Superior Court Begins to Dig Out From Avalanche of Foreclosure Notices

By Joe Tyrrell, NJ Spotlight

A Superior Court judge said she will approve more than 3,000 corrected foreclosure notices from Wells Fargo to homeowners, tearing a hole in the procedural dam that has held back a potential flood of legal action.

At a hearing in Paterson where many participants expressed continuing confusion about New Jersey's foreclosure process, Judge Margaret Mary McVeigh tried to explain the difficulties to a courtroom packed with lawyers and defendants.

“There is no precedent,” she said. “There is not a case that exists anywhere that addresses what we are doing here.”

What New Jersey courts are trying to do is dispose of a backlog estimated at 60,000 or more foreclosure cases from the past five years, even as the number of new cases begins to creep back toward the peaks of the Great Recession.

Last month, McVeigh approved corrected notices from a smaller lender, MidFirst Bank. But that involved only about 230 mortgages. As one of the major mortgage lenders and loan servicers in the nation and state, Wells Fargo is a key player in shaping the process, participants said at last Thursday's hearing.

“We agreed to go first, to leave our chin hanging out there,” said one of the bank’s New Jersey attorneys, Mark Melodia of Reed, Smith. The volume of motions and objections led to the case being delayed behind MidFirst, but Wells Fargo is sharing advice with other banks with similar cases pending, he told McVeigh.

But defense attorneys said even at this point, there still are questions about the accuracy of notices and some other documents. More than 1,100 cases have been pared from the Wells Fargo initial notice list because of errors, they told the judge.

Still, some representatives from all sides agreed with McVeigh that the courts must resolve the situation for the good of defendants, lenders, and New Jersey’s economy.

The backlog began in December 2010 after instances of fraud and misinformation in foreclosure cases, most of which are uncontested, caused state Chief Justice Stuart Rabner to order six major lenders and two dozen others active in New Jersey to demonstrate steps to eliminate the problems.

Naming the Mortgage Holder

After winning court approval of its internal safeguards last year, Wells Fargo brought more than 4,500 of these delayed cases before McVeigh earlier this year. They involved homeowners who previously received notices of intent to foreclosure that improperly named only the company servicing the loan, not the mortgage holder.

The holders had become harder to identify in the lending and borrowing spree that followed the reregulation of American financial markets in 2000. Financial firms packaged mortgages, some issued on unsustainable terms, into investment vehicles that ratings agencies certified as safe despite their inherent risk.

Traded and retraded, chopped and repackaged, those mortgage-backed securities have proven hard to unravel as the housing bubble began its slow-motion burst in 2007.

The problem can be seen in the caption on one of the underlying cases Wells Fargo attorneys brought before McVeigh.

Before Wells Fargo, the named plaintiffs were “U.S. Bank National Association as successor trustee to Bank of America, National Association (successor by merger to LaSalle Bank National Association) as trustee for Mortgage Stanley Mortgage Loan Trust 2006-15XS.” The underlying loan was issued by First Financial Equities.

Those who invested in securities issued under such circumstances may own only a piece of a mortgage that was sliced and diced among several other packages. But studies around the nation show that in some cases, lenders have been able to foreclosure on properties without holding proper title.

Such gyrations are not unique in recent foreclosure cases. But a few of the individuals who objected to notices from Wells Fargo told McVeigh that even their most recent notices name the bank’s subsidiary America’s Servicing Co. as servicer, but do not identify the holder of the mortgage note.

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