By Aaron Krowne & Moe Bedard

In a decision piggy-backing on Judge Boyko’s recent Deutsche Bank ruling (announced on this site Tuesday), Judge Rose has thrown out another batch of foreclosures, making the following summary remarks:

“This court is well aware that entities who hold valid notes are entitled to receive timely payments in accordance with the notes. And, if they do not receive timely payments, the entities have the right to seek foreclosure on the accompanying mortgages.

However, with regard the enforcement of standing and other jurisdictional requirements pertaining to foreclosure actions, this court is in full agreement with Judge Christopher A Boyko for the Northern District of Ohio who recently stressed, ‘That the judicial integrity of the United States District Court is ‘Priceless.’”

The ruling is another HUGE victory for consumer advocate attorneys and homeowners in general.

A pdf file of the full ruling is available here.

Jacksonville Legal Aid attorney April Charney remarked to us regarding the two Ohio decisions:

As to the real ramification of the Ohio decision, aside from slowing the foreclosure trains, is that the fact that there were no “original” assignments rendering the sales of the mortgages to the trusts, in violation of the true sale obligations imposed by securities law. ”

For more comments by April and us on this foundational issue of these rulings, see our next post. There we also address some criticisms and critiques we’ve received since our original coverage.

by Moe Bedard and Aaron Krowne

Judge Christopher A. Boyko of the Eastern Ohio United States District Court, on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.

Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating Plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the Complaint was filed, or the court would enter a dismissal.

The Court’s amended General Order No. 2006-16 requires Plaintiff (Deutsche Bank) to submit an affidavit along with the complaint, which identifies Plaintiff as the original mortgage holder, or as an assignee, trustee or successor-interest.

Apparently Deutsche bank submitted several affidavits that claim that Deutsche was in fact the owner of the mortgage note, but none of these affidavits mention assignment or trust or successor interest.

Thus, the Judge ruled that in every instance, these submissions create a “conflict” and they “do not satisfy” the burden of demonstrating at the time of filing the complaint, that Deutsche Bank was in fact the “legal” note holder.

While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it is a big blow to the cause of sorting out the high-finance side of the mortgage mess.

Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours):

This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.

That means that the loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged “sale” to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require.

This also means that many securitized trusts don’t really, legally own these bad loans.

In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.

So with this decision, it appears confirmed that investors in the mortgage debacle may in fact own nothing—not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus clouding the recovery picture considerably.

Charney further remarked to us:

This opinion, once circulated and adopted by state and Federal courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.

We agree with additional remarks Charney made pointing out that this decision has major adverse implications for the prospects of an amicable financial workout for the various investor contingents in mortgage-backed securities (MBSes). Doubt is cast on where the full write-downs will eventually land, and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities, already in shambles purely due to rising underlying delinquencies. Investors in these securities might have assumed—wrongly, it turns out—that they actually owned some “real estate” in these deals.

To paraphrase Jim Cramer, “They own nothing!”