As a followup to my previous article about what happens to your mortgage when you bank fails. I recently ran across an interesting article from last winter that talks about banks losing track of mortgage paperwork and being unable to foreclose on deadbeat homeowners.
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 percent, of outstanding mortgages have been bundled into securities by private banks… Those loans may be sold several times before they land in a security.
Whenever loans are sold, the sellers are required to sign over the mortgage note to the buyers, but in the recent mortgage boom, that step wasn’t always properly completed.
According to Alan White of the Valparaiso University School of Law:
“Loans were mass produced and short cuts were taken. 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.”
In fact, more than 100 mortgage companies closed their doors during 2007, and I would imagine that the number has just kept climbing since then. Thus, in addition to all of the mortgages being sold through the normal course of business, the recent uptick in bank failures has created an even bigger mess. While mortgage banks can file a lost note affidavit fully document ownership of a particular loan, an increasing number of people are apparently challenging the ownership of their mortgage note.
Maybe it’s just me, but I’m surprised that people can get away with this. While the details vary from place to place, mortgages typically result in a lien on the property, and are filed with the county courthouse. This should establish that there is (or at least was) a mortgage on the property in question. If you combine that with evidence that the homeowner had been willingly paying the mortgage before going into default, the obvious conclusion should be that the mortgage is legit, resulting in what should be an open-and-shut case.
Of course, common sense and legalities don’t always intersect…