Posted On: December 10, 2010 by Watts & Herring, LLC

Lenders Need To Prove They Have The Right To Foreclose

The New York Times has posted an article about how many of the nation's largest banks have resumed-or are about to resume- trying to evict defaulted homeowners after the banks were forced to take the time to re-evaluate their error-ridden foreclosure documentation procedures.

Banks may have made gestures to "tighten up lax procedures," the question of if the bank can prove it has the right to foreclose on a property at all still looms overhead. Some in the banking industry, according to Gretchen Morgenson- author of the article, believe that questions on this issue (also called "legal standing") aren't important. These bankers say that 9 times out of 10, the right homeowner gets foreclosed on and the one person who goes through a wrongful foreclosure is just an unfortunate technicality.

The United States Trustee Program, which is in charge of overseeing the integrity of bankruptcy courts, takes a different view. It's "stepping up its scrutiny of the veracity of banks’ claims against borrowers, and its approach is evident in two cases in federal bankruptcy court in Atlanta." In both of those cases, the US trustee for the Atlanta region, Donald F. Walton, intervened and filed motions saying that the banks didn't have adequate documentation to show they had they had the right to foreclose.

The matters involve borrowers operating under Chapter 13 bankruptcy plans overseen by the court in the Northern District of Georgia. In both cases, the banks have filed motions with the bankruptcy court to remove the automatic foreclosure stay that results when a court confirms a debtor’s Chapter 13 repayment plan. If the stay is removed, the banks can foreclose.

In one case, the borrower had her Chapter 13 plan confirmed by the court early last month. About two weeks later, Wells Fargo asked the court for relief from the stay so that it could foreclose.

Responding on Nov. 16, Mr. Walton asked the court to deny the bank’s request because it had failed to produce any facts showing that it was entitled to foreclose — either as the holder of the underlying note or as the agent for the holder.

The other case involves a couple who had their Chapter 13 plan confirmed by the court in March 2009. A month ago, Chase Home Finance, a unit of JPMorgan Chase, asked the court for relief from the automatic stay so that it could start foreclosure proceedings.

Again, Mr. Walton objected, asking the court to deny the request on the same grounds as argued in the Wells Fargo matter — in this case, that Chase hadn’t proved that it controlled the note on the property.

A Chase spokesman said that since the bank is the note holder in Georgia, they then have the right to file the motion.

A spokeswoman for Wells Fargo said that in its case, it is the trustee of a mortgage security that contains the loan, not the servicer. In its capacity as the trustee for mortgage loans serviced by others, it says it expects those servicers to abide by all required laws, processes and procedures.

The judges on these cases haven't ruled yet if on either the bank's or the trustee's requests. It's possible that Wells Fargo and Chase can convince them that their filing was right.

But the trustee’s intervention in these matters indicates that it wants banks to show the courts that they have the right to foreclose, rather than simply telling them they do. That had been the custom, after all. Now, Mr. Walton’s motions may serve as a warning to banks that they need to be better prepared if they want to foreclose on a borrower.

Federal trustees in other regions of the country have also intervened on behalf of homeowners when a bank's actions include questionable foreclosure fees and/or doubtful documentation. This shows that a shift is happening wherein courts are no longer accepting the banks' arguments at face-value that they have the right to foreclose.

If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.

If you have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.

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