Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

November 15, 2007

Amazing Foreclosure Decision

by @ 12:35 pm. Filed under Real Estate

A court in Ohio has issued a ruling that might throw the mortgage industry into (much deserved) chaos. In this case, reported today in the New York Times, homeowners who were being foreclosed upon, filed suit to prevent the foreclosures, arguing that the entity doing the foreclosure did own the legal interest needed to foreclose. The foreclosing lenders could not produce mortgages or notes that showed ownership of an interest in the subject property, so the judge prohibited them from going forward with the foreclosures. Here’s how this all works: A “mortgage” really consists of two main documents - a promissory note which is the borrowers promise to repay an amount of money with interest within a certain amount of time; and a mortgage which is a type of deed that conveys an interest in the property to the lender. Once a mortgage is signed, the homeowner is left with something called “the equity of redemption” which means that once the money is paid in full, the lender will “discharge” or give back it’s interest in the property which, of course, is the right to seize the property for non-payment of the note. That’s why it’s called a “foreclosure.” The lender takes an act that forecloses or cuts off the borrowers right to redeem the property. When the local bank lends you money and stores the original mortgage and note in its vault, there’s no question about who owns what. But when thousands of mortgages are pooled together, chopped up into shares of an investment trust, and sold off to institutional investors, it’s very easy to lose track of the mortgage and the note. So when the trustee of the investment trust doesn’t get paid by the borrower, he might not have possession of the mortgage or the note. This decision says that in that case, he has no right to foreclose. Look for a flurry of foreclosure related lawsuits around the country raising this issue.

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