Lawsuits Expose Holes in the Legality of Home-Foreclosure Proceedings

Amid the ongoing trauma of the foreclosure crisis, some borrowers and their advocates are questioning lenders' rights to foreclose on their homes. Across the country, several lawsuits have been filed challenging the framework the mortgage-lending industry relies on to bundle and sell mortgages and then seek to foreclose on mortgages when homeowners fall behind on their payments.

Upon closer scrutiny, evidence of faulty foreclosure proceedings by mortgage lenders has accumulated over the past year. Now-notorious practices of some mortgage lenders, like using "robo-signers" who signed off on thousands of foreclosure documents without reading them as required by law, lead all 50 state attorneys general to investigate lenders' foreclosure procedures and even resulted in temporary, voluntary moratoriums on foreclosures by several large lenders.

Concerns About MERS System

One of the main points of contention in homeowners' lawsuits against foreclosures is the mortgage-lending industry's use of Mortgage Electronic Registration Services, or MERS. MERS is an electronic mortgage-recording system that holds the titles to more than 50 million mortgages, according to the Pacific Coast Business Times. MERS simplifies mortgage transfers by allowing lenders to record ownership changes electronically rather than recording the changes in person at county recorder's offices across the U.S.

MERS also permits lenders to bundle, divide and sell mortgages as securities to investors. Therefore, homeowners and their lawyers assert that the true owners of these mortgages are the investors, not MERS or the mortgage lenders. Accordingly, only the investors have the right to foreclose on the loans or to assign the right to foreclose. If no assignment occurred, neither MERS nor lenders have the proper legal basis to foreclose, they argue.

Considering lenders' vast resources and the enormity of the foreclosure crisis, individual homeowners challenging foreclosure proceedings may seem like tiny Davids fighting Goliath-like banks. However, many homeowners have found success in legally challenging foreclosure proceedings.

In addition, the federal Office of the Comptroller of the Currency has ordered MERS to revise its processes, and a MERS spokeswoman said the organization is changing its rules so foreclosures cannot be filed in its name anymore. Further, state attorneys general are discussing a possible settlement with mortgage lenders to provide relief to affected homeowners.

Conclusion

Pending any state or federal action, though, homeowners facing foreclosure may be able to save their homes by disputing the legitimacy of the foreclosure proceedings. If you are at risk of losing your home, promptly contact a real estate attorney with experience in foreclosure cases to discuss your legal options.