Articles
Courts Not Processing Foreclosures
Court Systems across the country are having difficulty with the increase in foreclosure filings. The New York court system has created Special Foreclosure Parts to deal only with foreclosure filings. Between 2005 and 2008, foreclosure filings increased by over 150% statewide.
The Court will serve as an alternative dispute process. It will proactively advise homeowners of their legal options and send notices to those homes under threat of foreclosure. The Court is hoping to advise homeowners that they do have options and legal representation is available.
Nationally, courts are ruling against sub-prime lenders if they cannot legally establish ownership of the loans in question. Many borrowers are now just beginning to understand that there exists a secondary mortgage market. This secondary market is what happens to the loan after the closing. Generally, a loan will be made by a bank to a homeowner/borrower. Once the loan transaction is completed, the bank will then package the loan to be purchased by another bank or financial institution. Essentially, they will be paid off immediately after the loan is made to the borrower.
The question then becomes, ‘who is the holder of the loan’? Loans are transferred from one institution to another as part of another transaction. The loans are packaged by the banks as mortgage-backed securities. As the “securities” were sold over and over, they would end up as a package held by investors all over the world. When the property values declined, the securities would lose value. This led to a breakdown of the financial markets on numerous levels.
Courts across the country and in New York have shown a reluctance to foreclose on a mortgage when they cannot determine where it originated, or who currently owns the loan. Brooklyn Supreme Court Judge Arthur Schack believes this project “is an attempt to help people. It it can help save people’s homes - - more power to it.” (Village Voice, Fighting Foreclosure: Subprime Borrowers Battle (and Beat) Lenders in Court, Amanda Stutt September 3, 2008). Judge Schack was quoted in the National Law Journal stating “I deny more foreclosures than I approve. . . I want to see all the paperwork before I approve it. If the paperwork is garbage, I deny it. If you’re going to take away someone’s home, it should be done properly.”
With the glut of foreclosure on the market today, Courts are taking a very careful approach in making a determination. The court system realizes that they are truly dealing with the lives of many people. They are not taking lightly the possible loss of one’s home. They realize that lending practices during the subprime era has caused a discrepancy in the mortgages market. The mortgage underwriting methods and the secondary mortgage market during the subprime era has lead the Courts to truly follow a “justice is blind” method to its jurisprudence.