Rule would slow foreclosure rate
Hamilton County could become the first in Ohio to adopt court rules closing the courthouse door - at least temporarily - to some financial institutions seeking to take homes through foreclosure.
The proposed rule would target lenders who file foreclosure cases but can't prove they own the mortgages. Court officials say the rule would slow foreclosures by weeks or months, while the lenders get the paperwork in order to demonstrate their right to take the properties.
Hamilton County already has set a record for the number of foreclosures in 2007, with 6,088 cases filed as of Tuesday. An average of 25 new cases are being filed every day, by a growing number of financial institutions and law firms. And increasingly, the company filing for foreclosure isn't the homeowner's original lender - it's another financial institution that bought the mortgage but may not yet have documentation to prove it.
As lenders sell off bundles of mortgage loans to Wall Street investors who repackage them as commodities, the owner of the mortgage isn't always obvious.
Mortgage loans actually consist of two separate legal documents: The promissory note details the repayment terms. The other document is the mortgage itself.
It gives the lender the right to take the property.
The mortgage document usually stays with the originating bank, and it can take weeks or months for that paperwork to reach the second, or third or fourth, investor that bought it.
The proposed local rule must be agreed to by a majority of judges, who meet next month. The rule would prohibit lenders from filing a foreclosure action unless they sign a sworn statement that they also own the mortgage. That could be just a paperwork issue, but it could delay a foreclosure filing by weeks or even months.
It's unclear how many cases would be affected by the rule, or how lenders might respond. Richard M. Rothfuss, whose law firm of Lerner, Sampson & Rothfuss handles more foreclosures in Hamilton County than any other firm, said he had not seen the proposed rule and could not comment on it.
One national study suggests that 40 percent of foreclosure cases in bankruptcy lack the required paperwork to demonstrate that the lender is what's known in the law as "the real party in interest."
The proposed rule would effectively expand the scope of a decision by Judge Steven E. Martin last month that threw out a foreclosure brought by Wells Fargo Bank against a North College Hill couple. The bank, Martin ruled, didn't have standing to bring the case when it filed the lawsuit.
Martin was the first state judge to throw out a foreclosure case after three federal court judges in Ohio made similar rulings.
"Why would we let somebody file a lawsuit to take someone's house unless they're the real party in interest?" Martin told his fellow Common Pleas Court judges Wednesday.
Ohio Attorney General Marc Dann is seeking to expand Martin's precedent to courts all over Ohio. Dann has asked judges to throw out existing foreclosure cases over the "real party in interest" issue.
Critics say that action would simply delay the inevitable - and could make the problem of abandoned properties even worse. Most people move out when foreclosure cases are first filed - sometimes months before the cases go before a judge.(THIS IS VERY IMPORTANT)
Martin is also pushing for a local rule that would require buyers to file a sheriff's deed within 14 days of acquiring the property at sheriff's sale.
That rule, he said, is in response to an Enquirer report that some lenders were taking properties through foreclosure but not filing the deed - thus evading responsibility for paying taxes and complying with building codes.