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who owns my house again …?

This story gives adequate protection a whole new meaning. FYI, adequate protection is bankruptcy-speak for the ability to lay your hands on property in case you don’t get paid. Banks generally want to claim $2 worth of property for every $1 they lend; so being ‘adequately secured’ in a bankruptcy case makes their lawyers more nervous than cats in a room full of rocking chairs.

As the article recounts, a certain Judge Christopher Boyko of Ohio has thrown a monkey-wrench into the cozy relationship between mortgage lenders and bankruptcy courts by holding that Deutche Bank did notown the properties that they were claiming as security behind their loans. Or to be more specific, the Judge showed that when Deutche bought this particular batch of mortgage-backed securities they failed to ensure that they would be the ‘owners’ of the properties in the event of default. Whoops; after decadesof considering themselves entitled to the proceeds from their mortgage accounts as well as the houses that secured them, Judge Boyko’s ruling might mean that mortgage companies technically haven’t owned squat. Zip. Nada. Nothing. To quote the article

… as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes … [n]ow … the intricacies of the mortgage pools are starting to create problems for lenders as well. Lawyers for troubled homeowners are expected to seize upon the district judge”s opinion as a way to impede foreclosures across the country or force investors to settle with homeowners. And it may encourage judges in other courts to demand more documentation of ownership from lenders trying to foreclose.

Not that anyone expects judges in other parts of the country to rush into the gap identified by this ruling … but it’s an interesting chink in the armor of the seemingly invincible mortgage companies.

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