Foreclosure contestation in Ohio

[quigleydoor]

How significant is this, for adding FUD* to CDO valuations?

Foreclosures Hit a Snag for Lenders, New York Times, 11/15

A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools. . . .

The ruling was issued Oct. 31 by Judge Boyko, and relates to 14 foreclosure cases brought by Deutsche Bank National Trust Company. The bank is trustee for securitization pools, issued as recently as June 2006, claiming to hold mortgages underlying the foreclosed properties.

On Oct. 10, Judge Boyko, 53, ordered the lenders’ representative to file copies of loan assignments showing that the lender was indeed the owner of the note and mortgage on each property when the foreclosure was filed. But lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages rather than proof of ownership as of the foreclosure date.

Saying that Deutsche Bank’s arguments of legal standing fell woefully short, the judge wrote: “The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the court to stop them at the gate.” . . .

“This is the miracle of not having securities mapped to the underlying loans,” said Josh Rosner, a specialist in mortgage securities at Graham-Fisher, an independent research firm in New York. “There is no industry repository for mortgage loans. I have heard of instances where the same loan is in two or three pools.” . . .

When a loan goes into a securitization, the mortgage note is not sent to the trust. Instead it shows up as a data transfer with the physical note being kept at a separate document repository company. Such practices keep the process fast and cheap.

*FUD = Fear, uncertainty and doubt

[jk]

Re: Foreclosure contestation in Ohio

note this earlier iteration of the same issue, but in florida

http://www.itulip.com/forums/showthread.php?t=1433

[GRG55]

Re: Foreclosure contestation in Ohio

How significant is this, for adding FUD* to CDO valuations?



*FUD = Fear, uncertainty and doubt

Here's some additional, rather pointed, commentary from the Legal Aid lawyer quoted near the end of your posted clip. If one was a conspiracy theorist, it would be difficult not to imagine this was deliberately engineered to slow the credit melt-down. Hank and Ben must have quietly toasted Judge Boyko.

Must be rough when the investors discover they "own nothing...Not even the bad loans they funded"



"...Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours):

This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.

That means that the loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged "sale" to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require.

This also means that many securitized trusts don't really, legally own these bad loans.

In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.

So with this decision, it appears confirmed that investors in the mortgage debacle may in fact own nothing---not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus clouding the recovery picture considerably.


Charney further remarked to us:

This opinion, once circulated and adopted by state and Federal courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.

We agree with additional remarks Charney made pointing out that this decision has major adverse implications for the prospects of an amicable financial workout for the various investor contingents in mortgage-backed securities (MBSes). Doubt is cast on where the full write-downs will eventually land, and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities, already in shambles purely due to rising underlying delinquencies. Investors in these securities might have assumed---wrongly, it turns out---that they actually owned some "real estate" in these deals.

To paraphrase Jim Cramer, "They own nothing!"

Link:
http://loanworkout.org/2007/11/13/de...n-nothing.aspx

[jk]

Re: Foreclosure contestation in Ohio

this may be a foretaste of what happens when and if there are collection problems on all the SWAP contracts/derivatives, when counterparties start to fail.