That’s a great phrase that the NY Times headlined Gretchen Morgensen’s article about judges who are backing borrowers when the mortgage documentation is non-existent (and you heard it first from the Mad Biologist). I know I’m beating this to death (a bit, anyway), but the potential for billions, many billions of dollars of housing loans to disappear is gaining steam. Morgensen (italics mine):
One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.
So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.
The reason that notes have gone missing is the huge mass of mortgage securitizations that occurred during the housing boom. Securitizations allowed for large pools of bank loans to be bundled and sold to legions of investors, but some of the nuts and bolts of the mortgage game — notes, for example — were never adequately tracked or recorded during the boom. In some cases, that means nobody truly knows who owns what….
More important, the case is an alert to lenders that dubious proof-of-ownership tactics may no longer be accepted practice. They may even be viewed as a fraud on the court.
The United States Trustee, a division of the Justice Department charged with monitoring the nation’s bankruptcy courts, has also taken an interest in the White Plains case. Its representative has attended hearings in the matter, and it has registered with the court as an interested party.
What could turn out to be a disaster for mortgage holders might have been nipped in the bud had they supported cramdown legislation. Right now, it’s desperate people–in this case, the laywer was only trying to get a better deal, not get the entire mortgage voided. And if you want to sell the house, as opposed to stay in it, it’s not clear what the status of the title is.
But, at some point, someone, and then many someones, is going to see if he can get out of paying back his mortgage, even though he can make the payment. That’s when this gets interesting–in the sense of “may you live in interesting times.”