A New Way to Fight Foreclosures

Two legal decisions – one in a New York State Court and one in a Tampa, Fla. foreclosure court – to cancel a homeowner’s mortgage debt after the bank couldn’t find the mortgage paperwork, are sending shivers down the spine of mortgage lenders.

In September, a New York resident facing foreclosure requested a copy of the deed on his home. When the mortgage provider, PHH Mortgage, couldn’t come across with the paperwork, a bankruptcy judge waived the homeowner’s entire mortgage debt. The amount waived? $461,263.

Also this fall, a Florida foreclosure court ruled in favor of a jobless (and about to be homeless) Tampa-area woman who filed a request for her original mortgage paperwork. Using free court documents to make her request, the woman found, no doubt to her delight, that the mortgage carrier didn’t have the deed. Just like that, the foreclosure judge put a freeze on the proceedings and threatened to cancel the entire debt if the paperwork wasn’t delivered to court.

Are these stories anecdotal? Or do they signify a trend that could release millions of homeowners from foreclosure – and, like the New York homeowners, have their mortgage debt canceled entirely?

The data might surprise you. A 2008 University of Iowa study concludes that mortgage companies have a nasty habit of misplacing key mortgage documents. In the study, Iowa researchers reviewed 1,700 bank foreclosure cases and discovered that 40% of the time, the original home note was nowhere to be found.

There’s a legal precedent, too. In 2007, a federal judge in Cleveland tossed out 14 foreclosure cases when the lender, Deutsche Bank National Trust, couldn’t find the original paperwork.

So how can anxious homeowners take a crack at the missing paperwork gambit? It’s not easy, there are no guarantees, and you’ll likely need a good real estate lawyer.

But why not take a look? Start with the Consumer Warning Network Web site – that’s the site the Tampa woman used to save her home (for now) from foreclosure.

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