Prove You Own My Loan

When I first heard of the case of Mamie Ruth Palmer, which hit the news about a year ago, it sounded like quintessential poetic justice:

A homeowner who had filed for bankruptcy protection and was still making mortgage payments is fighting to keep her home, and eventually wins due to the murky ownership status of her loan—seems Bank of New York (or, more likely, its servicer) initiated foreclosure proceedings two months before it could prove that it actually owned the loan. She not only saved her loan, but got her principal knocked way down, fees rescinded, and lawyer’s fees covered.

Since the lack of attention to the specifics of what loans were being made, and where, and what loans were being bought and when, was such a big part of the foreclosure crisis, it’s satisfying to see that come home to roost.

But was it replicable? Could it become an activist tactic? After all, lawyers always say to argue jurisdiction first, right?

The Times article said it was an argument cropping up in multiple cases. Legal Aid was right on it:
bq.‘We believe that many of these companies can’t find the assignments,” said William J. Brennan Jr., director of the Home Defense Program of the Atlanta Legal Aid Society. “If they can never prove ownership, then they can never foreclose.”

I figured that the industry would quickly come up with some legal rebuttals or standards to prove ownership that would nip this annoying practice in the bud. It certainly didn’t become a high-profile movement.

But perhaps I underestimated just how confused and overwhelmed they are. Legal Aid is still quietly using this approach. I recently heard of another case up here in upstate New York, where there was no particular serving-before-buying-the-loan problem, in which, when challenged to prove they owned the loan, the owner (and servicer) just failed to respond, and so the foreclosure was halted.

Now, most owners who face foreclosure don’t take it to court. In fact, most don’t even contact the servicer to attempt a workout. So clearly this is not going to actually appreciably stem the total numbers of foreclosures.

But for those cases that are or should be fought—the fraudulent (legally or illegally) mortgages, the cases in bankruptcy, the cases eligible for a workout and not getting one—perhaps the much-bemoaned gordian knot of securitization could have a silver lining, be leverage to keep a few more folks in their homes? Should this possibility become part of all housing counselors’ repetoires?

Miriam Axel-Lute is CEO/editor-in-chief of Shelterforce. She lives in Albany, New York, and is a proud small-city aficionado.


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