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Missing Assignments Delay OH Foreclosures

OH judges requiring documented chain of ownership

November 15, 2007


photo of Patrick Crowley

Federal judges in Cleveland are tossing out foreclosure cases, contending that lenders and investors need to document a chain of ownership of loans being foreclosed. The cases underscore emerging issues from the subprime meltdown.

On Wednesday, U.S. District Judge Kathleen M. O'Malley dismissed 32 foreclosure cases filed by Deutsche Bank, Wells Fargo and others, ruling that the paperwork filed with the court did not establish the history of the mortgages' ownership.

"It was basically because of non-compliance with our foreclosure procedures," O'Malley's clerk, Chris Huth, told MortgageDaily.com. "We've been doing a lot of these for a year and have come up with a lot of procedures for attorneys to follow. The judge's ruling ... was based on non-compliance with some of those rules."

In a three-page order, O'Malley noted that the plaintiffs filing the foreclosures are not named on the notes and mortgages in question. She told the plaintiffs a paper trail of the loan is necessary to establishing ownership of the mortgage and the basis to bring a foreclosure action.

"To the extent a note and mortgage are no longer held or owned by the originating lender, a plaintiff must appropriately document the chain of ownership to demonstrate its legal status," O'Malley said in her order. "In other words, a foreclosure plaintiff must provide documentation that it is the owner and holder of the note and mortgage as of the date the foreclosure action is filed."

During late October in the same court, U.S. District Judge Christopher Boyko dismissed 14 foreclosure cases brought by Deutsche Bank National Trust Company, court records show.

Boyko made a similar argument to O'Malley's in that it is necessary for the court to know who owns the loans.

"In each of the ... complaints [Deutsche Bank] alleges it is the holder and owner of the note and mortgage," Boyko wrote in his six-page order. "However, the attached note and mortgage identify the mortgagee and promisee as the original lending institution, one other than (Deutsche Bank)."

Boyko said for the cases to move forward, Deutsche Bank must file more documents that establish the ownership of the mortgages. He also sent notice that the practice will stop, at least in his court.

"The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance," Boyko said. "Finally put to the test, their weak legal arguments compel the court to stop them at the gate."

Boyko said he recognizes that Deutsche has the right to foreclosure on property, but that they must follow the law in doing so.

"The court acknowledges the rights of banks, holding valid mortgages, to receive timely payments," Boyko said. "And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes.

"Yet this court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction," he said. "Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations."

Patrick Crowley is a feature journalist and blogger for MortgageDaily.com. He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at: [email protected]

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