Banks are accusing advocates of borrowers of using antiquated legal rules to stop foreclosures   by Jessica Alberton

in Real Estate / Foreclosures    (submitted 2011-09-02)

The banks are accusing the advocates of borrowers using antiquated legal rules to stop foreclosures. They are now being able to keep their houses although they have not paid their dues. But Thomas Ice of Royal Palm Beach in Florida said that attempts to cover up false evidence "can't be tolerated by a free society. This is a huge assault on our legal system" that has the potential risk of turning America "into a banana republic".

Lawyer Laurence E. Platt of K&L Gates in Washington, representing the bankers admitted that some of the banks could have been sloppy in their operations but he argued that "the real assault on the legal system" are attempts by the judges and the officials to take away from the lenders their ownership rights by making foreclosure impossible.

Last March in a court in Alabama J.P. Morgan Chase failed to foreclose on a delinquent house owner in Phenix City (Alabama) Phyllis Horace. Her loan had not been assigned to the owners in proper manner - the owners being a trust representing investors. The assignment indicated that the loan had not been transferred from the sub-prime lender (loan originator) to the trust. Bear Stearns was the originator and as per rules it was required of it to assign this loan within a time period of three months since the securitization. Since this had not been done, Circuit Court Judge Albert Johnson decided that the trust was not the owner of the mortgage. He wrote, "The court is surprised to the point of astonishment that the defendant trust did not comply with the terms" of the agreement regarding securitization.

This ruling was the first of its kind in the country to take away from a trust an asset that it thought it was the owner of. But in another similar suit earlier in 2011 the decision went in favour of the bank.

The lawyer representing Phyllis Horace, Nick Wooten said that this case would not as a matter of course impact on other rulings unless the higher court upheld it. But the case of Horace he said was "another brick in the wall of trial-court-level cases that clearly show the wheels fell off the bus in the securitization industry during the bubble".

Correcting mortgage assignments that are incomplete can be really troublesome because innumerable lenders have downed shutters. Bill Dallas founder and CEO of Ownit Mortgage Solutions that collapsed in 2006 receives each month mail numbering up to 300 looking for correcting ownership flaws. He is not surprised at this turn of events as knew that this problem of assignment would arise.

About the Author

Jessica Alberton, has been working on ForeclosureRepos.com studying the foreclosures market, helping buyers on the finer points of bank foreclosures.