In a small victory for consumers, a federal judge in Ohio has ruled that lenders attempting to reclaim homes through foreclosure cannot side-step their obligation to document their standing. They must prove that they own the mortgage security so that borrowers aren't faced with multiple deficiency claims--particularly since it has been documented that mortgages may be identified with more than one security trust.
Many media outlets have reported that consumers attempting to work out their differences with mortgagors have experienced difficulty identifying who they owe money to, and who speaks for the creditors. This problem arises because the lender creates the note and mortgage and then sells it to companies who create mortgage "pools" to own the promissory notes as securities titled to hundreds of investors under the control of a bank trustee.
Many of these notes carry burdensome interest rates--in some cases well above the current market rates. A high percentage were adjustable rate mortgages that had "teaser" low rates initially, but then graduated to relatively punitive interest rates after a number of months or years. They also have terms that prevent the borrower from paying the note early (by refinancing with another lender at market rates, for example), and borrowers and their counsel often cannot identify anyone with the authority to investigate a compromise of these terms. The Judge chastised the banks in the instant case, writing in his opinion that the banks' argument "reveals a condescending mindset and quai-monopolistic system where financial institutions have traditionally controlled ... the foreclosure process." He refused to allow the banks to dictate the law to him, but the banks are free to re-file in State Court where they may find greater success in imposing their ideas about ownership and accountability.