Banks Right to Foreclose Challenged by Bankruptcy Trustee
Sunday, January 9, 2011 at 6:51PM Nash Law Firm, PLLC
By: Stephen J. Nash
nash@nash-law.com
While the focus has been on RoboSigning, the real issue is whether the banks can prove the right to foreclose the mortgage. Some argue that this is a desperation claim that in the end will fail. Some argue that the government will never allow these claims to prevail even if the banks can't prove ownership of the underlying note. Others argue that the lenders never bothered to properly document any transfers because they were only focused on the sale, never anticipated the possibility of defaults, and are simply too inefficient to properly deal with the volume of transfers they generated.
I don't know which side will win, but those that believe the issue will go away anytime soon or that merely eliminating RoboSigning is going to resolve the problem are dead wrong. I believe these two bankruptcy cases illustrate why it will be difficult for the lenders to put this matter to bed any time soon.
Background
In two bankruptcy cases in the Northern District of Georgia, the US Trustee, Daniel Walton has asked the court to deny the requests of the lenders in each case to foreclose their mortgages. In both cases, Mr. Walton claims that the lenders had failed to prove that they were entitled to foreclose the mortgages, either as a holder of the promissory note or as an agent for the holder of the note.
The one case involves Wells Fargo, while the other involves JPMorgan Chase.
Wells Fargo states that it is the trustee of a mortgage security, not the holder or servicer of the loan. JPMorgan Chase states that it does hold the note it is attempting to foreclose on.
What's The Big Deal?
The lenders are both contesting the allegation and the bankruptcy court has not yet ruled on the matter; however, the most interesting aspect to these cases to me is that argument challenging the right of the lender to foreclose is not being brought by a desperate home owner or a lawyer trying to hit a home run - these were both brought by the US Trustee.
If you think that this is just one trustee run amok, Jane Limprecht, a spokeswoman for the United States Trustee Program, is quoted as follows,"The United States Trustee Program is engaged in an enhanced review of mortgage servicer filings in bankruptcy cases to help ensure the accuracy of the claim to repayment." Doesn't sound like Mr. Walton is a loose cannon.
A bankruptcy attorney in Atlanta, Howard D. Rothbloom, is encouraged by the trustees action stating, "Until now, what we had was homeowners complaining about a lack of due process. Now you have the federal government complaining about the abuse of the judicial process. That’s really what was missing before."
What's Down The Road?
The attacks on the lender's right to foreclose are going to continue to come from many different corners until the lenders actually submit proof that satisfies the court system. The easiest way to stem a legal attack is to start winning cases. The lenders keep stating that they have reviewed their files and they have satisfied but it is too late for their self-serving statements to mean anything. Time to put up or shut up or have this issue continue to haunt the real estate market.