Last week, the California Supreme Court handed down a ruling that might provide a little help for people facing foreclosure. The court held that it might be possible to successfully sue someone for money damages for foreclosing if they can’t prove that they own the loan. This was a very technical ruling, and my very brief description is an attempt to translate legalese into plain English. The court explicitly did not rule that people could use this to prevent a foreclosure — they said they were not ruling one way or the other on that issue.
The reason that this might help people in danger of foreclosure is that many mortgages were bundled into packages and sold as bonds leading up to the Great Recession. Many of the current owners of these bonds cannot show that the loans were correctly transferred to them. If a person in danger of foreclosure can show that the loan was not properly transferred and do so in the manner prescribed by this Supreme Court ruling (this is far too technical for a blog), the borrower will have good leverage in negotiating a loan modification to make their mortgage payments affordable.
This ruling was not a great victory for homeowners in danger of foreclosure, but it was a small victory that opens up a possibility that did not previously exist in California. Before this ruling, the vast majority of California courts, both state and federal, had ruled that regarding foreclosure, it didn’t matter who owned the loan. The California Supreme Court has just reversed those rulings, allowing at least the possibility of stopping a foreclosure based on the owner of the loan not being able to prove that they own it.