On Being Boyko-ed

The ruling by Judge Christopher Boyko (US District Court, Northern District of Ohio), on October 31, 2007, that Deutsche Bank could not proceed with the foreclosure of 14 Cleveland homes unless it could prove that it owned the mortgages at the time foreclosure began, has been a source of numerous questions, one of which was "Does that mean the homeowners now own their homes free and clear?".

Unfortunately for the homeowners, the answer is "No". Somebody still owns the mortgage deed to their property. What Judge Boyko addressed was the fact that Deutsche Bank had been named the trustee for the mortgage pool (the "derivatives" sold to investors), and could not show that the actual mortgage had been sold to them.

What is critical to understand is that the homeowners DID borrow the money, and they DID sell an interest in their homes (via the mortgage deed) to a lender. However, under Ohio law, all real estate transfers must be matters of public record, and the interest in those mortgage deeds, wherever they are, were never transferred to Deutsche Bank. Thus, the investors, for whom Deutsche Bank is the trustee, may not actually own anything other than a paper promise to repay issued by the mortgage originator. Sort of a play on Federal Reserve notes being a promise to pay but not being backed by anything but faith in the US Treasury (which faith appears to be evaporating).

What Judge Boyko verified was that only the entity that had a recorded interest in the property (i.e., was an owner of the actual mortgage deed, and not just somebody who had loaned money to the owner of the mortgage deed) had any standing in the foreclosure suit.

The unmentioned possible ramifications are a herd of different colored horses. Deutsche Bank's attorneys complained to the judge that nobody had ever asked them to prove ownership before. Deutsche Bank, moreover, has been the leader in foreclosing Cleveland homes. As foreclosure orders went out to hundreds of other homes without proof the plaintiff owned the mortgage, the homes were abandoned, vandalism destroyed much of the equity, and the homeowners and mortgage deed holders suffered some severe losses.

So now an important question : were all those uncontested foreclosures legal? If not, who is liable for the damages? I can think of some interesting possibilities.

• The holder of the actual mortgage deed sues Deutsche Bank for the damages caused by fraudulently foreclosing on its property. (Deutsche Bank may be in a bad position for countersuing over any amounts it might claim the mortgagee owes its investors because it initiated the foreclosures without legal standing.)


• The homeowners sue Deutsche bank for fraudulently forcing them out of their homes.


• The mortgagors and/or mortagees band together in class action and petition the court to void the foreclosures and Sheriff sales of the properties (and any subsequent REO sales) because the foreclosure suits were fraudulent. This could cause a cascade of losses to the lenders who loaned on the REO purchases.


• Angry citizens petition their legislators to remove the judges that allowed the foreclosures to take place without requiring proof of ownership.


• et cetera.

Indeed we live in interesting times. I foresee a need for hordes of new attorneys, and a doubling or tripling of the number of courts at all levels. As an owner of options for Royal Bank stock (option value = 517.67 pence, current market value 413 pence, down from over 600 pence last summer), I am certainly happy to not be holding options for or stock in Deutsche Bank. I have no problem seeing why bank stocks are being eyed with suspicion, especially those banks that have boldly sought to be trustees for mortgage derivative products.