Cleveland sues securitizers for damages under Ohio public nuisance law

January 11, 2008

(c/p CCD)

Exactly friggin’ right:

But Cleveland’s suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore’s in that it targets the investment banking side of the industry, which feeds off the mortgage market.

Investment bankers at these companies buy subprime mortgages from lenders, then sell mortgage-backed securities to investors. It is a legal practice, known as securitization, that became increasingly popular during the housing boom earlier this decade.

Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty.

The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest.

“Ultimately, they’re responsible,” Triozzi said of the investment banks. “They knew the economic conditions in which they were operating here. They decided that didn’t matter.”

Now I remember why I voted for Frank Jackson.

P.S. You can download the City’s actual filing here (pdf). Recommended reading!

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New at Cleveland Diary

January 7, 2008

Business Week: “Dirty Deeds” vs. housing court heroes.

Oklahoma speculator Destiny Ventures buys 53 more foreclosed Cuyahoga County houses.

(Here’s one of them)

Sprechen sie Deutsche Bank? (Or, how do you say RMBS in German?)

January 2, 2008

At the close of business Monday — the close of business for 2007 — Deutsche Bank, a German corporation with no offices closer to here than New York City, was the “owner” of 970 Cuyahoga County properties. 616 of these properties are in the city of Cleveland.

All of them are, of course, foreclosed buildings or lots. Almost all are houses (many of which are multi-unit, which means the number of residential units in DB ‘s name is significantly larger than 970). And most, if not all, are vacant.

Who actually owns all these properties? Not Deutsche Bank, of course. Deutsche Bank is a trustee, a stand-in, for the real owners — large investors who bought shares in securitized investment pools of mortgages (Residential Mortgage Backed Securities, or “RMBS“es) created by the original mortgage lenders, and are now losing their shirts.

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Foreclosure deeds recorded last week

December 19, 2007

(c/p CCD

206 sheriff’s deeds were filed with the Cuyahoga County Recorder’s Office last week (December 10 through December 14).

Here’s who filed five or more of them:

Department of HUD (28)
Deutsche Bank (25)
Federal National Mortgage Assn (24)
US Bank (15)
Wells Fargo (14)
Bank of New York (10)
HSBC Bank (7)
Lasalle Bank (6)
Federal Home Loan Mortgage Corp (5)
Household Realty (5)

(Previous week.)

Boyko foreclosure decision snowballs… avalanche on the way?

December 10, 2007

From the beginning of 2007 through last Thursday, December 6, Deutsche Bank was the plaintiff in 1,625 foreclosure cases in Cuyahoga County Common Pleas Court , according to the Court’s online database.

Wells Fargo was the plaintiff in 1,429 foreclosures cases in the same period; US Bank in 1,069; JP Morgan Chase in 1,049.

In most of these cases — as well as the 676 filed by the Bank of New York, the 609 filed by HSBC Bank, and thousands more — the bank named as plaintiff was not the actual lender or mortgage holder. As in this Deutsche Bank case, the named plaintiff was usually the “trustee” for a “securitized investment pool” of thousands of mortgages, with ownership interests in the pool held by unnamed shareholders.

All of which makes this story in Saturday’s Cincinnati Enquirer really interesting:

Last week, a Hamilton County Common Pleas Court judge ruled that Wells Fargo Bank couldn’t foreclose on the Byrds’ North College Hill home because its lawyers didn’t prove that Wells Fargo was the legal owner of the mortgage.

The judge said the foreclosure lawsuit was filed before Wells Fargo owned the mortgage – thus, the suit was premature.

The ruling – the first of its kind by a state court judge in Ohio since the subprime mortgage crisis erupted this year – could have profound implications on how foreclosures are handled in Ohio, which leads the nation in the percentage of mortgages in foreclosure. The local ruling comes as three federal court judges – in Cleveland, Dayton and Columbus – have issued similar opinions in foreclosure cases in the last month…

Ohio Attorney General Marc Dann has already seized on that decision in an effort to slow foreclosure filings throughout the state.

He filed motions Friday in seven Hamilton County cases – and several more in Butler, Montgomery, Franklin and Delaware counties – asking judges to scrutinize each foreclosure case.

The issue is known as the “real party in interest” rule, which says that a plaintiff must prove that it has a stake in a lawsuit in order to file it.

As millions of subprime mortgages are sold and resold on Wall Street, the real “party in interest” isn’t always obvious. Often, the holder of the mortgage note – the legal document that gives a lender the right to take someone’s home for not making loan payments – is different from the servicing company, or the bank that takes the mortgage payments.

It’s unclear how far-reaching the effect of the orders will be. But a recent analysis by University of Iowa law professor Katherine M. Porter found that 40 percent of the 1,733 foreclosures she studied did not contain proof that the plaintiff owned the mortgage.

I’d already heard rumors that several Cuyahoga County Common Pleas judges are considering similar actions in the wake of U.S. District Court Judge Boyko’s now-famous ruling three weeks ago.

Now it looks like AG Dann may be trying to turn this snowball effect into an avalanche.

What happens if Common Pleas judges start throwing out foreclosure cases en masse where trustees haven’t fully documented their “real party in interest” standing? Literally thousands of Cuyahoga County foreclosures may have to be re-filed by Deutsche Bank, Wells Fargo, et al. Assuming they can come up with the documents in most cases, this process still could throw a big, costly wrench into the Unstoppable Foreclosure Machine.

You can be sure that defendants’ attorneys and advocates are looking feverishly for ways to take advantage of this unexpected holiday gift.

(c/p CCD)

What’s this Boyko / Deutsche Bank thing all about, anyway?

November 21, 2007

(c/p CCD)

Here’s 4111 Archwood, a vacant foreclosed house four blocks down the street from me. (Click on it to get a closer look.)

The County Auditor’s database says the owner of this house is Deutsche Bank National Trust Company. It says Deutsche Bank NTC paid $50,000 for the house in a sheriff’s sale in March 2007. The sheriff’s sale was the outcome of Case CV-05-554639, an action for foreclosure against the previous owners, filed in Common Pleas Court in February 2005 by Deutsche Bank NTC “as Trustee”.

But Deutsche Bank never held a mortgage on 4111 Archwood. And Deutsche Bank doesn’t really own 4111 Archwood now.

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Boyko: “A condescending mindset and quasi-monopolistic system”

November 15, 2007

Here’s a copy of Judge Christopher Boyko’s October 31 decision to throw fourteen Deutsche Bank foreclosures out of Federal District Court in Cleveland.

From Footnote 3:

Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process.

Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else to live.”

In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the property…

Counsel for the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.

Deutsche Bank has filed over 500 foreclosure complaints in U.S. District Court for Northern Ohio, Eastern Division, since the beginning of 2007. A large proportion of these cases undoubtedly had the same defects as the the thirty-eight just dismissed by Judge Boyko and Judge Kathleen O’Malley. Will the Court’s other judges follow suit? Will Deutsche Bank appeal? Stay tuned.