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SEO Legal Services weighs in on big anti-foreclosure lawsuit
By Jim Phillips
An attorney with a local legal aid agency has signed onto a "friend of the court" brief filed with the Ohio Supreme Court in a case that could have a big impact on home foreclosures in the state.
As explained in a recent feature on the issue on the CBS news show "60 Minutes," many homes foreclosed on in the wake of the recession have remained stuck on the market, and one surprising factor in this has been the inability of many banks to produce the paperwork to prove they actually own the properties.
"It's bizarre, but it turns out that Wall Street cut corners when it created those mortgage-backed investments that triggered the financial collapse," reported "CBS Evening News" anchor Scott Pelley. "Now that banks want to evict people, they're discovering that often the legal documents behind the mortgages simply aren't there."
Worse, Pelley reported, once homeowners got wind of this problem, and began using it to hold up their foreclosures in court, some lenders apparently resorted to the mass forging of mortgage documents to facilitate the foreclosures.
Lee of SEOLS said in foreclosure cases, the strategy of demanding that the foreclosing party produce the actual mortgage documents has been catching on among homeowners, which has led to a number of cases around Ohio in which appellate courts have come to different conclusions on whether you have to have the mortgage documents in hand to take a foreclosure to court.
"There's been a lot of different opinions from a lot of different appellate districts," she said, which is why the state Supreme Court has been asked to review the question.
Lee and other legal-aid lawyers want the Supreme Court to rule that before a plaintiff has standing to sue for foreclosure, it must show that it owned the note and the mortgage when the complaint was filed. If the court rules this way, she predicted, it could potentially affect hundreds of thousands of Ohioans facing foreclosure.
"It could very well mean that future foreclosures will be more stringent for the plaintiffs," that is, the parties trying to foreclose, she said.
During the housing boom, countless mortgages were bundled into mortgage-backed securities, which were then sliced up in various ways for sale as investment instruments. The catch, however, Lee said, is that "the mortgage itself is not a negotiable instrument." But while the bundled securities were passing wildly from hand to hand, apparently some banks simply lost track of the mortgage documents and/or their related promissory notes.
Now homeowners facing foreclosure are starting to learn that demanding that the bank produce the mortgage can throw a large handful of sand into the gears of a foreclosure lawsuit.
In the view of Lee and other legal-aid attorneys, all they're trying to get lenders to do in the Duvall case is to follow existing law. "They have to adhere to the current standards in place," she argued. "The paperwork has to be properly done before they even set foot to take the case." Without a "demonstrable interest in the note and mortgage," the amicus brief argues, a plaintiff should have no standing to sue for foreclosure.
The attorney for the main plaintiff in the case, U.S. Bank National Association, did not return a calls seeking comment. The organization is acting as trustee for the lender in the case, Wells Fargo Bank.
In the "60 Minutes" show in early August, a former chair of the Federal Deposit Insurance Corporation, which insures bank deposits, told Pelley that she believes in many cases in which foreclosure defendants are demanding that plaintiffs produce mortgage documents, the bank could eventually prove that it owned the property in question. That could take a long time, she said.
With a huge number of such lawsuits now in play 30,000, according to Pelley this type of litigation "could easily get out of control," warned former FDIC chair Sheila Bair. She suggested that banks should be required to pay billions of dollars into a "cleanup fund," which could be used to pay foreclosure defendants to accept a bank's ownership claim without a lawsuit.
According to information on the Athens County Clerk of Courts website, foreclosures in Athens County have been mounting in recent years, going from 128 in 2005 to 192 in 2009. Lee said she believes the Duvall case has wide application, and deals with an extremely important legal principle.
"A foreclosure is not just about whether you owe the money," she insisted. She added that the issue of sloppy documentation by banks does show up locally sometimes.
"We're seeing foreclosures with bad paperwork," she confirmed.
The brief, in U.S. Bank National Association v. Antoine Duvall, was submitted Aug. 16 by Peggy P. Lee of Southeastern Ohio Legal Services, along with representatives of many other legal aid agencies and activist groups around Ohio. SEOLS and others who signed onto the amicus curiae brief have been involved in the Save the Dream Ohio project, a statewide foreclosure intervention initiative, and they report that since 2008, they collectively have represented more than 12,000 homeowners in various foreclosure-related actions.
The Duvall case is complex, but essentially addresses a growing legal issue that could seriously impact home foreclosures in Ohio: the issue of whether a foreclosing bank can actually prove that it owns the mortgage.As explained in a recent feature on the issue on the CBS news show "60 Minutes," many homes foreclosed on in the wake of the recession have remained stuck on the market, and one surprising factor in this has been the inability of many banks to produce the paperwork to prove they actually own the properties.
"It's bizarre, but it turns out that Wall Street cut corners when it created those mortgage-backed investments that triggered the financial collapse," reported "CBS Evening News" anchor Scott Pelley. "Now that banks want to evict people, they're discovering that often the legal documents behind the mortgages simply aren't there."
Worse, Pelley reported, once homeowners got wind of this problem, and began using it to hold up their foreclosures in court, some lenders apparently resorted to the mass forging of mortgage documents to facilitate the foreclosures.
Lee of SEOLS said in foreclosure cases, the strategy of demanding that the foreclosing party produce the actual mortgage documents has been catching on among homeowners, which has led to a number of cases around Ohio in which appellate courts have come to different conclusions on whether you have to have the mortgage documents in hand to take a foreclosure to court.
"There's been a lot of different opinions from a lot of different appellate districts," she said, which is why the state Supreme Court has been asked to review the question.
Lee and other legal-aid lawyers want the Supreme Court to rule that before a plaintiff has standing to sue for foreclosure, it must show that it owned the note and the mortgage when the complaint was filed. If the court rules this way, she predicted, it could potentially affect hundreds of thousands of Ohioans facing foreclosure.
"It could very well mean that future foreclosures will be more stringent for the plaintiffs," that is, the parties trying to foreclose, she said.
During the housing boom, countless mortgages were bundled into mortgage-backed securities, which were then sliced up in various ways for sale as investment instruments. The catch, however, Lee said, is that "the mortgage itself is not a negotiable instrument." But while the bundled securities were passing wildly from hand to hand, apparently some banks simply lost track of the mortgage documents and/or their related promissory notes.
Now homeowners facing foreclosure are starting to learn that demanding that the bank produce the mortgage can throw a large handful of sand into the gears of a foreclosure lawsuit.
In the view of Lee and other legal-aid attorneys, all they're trying to get lenders to do in the Duvall case is to follow existing law. "They have to adhere to the current standards in place," she argued. "The paperwork has to be properly done before they even set foot to take the case." Without a "demonstrable interest in the note and mortgage," the amicus brief argues, a plaintiff should have no standing to sue for foreclosure.
The attorney for the main plaintiff in the case, U.S. Bank National Association, did not return a calls seeking comment. The organization is acting as trustee for the lender in the case, Wells Fargo Bank.
In the "60 Minutes" show in early August, a former chair of the Federal Deposit Insurance Corporation, which insures bank deposits, told Pelley that she believes in many cases in which foreclosure defendants are demanding that plaintiffs produce mortgage documents, the bank could eventually prove that it owned the property in question. That could take a long time, she said.
With a huge number of such lawsuits now in play 30,000, according to Pelley this type of litigation "could easily get out of control," warned former FDIC chair Sheila Bair. She suggested that banks should be required to pay billions of dollars into a "cleanup fund," which could be used to pay foreclosure defendants to accept a bank's ownership claim without a lawsuit.
According to information on the Athens County Clerk of Courts website, foreclosures in Athens County have been mounting in recent years, going from 128 in 2005 to 192 in 2009. Lee said she believes the Duvall case has wide application, and deals with an extremely important legal principle.
"A foreclosure is not just about whether you owe the money," she insisted. She added that the issue of sloppy documentation by banks does show up locally sometimes.
"We're seeing foreclosures with bad paperwork," she confirmed.
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