Written by: Edward Denby
Victoria Corder provides interesting insight on the mortgage crisis by recognizing some of the legal issues arising out of foreclosure proceedings, examining the defenses available to homeowners involved in lender-securitized mortgage foreclosures, and exploring prospective ways that legislation can promote loan renegotiation. According to Corder, numerous legal issues arise when a trustee in possession of toxic securities backed by mortgages in default initiates a foreclosure proceeding. One of the most important legal issues is predatory lending practices, which refers to unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. Corder’s article also discusses the lack of standing defense that can be asserted by a homeowner in a foreclosure action. This defense requires that a plaintiff-lender show that they were the holder of the note and mortgage at the time the complaint was filed and that they have been harmed by the mortgagor’s failure to pay. Securitization makes standing harder for the trustee to prove, usually because of the lack of documentation regarding the assignment of the mortgage or note. By enforcing standing requirements, courts can protect homeowners by ensuring the lender is entitled to foreclose, and in doing so, incentivize the mortgage industry to record the assignment of notes more responsibly. This incentive can also help promote loan renegotiation by making it more cost-effective than foreclosure. Corder’s article also investigates prospective ways that legislation can further promote loan renegotiation, such as mandated proactive renegotiation. Corder believes that although a case-by-case approach to foreclosure issues is admirable, this solution fails to suffice as it does not incentivize trustees to settle claims before coming to court. It is Corder’s view that a more appropriate solution is the enactment of legislation defining the liability of loan servicers to holders of securitized notes, which will hopefully incentivize servicers to renegotiate loans by dispelling trepidation of lawsuits filed by the holders of the debt instruments.
Link to Victoria Corder’s article: When Securitization Complicates the Issue: What are the Homeowner’s Defenses to Foreclosure