Joe Raedle/Getty Images
A foreclosure sign in Florida. Homeowner advocates say foreclosure can be delayed when banks can't produce the mortgage note.
A foreclosure sign in Florida. Homeowner advocates say foreclosure can be delayed when banks can't produce the mortgage note. Joe Raedle/Getty Images
Many mortgages are not held by banks, but by securitized trusts — complicated arrangements that involve many investors and byzantine legal documents. Homeowner advocates say they're finding a surprising number of improper mortgage documents and — in some cases — fraud that can delay foreclosure.
For years, lawyers defending homeowners against foreclosure had just one option: Convince lenders to re-negotiate the terms of their mortgage. Now they're taking their cases to court.
The 'Rocket Docket'
In Fort Myers, Fla., it's been called the "rocket docket" — a special court that hears — and clears — hundreds of foreclosures each day.
An average case takes just two to three minutes. State Circuit Judge James Thompson gets right to the point with homeowner Theresa Weber: "Miss Weber, it appears the bank has done what's necessary to get a judgment of foreclosure. Can you think of any legal reason why one should not take place?"
Like nearly all the other defendants, Weber answers, "No" and she gets what appears to be the standard judgment — 60 days to vacate the premises.
There are few tears in this court, mostly resignation.
In Miami-Dade County, across the state, Ana Fernandez says she thought that would be her fate as well.
Fernandez says she made a big mistake a few years ago when she refinanced her home. The new mortgage started with monthly payments of $1,200, but soon ballooned to $2,600 per month. "There was no way that I could afford paying that mortgage," she says.
Fernandez's home is a modest but recently updated three-bedroom house in Miami Gardens. She's lived here for 24 years.
When Fernandez contacted her lender, Chevy Chase Bank, she says the bank was no help: "They told me the best I could do was [get my payments] up to date and then start paying again, which would still leave me with the $2,600 [monthly payment]."
Fernandez learned firsthand how difficult it can be to convince lenders to negotiate terms that allow borrowers to remain in their homes.
Negotiating To Stay In Homes
When Fernandez's lawyer, Ray Garcia, took the case, he found that Chevy Chase Bank had no proof that it, in fact, owned her loan.
In a hearing, a lawyer representing the bank conceded that he did not have the original mortgage note — something that's required by law. What he did have was a copy.
Chevy Chase Bank bought Fernandez's loan from another institution. And, Garcia says, when he examined the copy, it showed ownership of the loan had never been assigned or transferred to Chevy Chase. In a recent interview in his office, he said: "As we sit here today, they haven't produced a note. They've produced absolutely no record evidence that Chevy Chase has a right to bring this action."
Chevy Chase was recently acquired by Capital One Bank. A Capital One spokeswoman maintains the company has filed the original note, but otherwise had no comment.
Producing The Mortgage Note
The demand that banks seeking foreclosure "produce the note" is a cry that's gotten attention from housing activists and real estate attorneys across the country.
For banks that own and service the loans they originate, finding the original paperwork is rarely a problem. But with loans that have been securitized — parceled with other mortgages and sold to investors — the original mortgage note can be elusive.
Lawyer April Charney, who works with Jacksonville Legal Services in Florida, has become well-known as an expert on defending homeowners against foreclosures. She says asking the bank to produce the paperwork is just the beginning.
She says lawyers who take the time to study the mortgage notes and the securitization agreements will almost always find deficiencies, and sometimes, fraud. "These loans are so tricked up by the Ponzi scheme that became the world of securitization and derivatives, that there is no owner to these loans," she says. "They just totally failed to comply with their contracts."
Charney has a full caseload and she's been working to train a small army of lawyers through seminars across the country.
The new world of securitized mortgages, she says, is layered and nuanced. Some courts, overwhelmed by a growing backlog of foreclosures, can even be hostile to attorneys who want to slow down the process.
But in some cases, it's the judges who are beginning to ask probing questions of plaintiffs seeking foreclosures. In California, federal bankruptcy judge Samuel Bufford has written about some of the new issues courts must consider in foreclosure cases. "One of the problems I see ... is I don't seem to have the right parties before the court," he says. "I've taken testimony ... and found out that the owner of the mortgage is somebody else who has not shown up in court at all."
A Changing Landscape
It's a still-developing area of law and it's one that could change abruptly with new federal legislation governing foreclosures.
Still, the growing number of legal challenges troubles Talcott Franklin, an attorney in Dallas and an expert on securitized mortgages.
He says mortgage-backed securities are an important part of a healthy housing market. If many of the legal challenges being mounted around the country are successful, he worries, that could undermine a vital financial tool.
"My big fear," Franklin says, "is that we'll get a series of decisions, based on not fully understood facts, which will prevent securitization from going forward in the future."
Franklin doesn't blame homeowners or their lawyers for bringing the challenges. He's more critical of lenders and their attorneys for not doing a better job understanding securitized mortgages and for not taking care of important legal matters before going to court to foreclose on a home.