A study by Reuters provides interesting insight into the foreclosure mess and in particular, whether lenders have original documents. As I have blogged, in legal terms, if a lender wants to foreclose, it must prove that it is the real party in interest. It must prove that it has standing (the legal right to sue). Without the original documents, this is difficult.
However, remember that the courts do not require that the lender prove standing when they file the lawsuit. A home owner must assert this as an affirmative or separate defense. If a lender has not been paid in months or years and believes that they can convert a property to a performing investment, and then they are going to have a very high interest in foreclosing. However, in many cases, if they had to use real, legitimate, original documents to carry out that process, it simply would never happen. Why? Because the originals simply do not exist. Reuters calls this “one of the overlooked legacies of the housing boom,” and explains in a new report that “in the rush to make new home loans and sell them off as fast as possible…the original lenders…destroyed original documents or never turned them over as required.” As a result, promissory notes and mortgages frequently never made it to the end-buyer – or even just the next guy in line. This means that “many pension funds, insurance companies and hedge funds that invested in [investor] trusts never got formal title to the mortgages they had paid for.” And that means that when it comes time to foreclose, they may have no choice but to use doctored or replicated documents in order to do so. Analysts speculate that the reason that there has not been an audit or an investigation of this issue may be simply that “if the extent of the problem became known, the housing market might worsen.” For example, the country’s largest sub-prime lender (it collapsed in 2007) almost never endorsed promissory notes or assigned mortgages to the trusts that bought its mortgages, meaning that trusts may be out millions of dollars and a millions of homes could end up with clouds on their titles.