The mortgage crisis in America has gotten so complicated that not only are banks foreclosing with no evidence that they have authority to do so, they can no longer define what ownership of a mortgage even means.
- Bank in Wisconsin foreclosure claims term “owner” of mortgage is vague and undefined.
- Massachusetts court rules banks must show ownership of loan to foreclose
- Defective foreclosures rampant; consequences to consumers countless and complicated
You Have To Own the Mortgage
The popular pre-recession practice of bundling mortgages and selling them as securities has created all kinds of tangled complications for homeowners struggling to hang on to their properties. Just ask a couple from Wisconsin trying to defend their home from foreclosure.
The couple originally bought their home using an adjustable-rate loan from Fremont Bank, through the Castle Mortgage brokerage firm. However, the mortgage was bundled up and sold, eventually ending up in the hands of Deutsche Bank– sort of.
When the rates went up and the couple could no longer pay, they were served with a notice of foreclosure in 2009 from Deutsche Bank National Trust Company, as Trustee for GSAMP Trust 2006-FM1, c/o American’s Servicing Company.
Sound confusing? It gets worse. The homeowners contested the foreclosure, arguing that their mortgage was defective because it contained a provision that used a method of calculating interest that violated Wisconsin law. Lawyers defending the foreclosure submitted a number of discovery questions to Deutsche Bank to determine who actually owned the mortgage, in order to see if the bank had standing to pursue the foreclosure at all. “If you want to foreclose on the house, you have to own the mortgage,” says Justin Wallace, an attorney for Nash, Spindler, Grimstad & McCracken, the firm defending the foreclosure.
“Vague and Undefined”
The response was perplexing, to say the least. The bank responded to requests on whether Deutsche Bank National Trust Company or GSAMP Trust 2006-FM1 c/o American’s Servicing Company owned or held legal title to the mortgage with a series of objections– that the terms “owner,” “ownership” and “legal title” are “vague and undefined.”
“I don’t know how much more straightforward you can be,” Wallace says. “I just wanted to know, given the odd way they were named, does Deutsche Bank own this or not. I was surprised to see they wanted to have it both ways.”
Not only did the bank decline to say if it owned the mortgage, it challenged the very concept of ownership, as if the mortgage transactions of the past half-decade were so complicated it can no longer be determined who owns what. “To say that that question is vague and indefinite gets to the heart of the problem– these people created a system that is admittedly vague and indefinite,” says Wallace. “You can’t foreclose on a mortgage based on a potentially vague and indefinite ownership of a mortgage.”
Deutsche Bank did not respond to request for comment or clarification.
All Over the Country
Murky ownership of mortgages and loans is far from an isolated problem. “It’s happening all over the country,” says Stuart Rossman, director of litigation at the National Consumer Law Center. Legal opinion and precedent on how to handle the debacle is still unfolding, but some recent court cases in Massachusetts could prove to be a bellwether.
Two cases in the state have been resolved by the Massachusetts Supreme Court in favor of distressed homeowners, ruling that banks cannot foreclose if they can’t show that they own the note, or loan agreement, and that they have the authority under the mortgage to foreclose. A third case along similar lines is still pending.
States have different laws, and the Massachusetts cases apply most specifically to states with non-judicial foreclosures, where the owner of the mortgage doesn’t have to file a lawsuit to start foreclosure proceedings. However, the principle involved could apply to any mortgage dispute.
“The bottom line on all of this is you have a right to demand that the party that is foreclosing on you has the note itself and has the authority to foreclose on the mortgage,” Rossman says. “If they don’t, even if you owe money you have the right to determine who you owe the money to and how much you owe.”
The mortgage situation, already muddled through complicated securities transactions, was made worse when banks were caught “robo-signing” mortgage assignments using unqualified workers, without verifying any of the information like who actually held title to mortgages and loans. As a result, untold thousands of homeowners might be facing illegal foreclosure.
The consequences could unfold in a number of different directions. “Someone could technically foreclose on a mortgage, without holding the note or mortgage, and six months later someone else could come along and say, ‘I hold the note, you owe me the money,’” Rossman says. “Then you’re caught between a rock and hard place. Why should consumers have to deal with that when they didn’t create that problem?”
Opaque ownership also limits the options homeowners have to avoid formal foreclosure. “If they want to go through short sale, or if they want to apply to get some kind of loan modification, they need to know that the party they are dealing with is authorized to enter into those transactions,” says Rossman.
So what are your options? They aren’t pretty. “Quite honestly there’s very little recourse available,” Rossman says. “There’s the ability to determine who is servicing the mortgage, but it won’t help you on the chain of title on the note.” If banks can’t even define what ownership means anymore, good luck finding the legal title-holder. And retaining attorneys to fight back against the banks can be an expensive proposition, especially for consumers who can’t afford to maintain their mortgage payments as it is.
Ultimately, the rulings in Massachusetts could mean that defective foreclosures get rolled back, to some extent. “All over the country, courts are scrutinizing whether the parties initiating foreclosures against homeowners legally possess the authority to repossess those homes. When the authority is absent, foreclosure sales may be reversed,” attorney Elizabeth Renuart wrote in a paper about the Massachusetts cases.
But that opens up other complications– what about unwitting buyers who already paid for a home that was illegally foreclosed upon? What about homeowners who can’t pay their mortgages regardless?
The descriptive term here might be “quagmire.”