Courts Require Foreclosing Lenders to Follow Legal Requirements in Pursuing Foreclosures
04.29.2008
With the slowing of the economy and the advent of the subprime mortgage crisis, an increasing number of homeowners are finding themselves in default on their mortgages and are consequently having mortgage foreclosure actions filed against them by their lenders. Some of these foreclosure actions will eventually result in the homeowners filing for bankruptcy in an effort to save their principal residence.
The nature of the mortgage market, in which mortgages are frequently sold by mortgage originators or the original lender, often results in the ownership of the mortgage loan changing hands multiple times. Often times, the transfer of the mortgage, note and any other documents evidencing ownership of the loan does not keep up with the transfer of the mortgage loans. It is not unusual for the party owning the loan at the time of a foreclosure or a bankruptcy proceeding to not have up-to-date documentation as it attempts to enforce the mortgage.
This situation often manifests itself in a mortgage foreclosure in circumstances where the current owner of the mortgage is not the record owner of the mortgage in the property records of the county where the homeowner's residence is located. A prerequisite to the current owner of the mortgage loan filing a mortgage foreclosure action is the mortgage loan being assigned to it and having the assignment recorded with the County Recorder of Deeds. While such an omission by the current owner of the mortgage will not allow the homeowner to ultimately prevail in a mortgage foreclosure action, a timely objection to the lender's omission can buy valuable time for homeowners to catch up on their delinquent payments or to have the property sold to satisfy the mortgage. Generally, Pennsylvania trial courts have uniformly required the suing mortgage company to have its documentation in order before allowing them to proceed with mortgage foreclosure actions.
Recently, the same issue arose in a bankruptcy case in the context of a mortgage lender seeking relief from the Bankruptcy Code's Automatic Stay in order to pursue a foreclosure action. In the case of In re: Maisel, 378 B.R. 19 (Bkrtcy Mass. 2007), the lender was unable to provide support for its claim that it was a party in interest and the owner of the mortgage. The Bankruptcy Court stated:
- Today, more and more homeowners turn to the bankruptcy system for protection when facing financial hardship or impending foreclosure. It is this Court's responsibility to ensure that these debtors receive the full protection of the Bankruptcy Code, including the benefit of an automatic stay, for as long as they are entitled to it. Unfortunately, concomitant with the increase in foreclosures is an increase in lenders who, in their rush to foreclose, haphazardly fail to comply with even the most basic legal requirements of the bankruptcy system. It is the lenders' responsibility to comply, and this Court's responsibility to ensure compliance, with both the substantive and procedural requirements of the Bankruptcy Code.
- As this Court made clear . . ., it takes its role in this regard very seriously and will require proof of each element required to obtain relief from stay. The most basic element required to obtain relief from stay is that a movant have standing to bring and prosecute such a motion.
While it is ultimately the responsibility of homeowners to keep their mortgage current or to pay it off in the event of a sale of a property, both state and federal courts are requiring foreclosing mortgage lenders to be able to document and prove their case in order to obtain relief.
