Ameriquest originated a mortage, securitized it, and sold it. Then pretended it still owned the mortgage to a U.S. Bankruptcy Court judge. Whoops.

Unamused, Massachussetts U.S. District Court Judge William Young upheld $275,000 in sanctions against Ameriquest and its lawyers (PDF). This quote from the bankruptcy judge speaks volumes: “It is worth repeating as a warning to lenders and servicers that the rules of this Court apply to them.”

Much of the financial services industry apparently forgot, in the heady years of a booming economy, that they had to play by the rules. But they do. Paperwork and proof matter, especially when it comes to taking a home. Just because Ameriquest and its ilk have been securitizing—essentially a convoluted sale supposed to allow investors to shoulder profit and loss—their loans for years, that does not mean their intentions will hold up in a federal court.

Judge Young resorted to an Oscar Wilde quotation and a Thomas Nast cartoon to express his disgust at the conduct of Ameriquest and its lawyers, who apparently thought otherwise. As it turned out, Ameriquests’s law firm had already tried to foreclose the loan—for Wells Fargo, and Ameriquest had given away all its important right in the securitization.

This ought to be a forceful reminder to the lending industry of why it matters who can produce the note.

$275,000 Sanctions in Mortgage Shell Game [Consumer Law & Policy Blog]

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears the first Monday of every month on Consumerist.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.