Consumer Law

Mortgage Holders Can't Foreclose on Consumers Without the Proper Documents, According to Ohio Court

By Kemnitzer, Anderson, Barron, Ogilvie & Brewer

Consumers who are sued by debt collectors can defend in court by demanding that the debt collector prove it is entitled to collect the debt. Particularly when the debt collector is not the original creditor, the debt collector is frequently unable to prove it owns the debt. The result? The court dismisses the debt collector's case and the consumer wins.

Yesterday, the New York Times reported that an Ohio federal judge dismissed 14 foreclosure cases brought on behalf of Deutche Bank National Trust Company for a similar reason: Judge Christopher Boyko ruled that the bank had failed to prove it owned the properties it was trying to seize. The bank is trustee for securitization pools which claim to hold mortgages underlying the foreclosed properties.

Securitization pools are comprised of thousands of individual home loans packaged together by Wall Street firms. The pools are then sold to investors in different slices, based on risk. Trustee banks oversee these pools' operations and ensure that consumer payments go to the appropriate investors.

Deuthche Bank's problem was that it couldn't show that it really owned the note and mortgage on the properties it was trying to foreclose. Apparently that isn't unusual: One mortgage securities specialist quoted in the report said he has heard of instances where the same mortgage loan was in two or three mortgage pools. The report also cited a University of Iowa study that found 40 percent of creditors foreclosing on borrowers did not show proof of ownership, even though such proof gives them standing to foreclose and is required by law.

Attorneys for Deutche Bank argued that the judge didn't understand how foreclosures were supposed to work when securitization pools hold the mortgages, but Judge Boyko wasn't impressed; he said the bank's argument revealed a "condescending mindset." Needless to say, consumer advocates have applauded the ruling.

Full post as published by California Credit Law Blog on November 16, 2007 (boomark / email).