Blog Post

Options for Foreclosure Defense

Posted by: Paula Greenway
June 30, 2008
Topic: Foreclosures

Recently one of the more creative defenses to a pending foreclosure is to file suit asking for an injunction and request the foreclosing bank to prove ownership of the mortgage note. The bank must show it has standing foreclose on the mortgage of the homeowner. In a large number of foreclosures, banks do not produce the original note, many feel that the ignorance of homeowners will lead to no challenge of the bank's positions.

However, with the predatory lending and investing that went on during the booming years of the subprime mortgage industry, most of these loans have been sliced and diced and sold off piece by piece, put into mortgage-backed securities and bundled and sold to hedge funds, pension funds, and other investors. Moreover, originating mortgage companies may now no longer be in business, with the fall of the subprime industry being the death of over 250 lenders up to this point.

Ok, the loan was originated by a company no longer in business, and then it was sliced up and the rights to various parts of the mortgage were sold to one company and then to another and another. But in order initiate foreclosure, the bank imust have been assigned the mortgage, and investors in the mortgage-backed securities are not even assigned ownership in a specific property unless and until the homeowners fall behind on the payments. They have simply been bundled up into one huge pool of mortgages with no specific owners of any particular note.

The companies that invested in these mortgage securities were not parties to the original transaction -- they never directly participated in originating the mortgage nor its subsequent sale. Investors are merely assigned to particular mortgages after the fact, and there was no true sale of the security to the investors, which is an element of a valid securities sale. Investors and banks, it seems, can not prove the own the mortgages, can not prove that they were assigned a particular mortgage that they are now suffering damage from its default, and can not show that they even bought a legitimate security.

These are the companies that are presuming to foreclose! After doing everything they could to induce people into fraudulent loans and limit their own exposure to the inevitable defaults, banks are discovering that all of these shenanigans have only insulated them against actual ownership of the loan. So, because lenders feel indestructible and sheltered by the ignorance of homeowners, they choose to foreclose anyway; this is the defense homeowners have turned to for the majority of foreclosure defense cases.

Many lenders are now submitting an affidavit to the courts in foreclosure lawsuits that they have no ownership of the original loan but they swear they have standing to foreclose against the homeowners. Basically, they are just requesting that the court take it on their word that they can sue for foreclosure and are counting on homeowners not to question their authority. Unfortunately, few homeowners read the foreclosure paperwork or hire an attorney to defend them, so they do not realize just how shaky the bank's position really is.

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Options for Foreclosure Defense

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