December 12, 2007 - In mid-November, a federal judge in Ohio dismissed 14 cases in which Deutsche Bank was attempting to foreclose on homeowners in default on their mortgages. Why? Because the bank couldn't prove to the court that it actually owned the mortgages. Since then, two other judges have dismissed an additional 59 cases for the same reason. And now, Ohio's Attorney General has entered the fight and is urging state courts for follow the lead of the federal courts.

On November 15, we reported that judge Christopher Boyko of the Federal District Court in Ohio had dismissed the 14 Deutsche Bank cases. The total number has now grown to 73 cases, all from the same district court.

The Deutsche Bank case has proven to be quite important to both lenders and investors in mortgage backed securities. When lenders repackage their loans to sell as securities, the individual securities are supposed to be tied to specific mortgages. But lenders apparently forgot to put together any reliable tracking mechanism to accomplish this. The bottom line here is that it appears to be impossible for the owners of these securities to prove that they actually own a particular loan. And that little fact may make it illegal for them to foreclose on some loans, even though the loans are in default.

This information became generally available as a result of Boyko's ruling. And it didn't take long for Ohio's Attorney General, Marc Dann, to sit up and take notice. Ohio has one of the highest foreclosure rates of any state in the country. 3.7% of all mortgages in the state are currently in foreclosure.

Since Boyko's court ruling, Dann has filed court motions to dismiss 31 separate foreclosure cases in five separate counties. And according to the AG's office, more motions are imminent. The reason? Once again, the banks filing for foreclosure have failed to produce any documentation proving that they actually own the loans.

In effect, Dann is interceding with the courts on the behalf of Ohio residents.  He's asking judges to actually insure that when lenders file for foreclosure, that they actually have that right.

None of the 31 dismissal requests filed by Dann have been ruled on yet, but lenders and investors do have to be concerned. In a survey conducted by Iowa State University, no proof of ownership was offered by the foreclosing party in nearly 40% of all foreclosure cases.

The rulings by the federal court in Ohio are not binding on other areas of the country but they are likely to be noted by judges reviewing similar cases around the country. If other courts begin to rule the same way, it may provide relief for troubled homeowners but could also spell real trouble for lenders and investors. If the court rulings stand, they could also make it more difficult for anyone seeking a home loan as lenders may be reluctant to lend, and investors may be reluctant to invest, if there is no way for them to get their money back when a borrower defaults.

by Jim Malmberg

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