In the past lenders held on to mortgage loans as they were made. Today, the situation is very different. Lenders package mortgage loans into securities and sell these securities to investors. This practice gives rise to one issue at the time of foreclosure – who owns the note on the home? This issue can cause a legal headache at the time of foreclosure due to the murkiness surrounding the notes. Many homeowners are now being forced out of their homes by companies that have no right to do so. This is very scary – there are many states that allow non-judicial foreclosure – foreclosure without judicial supervision.

The issue of who owns the note has been highlighted in the case of Mamie Ruth Palmer, a 74-year-old from Atlanta, GA. She had to endure six years of foreclosure hell. She had to file for bankruptcy protection in 2002 to save her home from foreclosure. She continued to make the payments to the bankruptcy court. Her lender had assigned the note securing her home to Bank of America who began levying fees that were not authorized by the bankruptcy court. She sued Bank of America and received a settlement which reduced her loan balance from over $100,000 to a little over $59,000 and also eliminated the foreclosure fees of about $12,000. The issue which made Bank of America offer a settlement was the assignment of the note securing her home, which happened two months after they started foreclosure proceedings against her. So, basically, when Bank of America had started the foreclosure proceedings against Ms. Palmer, they did not have any right to do so.

A major problem which homeowners face when the lender assigns the note is not knowing whom to call when faced with foreclosure. Unlike in the past, today homeowners do not know who holds the note. It could very well be a faceless investor.

A court in Brooklyn, NY, so far this year granted only one lender the right to foreclose. The remaining 13 were not allowed to foreclose. Courts have now started asking lenders to prove their right to foreclose and certify the accuracy of the documents.

Georgia has passed a new law which requires all lenders moving to foreclose to file proof in county records that they own the underlying property. The law also requires that borrowers must be made aware of whom to call when faced with foreclosure. The lender must send a warning letter listing the name, address, telephone number, and other contact details of the entity that can modify the loan or work out repayments.

The message to the lenders is clear – they have to foreclose the right way following the due process of law.

Related posts:

1. Loan Modifications: Adding Salt to the Wound
2. Countrywide Under Scrutiny for Abusive Practices Against Bankrupt Homeowners
3. The Foreclosure Crisis and the Elusive Silver Bullet
4. Congress Turns to Depression-Era Ruling to Save Present Economy
5. Mortgage and Foreclosure Fraud Mushroom in the Wake of Housing Bubble