Skip to comments.Court: Busted Securitization Prevents Foreclosure
Posted on 04/18/2011 3:40:01 AM PDT by Neidermeyer
On March 30, an Alabama judge issued a short, conclusory order that stopped foreclosure on the home of a beleaguered family, and also prevents the same bank in the case from trying to foreclose against that couple, ever again. This may not seem like big news -- but upon review of the underlying documents, the extraordinarily important nature of the decision and the case becomes obvious.
No Securitization, No Foreclosure
The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan. Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces.
And that's why this case is so big: the judge found the securitization of the Horace loan wasn't done properly, so the trustee -- LaSalle National Bank Association, now part of Bank of America (BAC) -- couldn't foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn't have the right to foreclose, period.
It would be fraud if some bank created documents to indicate a debt where none was entered into, but despite your sophistry, THERE IS A DEBT HERE.
The couple who bought the house, of their own free will took out a mortgage for the purchase of the house. That is a fact not under dispute. They ceased to make timely payments. That is another fact not under dispute.
The rational response is for the court to appoint a trustee for the lender (at whatever point the "true" lender is sorted out), foreclose, throw the deadbeats out, and sort out who the "legitimate" owner of the note is at leisure. To do otherwise creates a windfall to the occupiers of the house.
If they got a mortgage, they'll be on record at the courthouse as being the current owner.
Property taxes are assesed to whoever holds the title to the property. The mortgage holders have a claim to the title, but have to foreclose to get it.
If they can't foreclose, the residents are left with title, but the record of the unpaid mortgage will probably be enough to prevent anyone wanting to buy it from ever getting title insurance. The current owners can still live there, but they're still responsible for the property taxes, and they'll never be able to sell it in the open market.
It’s their house, with a unclear liens upon it, which they may over time and the courts, have removed if any of the claimants can’t prove they have a claim to the house.
What the judge is saying is that the bank doesn't own the mortgage, so it has no legal standing to foreclose on the property. I'm sure someone has legal standing to foreclose on the property, but it's not the responsibility of the people occupying the home -- or even the judge in the foreclosure case -- to figure out who that is.
There is going to be a separate long, costly accounting and legal process undertaken to figure all that out. The irony is that these people may very well end up living in this home for a long time without ever making another mortgage payment -- because the cost of figuring out who owns the mortgage may exceed the outstanding balance on the mortgage itself.
Wrong, it only takes a trip to the local court house to see who has current legal standing, foreclosure will take 30 to 45 days.
Correct. There is still an underlying debt, whether it is collateralized by the home or not is the question. Even an unsecured loan will result in action - it's just a longer road to get to the underlying assets (ie house). If the foreclosure is stopped, the lender can sue for default on an unsecured loan and obtain a judgement against the homeowner. If the homeowner fails to satisfy the judgement, then the lender can seek to garnish wages and or take possession of assets to satisfy the judgement. If the home is not considered security or a lienhold, then it is an asset - it is one of the two. In the end the deadbeat borrower will need to satisfy the obligation of the loan. It is just a matter of how to go about obtaining remedy.
Part of me is glad to see the institutions getting railroaded for creating complex financial instruments which could never receive oversight. At the same time, I cannot stand the thought of someone defaulting on their obligation and receiving a benefit for being irresponsible. MERS is a joke, as is fractional banking - a quick return to basics is sorely needed.
If it was that easy this never would have come to trial. There is a good chance that the company listed in the courthouse documents are not longer in business, or have merged and had their assets sold off to someone who never received the proper records. There were so many shady deals back then with mortgages sold several times within weeks between companies the records are a shambles for millions of loans.
My mortgage has been sold since I refinanced through Countrywide for a lower interest rate. If I was losing my house I sure as hell would want BOA to be able to produce my signature on my mortgage they were foreclosing on and prove that they are the ones who deserve to take my home. I'm not saying I don't deserve to lose it either, but I sure as hell would want records showing why they are the ones that deserve it legally.
But to throw the occupiers out prior to proving ownership is a presumption of legal fact.
The court has no authority to take anything or appoint anyone until a petitioner can prove legal standing (snicker)to have brought suit in the first place.
"It's ours because we say so" doesn't cut it in a true court of Law.
there was no fraud against the homeowner - the bank that held the note,and was expecting payments, did not get the title rights transferred to it by the letter of the law. That bank tried to foreclose when the payments stopped coming.
There is an entity (not the people living in the house) that will transfer correct title to the note holder, as soon as they straighten out the paperwork.
If the bank cant get the title and the right to foreclose - then they sell the note back to the title holder - and they foreclose. the delinquent homeowner will end up out of the property.
Pretty sad when economics trump the law in court...and are supported in doing so.
Nothing against org.whodat or anyone else who has posted on this thread, but I've got just a bit more insight into this because I've been following several fascinating foreclosure cases that may end up turning the entire banking industry on its head.
One case in particular has been working its way through the Utah court system over the last year or so. In that case, the person who occupies the home that is facing foreclosure has successfully (at least up to now) argued that the mortgage holder has no legal standing to initiate foreclosure proceedings. What makes that case so fascinating to me is that there is no question about who actually holds the mortgage. The mortgage holder is a large institution (an arm of Bank of America, I believe) that has purchased and securitized thousands of mortgages, and the Utah court determined that they could not initiate foreclosure proceedings because the institution did not meet a number of legal requirements under Utah's banking laws.
I saw that case as a sure sign that the entire U.S. mortgage industry was going to go through some serious turbulence and might even unravel completely.
P.S. If it turns out that the entity who currently has legal standing to foreclose on the mortgage (say, a local bank) has already “sold” the mortgage to someone else (i.e., Bank of America or an institution that deals in collateralized debt instruments) and has been paid for that transaction, then that entity has no incentive to initiate foreclosure proceedings against the delinquent borrower and therefore won’t even bother doing so.
Not true at all.
Debts are extinguished all the time in the various bankrupts.
Also, you can ask GM bondholders about the sanctity of obligations.
In America, property rights are ever more clouded, and diminished every year. Nice trend line. Courts are active participants in this clown circus. So, it’s everyone for himself, as you can.
In the Utah case, Bank of America is trying to force the matter into the Federal court system by claiming that it is now a "securities" issue subject to Federal oversight rather than a "real estate" issue subject to provisions of Utah law.
The irony of all this is that it can be traced all the way back to the infancy of mortgage bonds (then called collateralized mortgage obligations, or CMOs) in the 1970s. Most Wall Street investment banks were very reluctant to get into the business (which is why Salomon Brothers dominated the industry through the mid-1980s) because nobody ever really addressed the issue of whether CMOs were subject to real estate law or securities law. I guess they still haven't!