But with the predatory lending and investing that went on during the boom years of the subprime mortgage industry, many of these loans have been sliced up and sold off piece by piece, packaged into mortgage-backed securities and sold to hedge funds, pension funds, and other investors. In fact, the originating mortgage companies may now be completely out of business, with the collapse of the subprime industry claiming over 250 lenders so far.
So the loans were originated by a company that is now out of business, and then it was sliced up and the rights to various parts of the mortgage were sold to other companies. But in order to sue for foreclosure, the bank initiating the lawsuit must have been assigned the mortgage, and investors in the mortgage-backed securities are not even assigned ownership in a specific property unless and until the homeowners fall behind on the payments. They have simply been bundled up into one huge pool of mortgages with no specific owners of any particular note.
Thus, the companies that invested in these mortgage securities were not parties to the original transaction -- they never participated directly in the origination of the mortgage nor its subsequent sale. Investors are merely assigned to particular mortgages after the fact, and there was no true sale of the security to the investors, which is an element of a valid securities sale. Investors and banks, it seems, can not prove the own the mortgages, can not prove that they were assigned a particular mortgage that they are now suffering damage from its default, and can not show that they even bought a legitimate security.
And these are the companies that are presuming to sue homeowners for foreclosure! After doing everything they could to induce people into fraudulent loans and limit their own exposure to the inevitable defaults, banks are discovering that all of these shenanigans have only insulated them against actual ownership of the loan. So, because lenders rely on the ignorance of homeowners to foreclose anyway, this is the defense they have turned to for the majority of foreclosure cases.
Many lenders are now submitting an affidavit to the courts that they do not own the original loan but they swear they have standing to complain against the homeowners. Essentially, they are just requesting that the judge take it on their word that they can sue for foreclosure and are counting on homeowners not challenging this position. Unfortunately, few homeowners read the foreclosure paperwork or hire an attorney to defend them, so they do not realize just how shaky the bank's lawsuit really is.
This is just one more vitally important reason that homeowners should read the paperwork they are sent by their lenders and challenge everything that seems unfair to them. Especially if the mortgage company is claiming that they have the right to sue but can not prove they have that right, borrowers may wish to consult a contract attorney who can help them defend against the lender's misconduct. Such a legal defense may only stop foreclosure for a short period of time, but it is up to the banks to prove homeowners should lose their homes -- not for homeowners to supplicate themselves at the feet of predatory banks and corrupt judges.