Recent Ruling On Foreclosure – Losing The Note….

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On October 9, 2009, bankruptcy judge Robert Drain wiped out a $461,000 mortgage debt because the alleged owner of the note – U.S. Bank as trustee of a securitization pool, could not prove it owned the note.

In Gretchen Morgenson’s interesting article in the NY Times, she discusses this ruling. As to where all of the “lost notes” are and why they have been “lost” Gretchen writes:

The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game – notes, for example – were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what.

To be sure, many legal hurdles mean that the initial outcome of the White Plains case may not be repeated elsewhere. Nevertheless, the ruling – by a federal judge, no less – is bound to bring a smile to anyone who has been subjected to rough treatment by a lender. Methinks a few of those people still exist.

More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.

The article gives the explanation from the attorney representing the servicer of the note (the one collecting for the alleged owner):

John DiCaro, a lawyer representing PHH at the hearing, was in the uncomfortable position of having to explain why there was no documentation of an assignment to U.S. Bank. He did not return a phone call seeking comment last week. Ms. Johnson, who couldn’t be reached for comment, did not attend the hearing.

According to a transcript of the Sept. 29 hearing, Mr. DiCaro said: “In the secondary market, there are many cases where assignment of mortgages, assignment of notes, don’t happen at the time they should. It was standard operating procedure for many years.”

Judge Drain rejected that argument, concluding that what had been presented to the court just did not add up. “I think that I have a more than 50 percent doubt that if the debtor paid this claim, it would be paying the wrong person,” he said. “That’s the problem. And that’s because the claimant has not shown an assignment of a mortgage.”

We are seeing more and more situations in Alabama foreclosures where the alleged owner either cannot or will not prove it owns the debt. We are also seeing fraud in the way servicers process payments and charge fees.

We will address many of these issues and others in future posts on foreclosures.

If you live in Alabama and would like to meet with us to discuss your pending or prior foreclosure, feel free to contact us through our website or you can call us at 205-879-2447 or register for our free Alabama Foreclosure Seminar which will occur November 3, 2009, at 4 pm in our office in Birmingham, Alabama.

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