November 15, 2007 (LPAC)--Cleveland Federal judge Christopher A. Boyko on October 31 dismissed 14 home-foreclosure cases brought by Deutsche Bank National Trust Co. on behalf of mortgage investors for whom the bank is the trustee for mortgage-securitization pools. The judge ruled that the investors had failed to prove that they owned the properties they were trying to seize, the New York Times reported.
The problem, Judge Boyko says in his ruling, is that in each complaint initiating the foreclosure lawsuit, "the named Plaintiff alleges it is the holder and owner of the 'Note and Mortgage'," but the attached Note and Mortgage identify the mortgage-creditor as "the original lending institution--one other than the named Plaintiff." Further, the Plaintiff is not listed in the "recorded chain of title/interest" maintained by local government about properties. The ruling notes that Ohio law requires contracts and transactions concerning real estate to be in writing, and that when a mortgage is assigned (transferred to a new owner), the assignment is subject to recording requirements.
Lawyers for Deutsche Bank supplied documents showing only an intent to convey the rights in the mortgages, rather than proof of ownership as of the date they moved to seize the home.
As the New York Times explains, "The process of putting together a mortgage pool begins when a home loan is originated by a bank or mortgage lender. That loan is typically sold to a Wall Street firm that pools it with thousands of others. Once a pool is packaged, it is sold to investors in different slices, based on risk. A trustee bank oversees the pool's operations, ensuring that payments made by borrowers go to the appropriate investors." However, "When a loan goes into a securitization, the mortgage note is not sent to the trust. Instead, it shows up as a data transfer with the physical note being kept at a separate document repository company. Such practices keep the process fast and cheap."
Thousands of foreclosures may be implicated in this important case. Deutsche Bank is one of the nation's top real estate subprime lenders and foreclosers. A survey released by New York State Sen. Jeffrey D. Klein on Aug. 27 showed Deutsche Bank to be one of the top three banks which hold the subprime mortgage notes on foreclosed properties in New York City, and during the 13 months of July 2006 through July 2007, it filed 2999 foreclosure actions there.
Separately, a Nov. 5 report by the BBC denotes Cleveland as the subprime capital of the U.S., saying that, "one in ten homes in the city is now vacant, and whole neighborhoods have been blighted by foreclosed, vandalized, and boarded-up homes," many of which are now owned by banks and investment pools, and that "the company making the most foreclosures in Cleveland is Deutsche Bank Trust, which acts on behalf of the investment pools." An interactive graphic on the article available on BBC's website (at http://news.bbc.co.uk/2/hi/business/7070935.stm) shows the locations in Cleveland of (a) black residents, (b) sub-prime lending on properties, (c) foreclosures, and (d) Deutsche Bank properties. All four parameters show a heavy concentration in an arc in the eastern part of the city; while at the same time in the southwestern portion, there are triply overlapping parameters.
The lack of physical possession of the mortgage notes, as several attorneys point out in the Times article, raises the issue of who really owns the note which lies behind the securities, and whether the note has really been transferred and assigned to the securitization trust. Another possible issue, with its own staggering implications, is raised by a mortgage securities specialist at a New York research firm: "I have heard of instances where the same loan is in two or three pools."
