Original posted in the Wall Street Journal by Amir Efrati:
A group of state and federal judges presiding over foreclosures are wiping away borrowers' mortgage debt, invalidating foreclosure sales and even barring some foreclosures outright.
The decisions in recent months by a handful of judges in states including Massachusetts, New York and Texas mark a new phase in the judiciary's battle to stem the rising tide of foreclosures by punishing mortgage companies for paperwork mistakes and alleged mistreatment of borrowers.
The number of judges taking such action remains small, and most foreclosures go through without a challenge.
But the growing number of rulings against lenders' claims is raising questions among some legal experts about judges' impartiality.
"The question is whether judges are changing the rules in the middle of the game...just because there is a financial crisis," says Todd Zywicki, a law professor at George Mason University and a critic of policy initiatives aimed at curtailing lenders' ability to foreclose.
As early as 18 months ago, several judges in California, New York, Ohio and elsewhere would dismiss foreclosure cases if they could find reason to do so. But those judges often allowed the mortgage companies to refile their foreclosure claims after attesting to their ownership of the mortgage in the county in which the homeowner lives.
Now, after the country has been mired in a housing crisis for more than two years, more judges are calling these companies on their paperwork glitches, and in some cases going much further in their efforts to help homeowners.
It makes sense for judges to demand that mortgage companies follow the rules to the letter if they want to win foreclosure cases in court, says Raymond Brescia, an assistant professor at Albany Law School who has written about the role of the courts in the financial crisis. "I don't think that's a crazy idea," he says. "To expect plaintiffs to prove their case is what the judicial system is founded on."
But if judges decide to help borrowers in ways that overlook the merits of individual cases, Mr. Brescia adds, that would "undermine the integrity of the judiciary, and that's not going to help anybody." Instead, he says, it might trigger a backlash from legislators or regulators to rein in activist jurists.
At the heart of some of the court rulings is what became a common practice among mortgage companies: filing a foreclosure claim without showing proof that they actually own the mortgage and have the right to foreclose. This occurs in part because mortgages change hands multiple times after the original loan is made, but the mortgage documents and the contracts between borrowers and lenders are never altered to reflect those changes. Years later, it can be difficult to verify who is the owner of the mortgage.
That played a key role in a ruling in October by Keith Long, a state-court judge in Massachusetts. He invalidated two foreclosure sales that had occurred more than two years ago. The judge affirmed his own prior ruling that said units of U.S. Bancorp and Wells Fargo & Co. never had the right to sell the homes.
Judge Long ruled that even though the companies physically held the relevant mortgage documents, the mortgages were never legally assigned to them and recorded with the state.
"They're selling something they don't own," says attorney Paul Collier, who began representing the borrowers in the case last year.
Walter H. Porr, a lawyer for the companies, which are appealing the ruling, says his clients "operated in what had been an accepted industry fashion for the better part of 15 or 20 years." He adds: "We owned those mortgages."
In October, a federal bankruptcy judge in White Plains, N.Y., rejected a claim by a mortgage company that the debtor owed $460,000. The judge, Robert D. Drain, said the company, PHH Mortgage Corp., couldn't prove it owned the debt.
A spokeswoman for PHH, which is appealing, said the company is trying to resolve the case.
And in a prominent case in New York's Suffolk County on Long Island, Jeffrey Spinner, a state-court judge, canceled $292,000 in mortgage debt after he ruled the borrowers were mistreated by IndyMac Bank.
The judge said in a November ruling that the bank displayed "harsh, repugnant, shocking and repulsive" behavior by making no attempt to negotiate a settlement with Diane Yano-Horoski after she and her husband fell behind on payments, despite a state law requiring the company to try.
OneWest Bank, which purchased the debt from IndyMac, plans to appeal. In a statement, it said the ruling, "if allowed to stand, has sweeping and dangerous implications."
At least one judge has been admonished for appearing to favor borrowers. In September, a Florida state appeals court ruled that a lower-court judge, Valerie Manno Schurr, erred in routinely delaying foreclosure sales by several months. Her reasoning put concern for the homeowners ahead of the law, the appeals court said.
Judge Manno Schurr didn't respond to requests for comment.