Set high standard for proof on foreclosures

A case heard before the N.C. Supreme Court is shining a spotlight again on sloppy practices that contributed to the ongoing mortgage crisis. Arguments Monday revolved around whether mortgage lenders can foreclose on a home without producing original documents that prove they’re owed the money.
We don’t know how the state’s high court will eventually rule in the matter. Courts nationwide have varied, observers say. But the case is a troubling reminder of the exasperatingly lax approach that too many financial lenders took toward loan documents and foreclosure.
The case Monday involved a woman named Linda Dobson, a widow represented by Legal Aid of N.C. She is appealing a ruling that allows Wells Fargo to foreclose on her home without presenting the original promissory note that shows she owes the debt.
Her lawyers contend state law requires the lender to show it is in possession of the document. The bank didn’t and reportedly couldn’t even produce a proper payment history. Dobson’s lawyers also say her $50,000 loan was transferred to a series of secondary companies, and she wasn’t sure who owned her mortgage.
Wells Fargo, for its part, said photocopied loan documents and sworn statements from employees that the bank is owed the money is sufficient for the case so far. Attorney John Mandulak said the bank had not produced the original promissory note but it might be able to if the case was sent back to a lower court for trial.
Might be able to? Why not present the document if that’s the crux of the case?
Some observers say the bank was focused on a larger goal: Establishing a legal precedent that a lower standard of documentation is acceptable for foreclosures. That could aid lenders who have been sued over flawed foreclosure proceedings.
Last year, this editorial board decried lax foreclosure practices after employees of banks nationwide admitted they signed foreclosure papers without reading them or determining if crucial information was accurate. Such “robo-signing” has been prevalent nationwide – so much so that Congress is rightly pursuing legislation against it.
North Carolina Central University law professor Susan Hauser, who attended Monday’s hearing, said what Wells Fargo “is arguing it should be allowed to do really reflects some of the lending and servicing practices that… have been perceived as very loose on the part of the lender.”
“Similar cases are coming up around the country. In many of them, the courts are really holding the banks to produce their proof, which makes sense,” she said. “What we’re talking about are people losing their homes. Before I lost my home, I would want the banks held to a really rigorous standard of proof.”
We agree. Congress should make sure rules are in place that clarify that standard of proof is required. Policymakers should also do more to prod lenders to help homeowners who hit financial bumps and are underwater with their mortgages.
We’re not talking about those who were simply irresponsible and knowingly took out loans they couldn’t afford – tough luck to them. But many who just had a few bad breaks deserve help. Lenders should work harder to provide it. Such help would not only benefit the homeowners and the lenders. It would help gird an economy that’s still much too fragile.