Judge Christopher A. Boyko of the Eastern Ohio United States District Court, seven years ago on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.
Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating the plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the complaint was filed, or the court would enter a dismissal.
The Court’s amended General Order No. 2006-16 requires the plaintiff (Deutsche Bank) to submit an affidavit along with the complaint, which identifies them as the original mortgage holder, or as an assignee, trustee or successor-interest.
Apparently Deutsche Bank submitted several affidavits that claim that they were in fact the owner of these mortgage notes, but none of these affidavits mention assignment or trust or successor interest.
Thus, the Judge ruled that in every instance, these submissions create a “conflict” and they “do not satisfy” the burden of demonstrating at the time of filing the complaint that Deutsche Bank was in fact the “legal” note holder.
While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it also represents a serious roadblock. If the toxic mortgage fiasco is to be cleaned up, there must be a simple means of identifying what banks own and what they do not own. This judgment is an example of the enormous task ahead in sorting out the mortgage mess.
Jacksonville Area Legal Aid Attorney, April Charney, had said this in regards to the Ohio Federal Court ruling (emphasis ours): “This court order is what I have been saying in my cases. This is rampant fraud on every court in America or non judicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.”
These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged “sale” to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require. This means that many securitized trusts don’t really, legally own these bad loans. Regarding this mess Charney further explains:
“In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.”
This decision confirms that investors in the mortgage debacle may very well own nothing—not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus, clouding the recovery picture considerably.
Summarizing the problem Charney concludes:
Photobucket “This opinion, once circulated and adopted by State and Federal Courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.”
We agree with the remarks Charney makes pointing out that this decision will have major adverse implications for the prospects of an amicable financial workout for the various investor contingents in mortgage-backed securities (MBSes). Doubt is cast on where the full write-downs will eventually land, and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities, already in shambles purely due to rising underlying delinquencies. Investors in these securities might have assumed—wrongly, it turns out—that they actually owned some “real estate” in these deals.
To paraphrase Jim Cramer, “They own nothing!”