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The Achilles Heel of Securitized Lenders in Mortgage Foreclosure

Posted By Cliff Tuttle | July 18, 2008

Posted by Cliff Tuttle

The following is a post I made yesterday on a real estate law listserv known as DIRT regarding why foreclosures of securitized mortgages have had so much trouble addressing questions which never arose in the days when most home mortgages were issued by community banks and thrifts.

I would like to suggest an explanation for the conduct of plaintiffs in these cases and why trial counsel is unable to satisfy the demands by courts for evidence of assignment of the mortgage and note. Such simple ministerial acts, often made necessary by orders of court for their foreclosures to proceed to sale, seem to be beyond the capabilities of the largest banking institutions in the United States.

After struggling with a number of these cases, I am convinced that most of the plaintiff’s attorneys may have never communicated with their nominal plaintiffs, the trustees under pooling agreements, and possibly wouldn’t even know how to contact them. These cases are assigned to regional law firms that handle them in volume through a clearing house, usually at the same time that the servicer relinquishes the account to the pool trustee. I have had several clients who have participated in work-outs, only to have the case put into foreclosure after two or three payments. The servicers refuse to discuss the reasons why this happens. I think that the trustee (who knows and cares nothing about the workout) orders the case into foreclosure based on triggers installed in their payment monitoring systems and the servicers comply by immediately shutting down the case. From the trustee’s point of view, this is simply an entry on an electronic account ledger. The servicer, who has relinquished control of the account, is no longer being paid to administer the account and the trustee doesn’t want to be bothered.

The trustee has no mortgage file. All it knows or cares to know is whether the payments on the loan are current or in default. It doesn’t wish to get into the details necessary to verify complaints. It doesn’t want to take the responsibility for signing affidavits. It is in the securities business, not the lending business. If trial counsel can’t take care of these matters, the trustee will instruct the clearing house to find somebody else in the future who will.

Then, after the foreclosure is derailed through preliminary objections, plaintiff’s trial counsel can’t seem to arrange a settlement conference. Eventually, another complaint is filed and the cycle begins again.

In Allegheny County, Pennsylvania, the Sheriff is trying to have local rules adopted that would require a settlement conference at the beginning of a mortgage foreclosure. This is because borrowers and counsel report that they cannot find anyone willing to talk about a work-out. It seems to me an idea whose time has come.



CLIFF TUTTLE has been a Pennsylvania lawyer for over 45 years and (inter alia) is a real estate litigator and legal writer. The posts in this blog are intended to provide general information about legal topics of interest to lawyers and consumers with a Pittsburgh and Western Pennsylvania focus. However, this information does not constitute legal advice and there is no lawyer-client relationship created when you read this blog. You are encouraged to leave comments but be aware that posted comments can be read by others. If you wish to contact me in privacy, please use the Contact Form located immediately below this message. I will reply promptly and in strict confidence.

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