Banks Lose Foreclosure Case Over Bad Docs, More Could Come

In a potential foreshadowing of things to come, Massachusetts’s Supreme Court upheld the voiding of two home seizures this week because the banks couldn’t prove they owned the mortgages at the time they foreclosed.

Banks lose key foreclosure ruling in Massachusetts high court [The Raw Story]

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  1. Blueskylaw says:

    If Costco can refuse to let me take items out of their store if I don’t have a receipt, then how were banks EVER allowed to take someones home away from them if they also couldn’t prove they owned it (mortgage)?

    • sagodjur says:

      You signed an agreement with Costco that you would let them check your receipt and your conscience and desire to keep the membership you paid for (and maybe the desire not to be tasered by a rent a cop) means that you’ll likely uphold your part of that agreement.

      Unfortunately, a corporation, not being a person, cannot have a conscience, makes money from not upholding their agreements, and the courts haven’t been as trigger happy with the judicial taser as they should have for several decades..

    • BigBoat2 says:

      Secret info: You can take your (paid for) goods out of Costco whenever you want. Costco can only cancel your membership in response.

    • dadelus says:

      Easy! The banks simply forged the receipt.

  2. Awesome McAwesomeness says:

    I’m all for people suffering the consequences of their actions–like losing their home when they can’t pay the payments, but I am also glad that the banks are now being held responsible for their actions as well. They need to be following the rules. The days of banks thinking they are above it all needs to come to an end.

  3. DeadFlorist says:

    This is HUGE. At some point, the media has to stop ignoring it, right? I mean, the public MIGHT want to know that they may have been making payments on an invalid mortgage to someone who doesn’t actually own it. Where’s 60 Minutes on this? More importantly, where’s Oprah?

    • Commenter24 says:

      This has nothing to do with whether a mortgage or note is valid; it’s fundamentally a question of standing. You cannot seek to foreclose on collateral unless you actually own the Note and the underlying security documents. Nobody is saying those documents aren’t actually valid, it’s just a question of proving ownership (have the documents been properly assigned to the purchasing bank?).

      • DeadFlorist says:

        Right, so if a bank is collecting on a note they don’t own, I would call that an invalid mortgage. By the samke token, I do not have standing to foreclose on anyone’s house because I own no valid liens. However, I’m not going around collecting anyone’s mortgage payments. I mean, are we going to split hairs here? Consumers may be making payments on a loan to someone who they don’t legally owe money to. That’s the story. That’s what’s being ignored by the media. That’s what people should know.

        • Commenter24 says:

          Again, you’re mis-stating the issue. The underlying note/mortgage is still valid, despite the fact the wrong bank is collecting on it. If the note/mortgage was invalid, the bank who actually owns the note/mortgage would also be unable to collect on it.

          • DeadFlorist says:

            Fine. Phrase it as you wish. But the fact remains that there are a hella lotta people making payments NOT to the entity that legally holds the note. They should know that.

            • Commenter24 says:

              I don’t necessarily agree with you (the banks usually actually own the notes, the paperwork is just all wonky and insufficient for a court proceeding), but at least the way you’re phrasing your assertion now makes sense.

              • DeadFlorist says:

                If they can’t prove they own it, then legally, they don’t. Perhaps they can reach into the way back machine and un-frak the paperwork. Maybe they can’t. But until they can prove they own it, they don’t “actually own” squat.

                • Vermont2US says:

                  I’m with DeadFlorist on this…they “claim” they own the mortgage. They “claim” they purchased it from a legitmate holder of the mortgage. BUT THEY CAN’T PROVE IT (yet). Therefore, they don’t own it, and the homeowner has been paying untold thousands of dollars in cash to a bank that MAY NOT LEGALLY HOLD A LIEN on his home. This is what 60 Minutes should be looking into, IMHO – should homeowners stop making mortgage payments if their mortgage is transferred, pending proof of ownership of the lien? How many homeowners are current on their mortgages, but the bank to whom they are making payments can’t prove ownership of the lien? Are the homeowners now in default to the original lienholder? There must be dozens of legal questions to be answered here…

                  • Commenter24 says:

                    The note is what obligates payment; the lien simply provides security for the note. If your going to throw around fancy words please make sure you use them properly.

                    • Vermont2US says:

                      Splitting hairs.

                    • Commenter24 says:

                      That’s a phrase that wrong people use.

                    • DeadFlorist says:

                      So is “pedantic.”

                    • Vermont2US says:

                      Yep.

                    • Vermont2US says:

                      Flame On! My comment was entirely readable and understandable, if not 100% accurate in terminology; your need to berate it because it didn’t meet your exacting standards was a rather silly attempt to increase your sense of superiority.

                    • Commenter24 says:

                      A lien and a note are two very different, though typically related, things. Your comment only “entirely” readable and understandable by people who assume that a lien and a note are the same thing.

                    • Vermont2US says:

                      I submit to you that it was entirely readable and understandable to you (who understands that a note and a lien are not the same thing) or you wouldn’t have written the comments you did. Therefore, it is indeed readable and understandable to most folks – those that don’t understand the difference, and those that do.

                    • RadarOReally has got the Post-Vacation Blues says:

                      What is a “wrong person”?

                    • Vermont2US says:

                      I should also have mentioned that if you’re going to use SIMPLE words like ‘your’ or ‘you’re’, you might at least use the right one.

            • PunditGuy says:

              There are plenty of mortgage loan processing corporations that accept payments on behalf of the note owners. It’s a service they provide — they take a cut of the mortgage payment in exchange for the service. So yes, there are a lot of people who are paying mortgages to a company that doesn’t own the note. So what?

    • Tim says:

      RTFA. Reuters (most definitely mainstream media) wrote the story.

      • DeadFlorist says:

        Sure, Reuters reports the court decision, which 90% of people don’t read and 99% never understand the significance of. I’m talking about the “What this means to You.” news magazine stories. You May be Paying Your Mortgage to Someone Who Doesn’t Own It. Not worthy of some more in depth coverage so it gets in front of John and Jane Q. Public?

    • Cosmo_Kramer says:

      Hang on there slugger, who is saying the mortgages are invalid or that the banks in question don’t actually own the mortgages? The issue is that they didn’t prove it at the time of foreclosure.

      Go ahead and stop making payments on your invalid mortgage. I’m sure that’ll work out for you. If you even own a home, which I doubt.

  4. Robofish says:

    That picture looks sorta like the Enchanted Forest castle though I’m pretty sure it’s not

    • PSUSkier says:

      Nope. My girlfriend used to live about a mile away from that place. It’s equally creepy looking though, if not a little more.

  5. SG-Cleve says:

    I’m all for the consumer winning over the big corporations who trample them down. But…

    if foreclosures are slowed nationwide (per the story) it means the empty abandoned house across the street is not going to be occupied anytime soon.

    • Mom says:

      Why would the house be empty? If a house is in foreclosure limbo, then it’s probably still occupied. The bank can only evict after the foreclosure sale happens, and someone fighting a foreclosure is likely to still be living in the house.

    • evnmorlo says:

      If only every house in my neighborhood was abandoned… May have to move to Detroit as waiting for a pandemic is getting tiresome.

    • s73v3r says:

      Perhaps this would give the banks more incentive to put through short sales, or actually work with the borrower to modify their mortgage.

    • bigroblee says:

      I just feel that the thousands of people not paying on their mortgages are slowing the recovery of our economy. Force them to start paying or GTFO and rent someplace; rental incomes to landlords will lead to more investment properties being purchased and rehabbed, leading to more home sales, etc… I rent, I was smart enough not to buy a home when the stated income or NINJa loans were rampant; I’ve had some financial troubles in the past few years years, was out of work for eleven months at one time, but I’ve kept paying my rent. I’ve seen hundreds of mortgages in one job I had that were months and years past due and had not been forclosed on yet; If as a renter I stopped paying I think the longest I could go even with going to court would be two or three months…

  6. nbaptist says:

    “the banks couldn’t prove they owned the mortgages at the time they foreclosed.”

    They will find the paperwork, in the mean time do the people living in the home just not pay anything?

    • DeadFlorist says:

      No tickee, no laundry.

    • Buckus says:

      According to TFA, the banks NEVER had the paperwork. They sold empty securities with the “promise” of filling it with mortgages, then assigned mortgages to it somehow, but didn’t properly record transfer of said mortgage with the proper government authorities. Since they didn’t do that, and the laws say if the county didn’t register the lien, the the lien does not exist. The banks can’t prove they ever propertly registered the paperwork with the counties. So they’re basically screwed in these two cases. The homeowners are free and clear. The banks can try to collect on the now-unsecured note, but bankruptcy fixes that pretty fast. Plus, since it’s now an unsecured debt, the homeowners can ask for proof that they owe the money. Which, as we can see from the sloppy paperwork the banks slung around, I highly doubt they will be able to prove.

    • TasteyCat says:

      They can pay what they want, which may well be nothing.

  7. Frankz says:

    It’s not that the banks didn’t own the mortgages. They did.
    It’s just that they couldn’t and didn’t prove that they did, because of the way so many mortgages were being packaged and sold together in huge bunches. Every single seller and purchaser of these bundles of mortgages didn’t properly document and register each and ever transfer they way they were supposed to.
    The court didn’t negate the mortgages or the debt in any way. They just negated those particular foreclosures. The banks just have to fix all their paperwork and then refile the foreclosure, and now they know what the court will and won’t accept.

    • DeadFlorist says:

      I don’t think that sorting this out will be as easy as that. And it certainly won’t be if the consumers are aware of and assert their rights.

      • Zowzers says:

        at best, forcing the bank to find the note prior to foreclosing on the home is a delaying action. Granted it may be just what the homeowner needs, more time, but the mis placement of the note isn’t going to stop the foreclosure in the end.

        • Buckus says:

          It can. If no bank/servicer can properly prove the right to foreclose, then the bank is pretty much SOL. And from the article, it sounds like they never properly recorded transfer of the notes, so…there ya go.

        • Erik Hughes says:

          Oh, but it can. If the originator of the mortgage has gone bankrupt, or is no longer in business for any reason, and they never transferred the note, there is no way to fix it. Actually, if anyone in the chain of owners just doesn’t feel like passing the note on after they have already been paid in full, there is no way to force them to do so. Then, all the person who bought the house has to do is file bankruptcy and bingo! free house.

  8. scottydog says:

    Still doesn’t change the fact that people did not pay their mortages. The banks will get things in order and in the end this will just slow down the forclosure process, while in the meantime people will get to live a few more months rent free.

  9. sqlrob says:

    So what’s going to happen in 20 years or so when the notes are paid off? Is the homeowner fubared?

  10. AJC says:

    It would be nice if it applied in Florida. Here the ‘rocket dockets’ will continually grant banks extensions even if they show up with _forged_ paperwork. If the homeowner doesn’t have everything in order, the banks win summary judgment.

    Oh, the photo credit says:
    Abandoned Property

    Boarded up house/motel, Apache Blvd., Mesa AZ

  11. bigroblee says:

    I just feel that the thousands of people not paying on their mortgages are slowing the recovery of our economy. Force them to start paying or GTFO and rent someplace; rental incomes to landlords will lead to more investment properties being purchased and rehabbed, leading to more home sales, etc… I rent, I was smart enough not to buy a home when the stated income or NINJa loans were rampant; I’ve had some financial troubles in the past few years years, was out of work for eleven months at one time, but I’ve kept paying my rent. I’ve seen hundreds of mortgages in one job I had that were months and years past due and had not been forclosed on yet; If as a renter I stopped paying I think the longest I could go even with going to court would be two or three months…

    • ludwigk says:

      Those thousands of families can’t pay their mortgages because they have no money. They are spending it all to survive. What really happens if you evict them all? Some of them move in with friends, some rent, some end up on the streets. Any additional money spent on housing is taken away from consumption of consumer goods. Housing is down, but consumer demand is as well.

      Ultimately, this is zero sum. Maybe you can argue that some housing sector recovery is better than the harm to consumption demand, but the dollar amounts for the upside and downside are going to even out.

  12. DocOtter says:

    People want to get all wrapped up in the so called morality of deadbeats not paying.

    This is not the issue.

    The only issue, the only question is:
    Should the banks be subject to the law?

    It is a simple yes or no question; are banks subordinate to the law?

    Do you agree or disagree: Banks should be subject to the auspice of the law.

    If the banks are subject to the law, they have to get their paperwork together. Presenting false, forged, or perjured paperwork to the court is a crime. It is not the proper procedure to pursue a foreclosure, mortgage payments, or any other financial transaction; assuming of course banks are not above the law.

    To allow the banks to present fraudulent documents, to plead with ‘oh we lost it, its so very hard for us, a powerful, wealthy, and experienced *financial* institution to keep track of paperwork’, and *reward* them with property and wealth is an abomination to the entire concept of a free and equal society. It does naught but sow corruption, engender disillusionment for the rule of law, and culture anarchy. No society that holds a plutocracy above itself shall last; it will drown in the ocean of self obliteration.

  13. SilverBlade2k says:

    I think this is good, but doesn’t go far enough.

    I’m all for foreclosing on people who can’t/won’t pay their mortgages, BUT, I wish there was a law saying “If a bank forecloses on properties fraudulently more then ‘X’ times, they legally can not foreclose on any property for ‘x’ years, or until they have 100% of the legally required documents and must re-apply for the ability to foreclose on properties”

  14. Minimum says:

    If they want to put a stop to the bad paperwork, the first thing they need to do is start charging those who sign off on fake paperwork with fraud.

    A few of these idiots go to jail and then see how quickly things start to get cleaned up.