Who really owns a foreclosed house?

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Good morning. Back in the day, when the rules were 20 and 30 -- 20% down and a 30-year-fixed mortgage -- you would never ask, ‘Who owns a foreclosed house.’ The answer was obvious. The bank owns it. The lender.

But today it’s a tricky legal issue. The bank/lender sells mortgages to a bunch of wizards in thousand-dollar suits who slice them and dice them and blend them into a bunch of exotic -- and lately toxic -- securities. A servicer collects payments on behalf of these faceless investors. So who OWNS the mortgages? Which brings us to what could be a major legal ruling in Ohio:

‘Judge Christopher A. Boyko of Federal District Court in Cleveland dismissed 14 foreclosure cases brought on behalf of mortgage investors, ruling that they had failed to prove that they owned the properties they were trying to seize.’

The New York Times: ‘Lawyers for troubled homeowners are expected to seize upon the district judge’s opinion as a way to impede foreclosures across the country or force investors to settle with homeowners. And it may encourage judges in other courts to demand more documentation of ownership from lenders trying to foreclose.’

It could be that the Ohio case is an odd exception, and that in most cases the chain of custody on a mortgage is more clear, and the ownership easier to pinpoint. That said, it’s a safe bet you’ll see more lawsuits challenging foreclosures.

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Photo Credit: AP