There’s A Lot Of Legal Action Happening In the Foreclosure Market

Foreclosures have been in the news a lot lately, and by lately we mean mostly over the last five or six years. Record numbers of residential foreclosures and entire neighborhoods sitting largely vacant have left an indelible mark on not just the American market and economy, but our culture as well.

Now they’re leaving their mark on our legal system.

The past week has had several interesting developments in courtrooms across the country when it comes to foreclosures, the foreclosure process, and homeowners’ rights. We’ll take a look at a few cases and events and see what we can glean from a big picture perspective on the market.

North Carolina Court Hears Foreclosure Case

In North Carolina, the state Supreme Court is hearing what would be a landmark case for the state – and possibly other states – on whether or not lenders have to provide original paperwork in order to initiate foreclosure.

It seems relatively straightforward that lenders would have to produce such evidence, but in reality a lot of foreclosure cases have been processed over the past few years without original documentation. The plaintiff is alleging that the documentation was never shown to her, and she has no idea who know owns her mortgage. Wells Fargo, the bank under fire in the case, is arguing that it will provide the documentation if the case is remanded to a lower court – which sounds extremely suspect.

The court more than likely will argue that the exact original copy does not need to be produced, which is standard fare for many contractual disputes (since originals are often destroyed or damaged).

Massachusetts Court Rules Against Homebuyer

In another court ruling, the state Supreme Judicial Court of Massachusetts ruled that a buyer who purchased a foreclosure that had been wrongfully foreclosed on by the bank did not have possession of the property, since the transaction was never lawful to begin with. The ruling was not unexpected but did provide an intriguing glimpse into how faulty foreclosure processes have impacted the legal system.

The buyer purchased the foreclosure at auction like thousands of foreclosure auctions held monthly. But, in his case, the lender who owned the home wrongfully foreclosed on the original homeowner, so there was no transfer of property from the original homeowner to the lender. You can’t buy something that isn’t supposed to be for sale, so the buyer was left empty-handed for his troubles. This closely-watched case will likely be emulated elsewhere in the country.

Florida Case Throws Wrench Into State Foreclosure Process

In a very interesting case from foreclosure-heavy Florida, the 4th District Court of Appeals ruled that a foreclosure affidavit from a bank employee testifying to the validity and existence of original loan documentation on several Wellington, Florida foreclosures was hearsay because the employee had no first-hand knowledge of the documentation itself.

In other words, when challenged to prove the existence of paperwork showing that the bank owned the loan and could initiate foreclosure, the bank instead got an employee to swear that he or she saw “computerized information” showing the documentation – without having any knowledge of the document, the original contract, or anything else related to the case.

This is pretty much the same thing as robo-signing, so it’s no wonder why the Court of Appeals decided to rule in this manner. To say that it has disrupted residential foreclosures in the state is an understatement, though, so it will be highly interesting to see what now comes out of a state that already is ridiculously behind on foreclosure processing.