Federal Judge in Ohio Makes an Amazing Ruling, Dismisses Foreclosures Without Notes, October 2007 edition.

Finally the administration is talking about the foreclosure fraud crisis. And their approach is that only BP knows how to foreclosure on people with improper documents 5,000 feet below the sea only Bank of America, GMAC and the other largest servicers and banks can figure out how to solve this problem internally, that “This is a problem for the banks and servicers to fix. They can fix it as fast as they feel like it.”

Here are Shahien Nasiripour and Arthur Delaney on Obama Team On Furor Over Foreclosures: ‘Problem For The Banks and Servicers To Fix.’

What if the adminstration came out with something half as strong as this ruling by Judge Christopher A. Boyko of Federal District Court in Cleveland (my bold, though seriously read it all):

This Court acknowledges the right of banks, holding valid mortgages, to receive timely payments. And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes—seeking foreclosure on the property securing the notes. Yet, this Court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations…

Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.” In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property.

There is no doubt every decision made by a financial institution in the foreclosure process is
driven by money.  And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit—to the contrary, they should be rewarded for sound business and legal practices.

Counsel for the institutions are not without legal argument to support their position, but their
arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.

What a badass.  And what a great statement of the philosophical principles of liberalism. The state has a responsibility to be a check on power, allowing people to have their fair say.  Vague references to efficiency cannot be allowed to supplant the law:  the basic requirements, rules and responsibilities for how we organize ourselves. The profit motive alone won’t guide us, as if by an invisible hand, because the powerful will bulldoze over the basic structure of the rules of the market if given the chance, recreating and subverting them to their own benefit, unless their efforts are held in check.

And here’s a fun fact: This ruling was from 2007. (Here’s the Judge’s ruling, read all of it if you are interested.)

Sorry, but this wasn’t something the financial blogosphere made-up to generate links and pageviews. It’s a longstanding problem that has finally hit critical mass. A few people had mentioned this in passing (notably John Carney’s A Primer On The Foreclosure Crisis), but the courts have been flagging this as a crisis point for 3 years now.

Now that everyone has learned a lot more about notes and securitizations and foreclosure fraud and all kinds of things, let’s check out Gretchen Morgenson, Foreclosures Hit a Snag for Lenders from the New York Times, November 15th 2007, which covers this ruling (my bold):

A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.

Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize…

The ruling was issued Oct. 31 by Judge Boyko, and relates to 14 foreclosure cases brought by Deutsche Bank National Trust Company. The bank is trustee for securitization pools, issued as recently as June 2006, claiming to hold mortgages underlying the foreclosed properties….

On Oct. 10, Judge Boyko, 53, ordered the lenders’ representative to file copies of loan assignments showing that the lender was indeed the owner of the note and mortgage on each property when the foreclosure was filed. But lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages rather than proof of ownership as of the foreclosure date….

“This is the miracle of not having securities mapped to the underlying loans,” said Josh Rosner, a specialist in mortgage securities at Graham-Fisher, an independent research firm in New York. “There is no industry repository for mortgage loans. I have heard of instances where the same loan is in two or three pools.”…

“The big issue in all these cases, whether we are dealing with a bankruptcy court, a state court or a federal court, is who really owns the mortgage note, and that is allegedly what they securitized,” said O. Max Gardner III, a lawyer who represents borrowers in foreclosure in Shelby, N.C. “A collateral question is, has that mortgage note really been transferred and assigned to the securitization trust? If not, then they really don’t have standing. It’s Law School 101.”…

“We see a trend toward judges having enough of this trampling of the rules and procedure and care and reverence with which lawyers and litigants and participants in the judicial process should comply,” Ms. Charney said. “Hopefully this will convince everybody that the time to work out these home loans is now.”

Note the bold:  The courts back in November 2007 flagged that “intent” to convey wasn’t going to fly for mortgage securitizations.   You are going to hear a lot in the near future that the banks having “intent” to move these notes – what else would they do with them? – should be enough.  The courts and the law disagreed 3 years ago.  And, I’m currently working on this, but by all accounts New York Trust law (which governs a large percentage of these securities) is even less forgiving of using “intent” as an excuse.

The article ends with a optimistic note that the banks in question will get their act together now that they’ve been embarrassed and penalized publicly. How’d that work out? Now we appear to be on the course that this will all work itself out because, again, the banks have been embarrassed and penalized publicly. How’s this going to work out without stronger and mobilized action?

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8 Responses to Federal Judge in Ohio Makes an Amazing Ruling, Dismisses Foreclosures Without Notes, October 2007 edition.

  1. Chris Marino says:

    Mike, it would be interesting to know what was the final disposition of these 14 cases. Did the notes ever appear?

  2. nick gogerty says:


    you are doing great work covering this. Keep up the good work. It is amazing how arguments about business efficiency and size are all that is required circumvent procedure and due process. I can’t believe this issue hasn’t gotten more attention as the acts represents countless acts of fraud and misrepresentation under the justification of efficiency or “common practices”.

  3. Harmonika Savingsbonds says:

    If they want, as they say, less government then, indeed, lets the banks and servicers figure this unfortunate mess out. If President Obama even tries to help ANY situation, he’s only going to be attacked for whatever efforts he puts forward. He will still be called vile names no matter what he does. Why not allow him to focus his energies on what he does best without the media’s annoying and unnecessary attention?

    Less government? There you go; let’s see how you like that

  4. Andrew says:

    Via Kevin Drum, here’s a look inside the Stern group foreclosure mill by Andy Kroll of Mother Jones:


    Pure assembly line, least cost, speed is the essence manufacturing. Some firms make chicken nuggets: others foreclosures.

  5. Your article speaks volumes about the contempt financial institutions and especially banks have for the law — are “too big to fail” banks above the law…? — should “too big to fail” banks be permitted to abbreviate the mortgage foreclosure process under the argument of expediency…? — again, the “too big to fail” banks in the US continue to demonstrate that following the law is a hassle that they are above and beyond — yes, foreclosures need to proceed and people will be losing their homes — but, let’s ensure that banks litigate their interests following the laws of the land — by the way, the banks can afford to pay properly trained people to litigate foreclosures — “too big to fail” simply means “too big to manage,” “too big to regulate,” and therefore, “too big to keep around…”

  6. zic says:

    I’m grateful the judge included the portion about property maintenance after a foreclosure. I’ve been watching some local markets for many years now, and the number of “as-is” sales, sold as-is because of burst pipes, etc., are sickening.

    As is the notion that nobody owns the house after it’s foreclosed; it’s an abstract in a fund, not a real property.

    In the mid 2000’s, I wrote reported on the improvements in the housing stock based on rising real estate values; particularly in the Northeast, where the stock is older, a researcher at Harvard told me he’d tracked the greatest improvement of housing ever; particularly considering upgrades to major mechanical systems. How much of that investment will be lost through the non-owner owner’s neglect?

  7. jpe says:

    The foreclosure actions were dismissed w/o prejudice; once the paperwork problem was corrected, the bank could refile.

  8. pebird says:

    “I have heard of instances where the same loan is in two or three pools.”…

    Just a technicality, we can fix the paperwork on that one.

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