Today as I was driving to visit my mother in rural New Hampshire, I was scanning the AM dial looking for hate radio (what can I say, I love to know what the nasty people are out there saying). I happened to catch something that was actually interesting.
There was a finance program on talking about the bailout. A man was speaking about how in Ohio a judge had dismissed a number of foreclosures as a result of the mortgage backed security debacle. Apparently, the banks had attempted to do a foreclosure on the homeowners, but because the mortgage had been sold off, and not documented properly in the process ( I will explain that a little more later), not only was the case dismissed, the judge ordered that the homeowners did not owe any money to the bank, and owned the properties free and clear!
The reason why this happened, the man stated, was because when the mortgage was sold and resold, the appropriate paperwork was never filed with the counties which record the lien holder, which is the only valid party in the eyes of the court. This wasn't done simply because these 'securities' contained large pools of deals which would create a huge administrative burden for whomever bought them, and since they were constantly being repurchased by bigger and bigger fish - no one cared.
Today I spent some time trying to find the case the man mentioned, but I could not find it. So I don't know if it is true. I did however, find a case in Ohio from October of 2007, which is almost EXACTLY like what he was describing, except the judge did not order the properties to be free and clear, he simply dismissed the case against the homowners and sent the banks home empty handed.
Here is the finding from the judge: Foreclosures dismissed.
It also occured to me this might also be another reason for the bailout. If this is true, it means the banks & lending institutions knew they were going to get royally screwed if they tried to foreclose on a lot of these properties and the courts cannot establish who is the legal lien holder. It would put the properties in a legal vacuum where a homeowner could very well live in the house for free, as long she/he paid the taxes.
So, does anyone know anything more about this?