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Foreclosure! Guy gets 1.5 mil mrtgage essentially wiped out!


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Milwaukee Journal/ sentinel 3/16/08

Technicality saves some homes from foreclosure

Lenders can't always prove they own debt

By BOB IVRY

Bloomberg News

Posted: March 15, 2008

Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Fla. The Seattle-based lender failed to prove that it owned Lents' mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

"If you're going to take my house away from me, you better own the note," said Lents, 63.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages.

More than $2.1 trillion, or 19%, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Md.-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.

Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom, from 2003 to '06, that assignment of ownership wasn't always properly completed, said Alan White, assistant professor at Valparaiso University School of Law in Valparaiso, Ind.

"Loans were mass-produced and short cuts were taken," White said. "A lot of the paperwork is done in the name of the original lender, and a lot of the original lenders aren't around anymore."

Borrower advocates, including Ohio Attorney General Marc Dann, have seized upon the issue of missing mortgage notes as a way to stem foreclosures.

"These trusts are purchasing these notes, and before they even get the paperwork, they foreclose on people. They become foreclosure machines," said Chris Geidner, an attorney in Dann's office

Who owns the loans?

When the mortgage servicers and securitizing banks that act as trustees of the securities fail to present proof that they own a mortgage, they sometimes file what's called a lost-note affidavit, said April Charney, a lawyer at Jacksonville Area Legal Aid in Florida.

Nobody knows how widespread the use of lost-note affidavits are, Charney said. She's had foreclosure proceedings for 300 clients dismissed or postponed in the past year, with about 80% of them involving lost-note affidavits, she said.

"They raise the issue of whether the trusts own the loans at all," Charney said. "Lost-note affidavits are pattern and practice in the industry. They are not exceptions. They are the rule."

Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, said Jeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP.

"It's a gigantic waste of time," Naimon said. "The mortgage may have transferred five, six, eight times. It's possible that you don't have all the pieces of paper, but it was enough to convince the next guy in the chain. There's no true controversy over whether the owner owns the loan."

Increasing impatience

Judges are becoming increasingly impatient with plaintiffs who produce no more proof of ownership than a lost-note affidavit or a copy of the note, said Michael Doan, a Carlsbad, Calif., attorney.

In Ohio, where RealtyTrac reported an 88% jump in foreclosures last year, the attorney general is arguing 40 foreclosure cases that challenge ownership of mortgage notes, according to his office.

U.S. District Judge David D. Dowd Jr. in Ohio's northern district chastised Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in October for what he called their "cavalier approach" toward proving ownership of the mortgage note in a foreclosure case.

Similar cases were dismissed during the past year by judges in California, Massachusetts, Kansas and New York.

The home-loan industry has had a central electronic database since 1997 to track mortgages as they are bought and sold.

It's run by Mortgage Electronic Registration System, or MERS. About half of outstanding mortgages are registered with the company.

But for the other half of U.S. mortgages, there is no tracking mechanism.

MERS' rules don't allow members to submit lost-note affidavits in place of mortgage notes, Arnold said.

"A lot of companies say the note is lost when it's highly unlikely the note is lost. Saying a note is lost when it's not really lost is wrong."

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"Its a gigantic waste of time". -Jeffery Naimon

What a whining loser! I shouldn't have to prove possession before I send the thugs to take your house!

This homeowner deserves a medal for brass balls. Essentially, not denying it, but demanding the foreclosing party prove possession. And they can't do it!

Just because your guilty, doesn't mean you will lose!

Sometimes you just have to question the slime on the other side to win!

That's awesome!

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i agree with you trueq.

It's like these stupid JDB's. The stuff they send out saying i owe this or you owe that is just amazing to me. If they cant prove that i really owe them money then i am not paying them. Good for this guy to stand up and say "prove it"!!!

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Keep in mind that the adage "The Bank Always Wins" is one that we really wouldn't want to see lose its validity anytime soon.

One Joe Lents is entertainment. A handful of them would be a problem. If they were anything close to pervasive, it would be a disaster.

Banks that didn't or don't use MERS have got it coming to them ... but we should thank our lucky stars most defaulted homeowners don't fight like Jo Lents does. We'd be back to the 1930s depression within weeks.

In reality, the judge should require payments of the mortgage be made into the registry of the court in order to keep possession or the foreclosure should go through and the property should be held in trust (and potentially even disposed of) for the benefit of whoever can come forward with the proper paperwork (if they ever do).

When banks lose a few thou on defaulting credit cards here and there it's merely a nuisance to them. If they were to lose hundreds of thousands on a regular basis ... it would be a calamity for everyone (er ... well I guess that's essentially what happened with the bonds backed by subprime loans ... and yes, I do think we're all facing economic calamity).

As for Mr. Lents ... does he expect to be able to sell "his" home and put a mortgage satisfaction on record that will clear the title? Will he sue again if the purported lender says they don't feel their paperwork is ironclad enough for them to issue a valid satisfaction?

There will probably need to be another RTC-like entity formed because of the current housing crisis in order to handle situations like this. And there will be many of them.

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But one thing that will happen is a government bailout.

The Fed is bailing out Bear Sterns, just this week over the mortgage mess. THEY MADE MONEY EVERY QUARTER SINCE BEING FOUNDED IN 1923! Until last quarter! What the hell happened to the profits from the previous 85 years for a self-bailout?

I wish the government bailed my business out when I lost money!

So the system is not about fairness, its about who you know.

My position is, if you can get away with getting your mortgage wiped out because some goober didn't file the right paper, do it!

We don't have high priced Washington DC paid lobbyists!

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For some reason, the Bear Stearns bailout could not proceed until Elliot Spitzer was crushed. I'm not kidding. Spitzer was Wall Street's nemesis, and residence in the governor's mansion in Albany had not slowed him down on that. He was in Washington to get into hotel room trouble in the first place because he was working some angles to keep Wall Streeters from getting help at the public trough without the public (mostly nonwhite--so it's hard to get anyone in power to care about them) that had been caught in the subprime bubble also getting some help.

Unfortunately, he had an Achilles' heel, and the big money boys found it and struck at it when the moment was right.

Spitzer was a maverick, even among his kinsmen. The enemy-to-friend ratio got too far out of balance. I hope there are more where he came from, just without the vulnerability.

The Clinton administration allowed states to pursue their own consumer protection statutes to prohibit the kind of loan steering and deceptive sales tactics that the Bush administration turned a blind eye to. And Clinton was a darling of Wall Street. Somehow the policy people in the Bush administration simply fell asleep at the switch. If I had to guess, I think they so feared a major economic slowdown after 9/11 that they were willing to bet the farm that a housing bubble could carry us through until everyone forgot about how traumatic 9/11 was and then they stupidly just let it run and run and run.

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The Fed is bailing out Bear Sterns, just this week over the mortgage mess. THEY MADE MONEY EVERY QUARTER SINCE BEING FOUNDED IN 1923! Until last quarter! What the hell happened to the profits from the previous 85 years for a self-bailout?

1. If they had any sense they stashed those profits in asset protection trusts based in the Cook Islands. Profits get paid out to partners. It's just that simple.

2. Remember the adage "The Bank Always Wins" when you read about "bailouts" ... the Fed will get paid handsomely. They don't do anything that would result in them not making more money. The "toxic" debt everyone talks about now is merely the "riskiest" portion of the mortgage portfolio. In good times, it's not worth a whole lot (but who cares because you made a lot of commissions underwriting and selling the "safe" part of the portfolio as very boring derivatives paying very quotidian returns) because the duration will be so short: the ARMs will get paid off early and you'll be using the cash to do more new business that you'll collect commissions and underwriting fees on. In shaky times, you'll still collect the interest these things generate (and remember because they're worth so little, income from them is gravy, gravy, gravy--earnings without much at risk). When times go bad ... really bad ... the principal is lost. Not only that, but the people you sold the supposedly safe stuff to come back to you and want you to buy it back or otherwise make good on it because it's not performing. That's what happened to Bear Stearns. Yep: the partners did take too much home when the getting was good. It's the way of capitalism to make a transition to excess at some point. The Batista supporters did it in Cuba and bought themselves the Castros.

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The Fed is bailing out Bear Sterns, just this week over the mortgage mess. THEY MADE MONEY EVERY QUARTER SINCE BEING FOUNDED IN 1923! Until last quarter! What the hell happened to the profits from the previous 85 years for a self-bailout?
BSC bought for $2 share. Down 98% in a year. I don't think bear Sterns was bailed out. If you, as an owner (shareholder) lost 98% of your money, would you declare you've been bailed out?

And regarding the profit from the past 85 years, it was either returned to shareholders as dividends or used as working capital. This is exactly the way the system should work. The tax code, rightfully, prevents earnings from accumulating within the corporate shell. That way it is either put to work directly by the corporation or then passed through the double tax system as a dividend and becomes return on investment to the owners.

BSC failed at the most important task of a bank- risk management. And they've been punished severely for it.

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BSC bought for $2 share. Down 98% in a year. I don't think bear Sterns was bailed out. If you, as an owner (shareholder) lost 98% of your money, would you declare you've been bailed out?

It was a pittance of a bailout for Bear Sterns' owners ... it was a major bailout for everyone they were doing business with. The so-called "counterparties" who would have been left holding the mortgages that secured the paper Bear Stearns sold them continue to hold performing paper and not questionable mortgages. The $30 billion committed by the fed is being used to continue servicing the derivatives that Bear Stearns sold to pension funds, etc. So retired schoolteachers continue to collect their pensions...

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So this court case where home owner got away with the 1.5 mil because mortgagee didn't have the original note is all part of the risk...

So no bailout needed, if Bear Stearns took foolish risks to make big money when they did and gorged themselves on the wealth generated instead of saving it, screw them, they should go out of business.

I consider this mortgage guy "creating his own little participation in the government bailout."

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You're hearing about the 0.00001% of bizarre cases. That's why they're newsworthy. Cases like this are BAD NEWS for borrowers because if this becomes any sort of trend, rates will skyrocket for everyone to make up for a risk of a 100% loss on the small minority of loans. I'm not sure about you, but I do not like bearing the burden by paying my share (based on risk) and then a bit more interest premium on top that is attributable to homeowners using a loophole to avoid payments.

Banks are not some black hole of wealth where they can afford to just take losses and there'll be more money right behind it. Real people pay for it (loss of pension funds, individual investors take losses, your family, my family, future borrowers). And people lose jobs on top it all. So let's hope the Lenz activity is curtailed real quick.

And what is this "gorged themselves on wealth"? They don't accumulate earnings over 85 years. They return money to investors like they are supposed to. Corporations are just made up of investors, officers, and employees. Bear Sterns did nothing wrong until they stepped in it lately by taking on too much leverage. It was one big margin call in reverse. And it took 'em down to $2/share.

Bear Stern's loss is JP Morgan's gain.

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but the government bailout is what is objectionable about the situation.

It says you can yield the high reward for big stupid risks for years, but then when it all goes bad, the government will cover you.

I just want the same deal!

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We agree on that. The bailout is bogus. The Fed guaranteed $30 billion of risky debt to "assist" with the deal.

The #s are ridiculous though. The deal for JP Morgan was to buy the entire company (solely stock swap transaction) for $236 million. But the deal comes with a $30 billion guarantee by the FED and a building in Manhattan worth $1billion.

Which means that either JP got a deal of a lifetime or there must be some juicy nuggets of writedowns still hiding in BSC that are yet to be marked to market.

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In reality, the judge should require payments of the mortgage be made into the registry of the court in order to keep possession or the foreclosure should go through and the property should be held in trust (and potentially even disposed of) for the benefit of whoever can come forward with the proper paperwork (if they ever do).

Huh? On what legal precedent? That is assuming guilt without evidence.

CL

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Huh? On what legal precedent? That is assuming guilt without evidence.

CL

Is there a mortgage on the public records of the county? Is there a satisfaction on record?

If you have one and not the other, it's safe to assume that thing hasn't been paid up (unless the defendant can come forward with a whopper of a canceled check--or the original canceled note).

Courts are free to fashion remedies that fit the situation.

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Conduct a collateral court attack to remove the lien if lienholder cannot prove ownership of the lien.

That's what i would do if I knew my lienholder could not find the note.

I'd try to file this with the same judge!

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