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Who Owns My Mortgage, Again?

Shmeglar v. PHM Financial et al., 14-121 (Interpleader Plaintiffs)
Bankruptcy Court, Northern District of Illinois, Eastern Division
Issued November 18, 2014 by Judge Jack B. Schmetterer

In this Memorandum Opinion the Bankruptcy Court pries apart a Fed. R.  Civ. Pro. 12(c) Motion for Judgment on the Pleadings brought by banks and servicers who claim to be entitled to mortgage payments from the Debtor. In the process, the Court peers down the rabbit hole of securitized mortgages – the process of bundling loans into trusts, slicing trusts into securities, and trading the securities on Wall Street. And what the opinion reveals isn’t pretty.

Ultimately, this case is like thousands across Illinois, and tens of thousands across the country, in the past 10 years that arise from the clash between the big-money business of securitization and the reality of the subprime mortgage debacle. At the root of it all there was always this simple, but previously unthinkable, question:  Who owns my mortgage note and who should I be paying?

Whose Mortgage Is It Anyway?

So who should a homeowner be paying when their mortgage has been securitized, sold, transferred, allonged, and robo-signed? The gaggle of interpleading banks and mortgage services in this case thought it was obvious based on the documents on file with the Court that they were the right ones to pay. But was it really obvious based on documents alone? According to the Court, no it was not.

Every Trick In The Book

Indeed, these facts read like the Forrest Gump of the mortgage mess – virtually everything that had plagued homeowners across the country had happened here, too. No wonder the opinion covers nearly every hot-button tactic used by desperate homeowners over the years to keep from paying their mortgages: the impenetrable mortgage trust, the confusing and misleading array of servicers and transferees, the notes, allonges, and  robo-signed transfers in blank: it’s all here!

But wait, there’s more! This case even involves a Cook County foreclosure case in which judgment that was entered but no sale took place – so no “final confirmation” was issued. The result was an incomplete judgment and a lurking Stern v. Marshall problem. Oh no! And last but not least, even the Illinois enactment of the UCC was called on by the Opinion.

The Upshot

Following its thorough analysis, what does the Court conclude? Can the Debtor/Mortgagor rest easy knowing to whom he must make out his mortgage payment? Nope. Instead, the Opinion confirms that the mortgagee banks and servicers here, like others around the country, have tied themselves into a knot that can only be untangled following an evidentiary hearing (and maybe not even then).

So while there is no final answer to the Debtor’s question of who to pay, at least the Court seems to make the banks put their money where their mouth is. That’s got to count for something, right?

Your Turn

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