Homeowner Saves House From Foreclosure
Our previous posts on subprime lending and foreclosures have highlighted defenses that turned the tables on the lenders and how courts around the country are scrutinizing foreclosure filings and, if defective, not allowing the proceedings to go forward. Our most recent posts on this subject, with links to others, are available here and here.
Now, the New York Times has published an article illustrating how the packaging and transfer of mortgage loans created a new opportunity for a homeowner to keep her home. The Times article, “How One Borrower Beat the Foreclosure Machine,” by Gretchen Morgenson was on page 1 of its July 27, 2008 Sunday Business edition (we did not locate an online version to link).
The article was about how a 74 year old former housekeeper saved her house from foreclosure. While the story took place outside the jurisdictions in which we practice, it involves general principles of law and nationwide business pratices.
With our economy continuing to decline, more and more homeowners are faced with the very real prospect of losing their homes to banks and other lenders in foreclosure proceedings. In today’s mortgage market, most banks and lenders “repackage” mortgage loans and sell or assign the mortgages in a “secondary mortgage market.” This means that, more often than not, the bank which originally loaned the money is not the bank which winds up owning the note and, therefore, has the legal ability to collect on that debt. The legal ability to collect on the debt depends on who owns the note at the time a foreclosure proceeding is initiated.
In the case of the 74 year old former housekeeper, according to the Times, her ordeal unfolded and ended with a favorable settlement as follows: She filed for bankruptcy protection to save her house and made mortgage payments to the bankruptcy trustee (the person who oversees the bankruptcy proceeding). The Bank of New York sued to foreclose on the mortgage – but the bank sued before it legally owned the note. The “package” of loans had not yet been transferred to the bank, as trustee. The bank, therefore, had no “standing” or legal authority to sue. It took five years of litigation before the Bank of New York finally settled the matter – by reducing the principal loan balance and paying the homeowner’s attorney’s fees.
Most homeowners facing foreclosure don’t have the financial resources to fight banks for five years, but there are steps that homeowners can take before foreclosure proceedings begin. Preferably with the assistance of an attorney, the homeowner can negotiate with the banks’ attorneys to restructure mortgages and find other viable solutions to help homeowners keep their houses. Ultimately, banks are in the business of making loans, not owning houses as a result of foreclosure proceedings.
Image: From Wikipedia Commons: Margaret Sadler and her attorneys Michael A. Robinson and William L. Henry. Ms. Sadler is holding the original promissory note and altered promissory note in her foreclosure. Colorado District Court Judge Vincent White dismissed the foreclosure when the Bank of New York was unable to show that they were the real party in interest.
