surmise; but I’ll refer again to the website where you can evidently find out who currently holds your mortgage:

    http://www.foreclosureforum.com/articles/0304MERS.html

    If it’s not the original lender, you could have grounds to seek relief. You could get a temporary restraining order sometime before the foreclosure is final, then seek a declaratory judgment or something similar halting the foreclosure.

  11. Hi Harvey, I just found the answer to that, here —

    http://loanworkout.org/2007/11/18/true-sale-false-securitizations/

    “California is a non-judicial foreclosure state. This means the banks do not file a complaint in court to foreclose on the property. They simply execute a Trustee Sale. This requires them to provide notices in strict accordance to the applicable laws. The sale is a private action that effectively terminates ownership rights by the borrower.

    Typically the sale is followed up by an unlawful detainer proceeding to evict the former owners. The way in which the logic of this court could be used is by filing a complaint and Preliminary Injunction in a court in the county where the property is located. The injunction would stay any foreclosure proceedings by the trustee. A declaratory judgment could also be obtained that would declare the rights of the trustee invalid and thus prevent them from taking future actions against the homeowner.

    There are other claims worth exploring that are derivatives of all this. For example, perhaps a claim for slander of title since the trustee did not have the rights to initiate the foreclosure process. Claims under California Business and Professions Code Section 17200 (UDAP statute) may also be available. The leverage that a consumer attorney could use from this type of an action may very well make the difference between a homeowner staying in their home, or packing their bags.”

  12. Ellen,
    I have read your book. I simply love it. I am a therapist and systems analyst and was astounded by my own level of deception, belief systems, and illusions when it came to money. The propoganda around money must have been very steady and very strong for some years to create such a huge delusion in our culture.
    I am recommending your book to many of my colleagues, family, and friends. It is a must read. It would be a great book in any academic setting. Even if it just challenges the illusions of our culture.
    Tim

  13. Thanks Timothy! I was shocked myself when I discovered that thread, which is what drove me to spend five years researching it and writing it up. Regards, Ellen

  14. I do not believe for one minute the banks do not have copies of original docs. I worked for a lender that was a servicer for Long Beach and everything was imaged.

  15. It’s not that the banks don’t have the paperwork, but the mortgages have been sold off as mortgage-backed securities to investors. They’ve been chopped up, so no one person or group owns them; and there are no recorded assignments of the deeds, because they can’t assign them to all these investors at once. Without evidence of legal title, the plaintiff can’t foreclose. That’s my understanding, and quite a few articles have been written on it, but I’m not in that business. Expert opinion always appreciated!

  16. Let’s see how the $75 billion Obama has allotted will do to stop this foreclosure crisis. A lot of our clients have had difficulty getting loan modifications on their own as a result of the bank’s unwillingness to negotiate.

  17. Tax Debt Relief

  18. true… you know what they say…The world needs ditch diggers, too.

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