This sounds very interesting for people between a rock and a hard place.

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http://www.bloomberg.com/apps/news?pid=20601109&sid=aejJZdqodTCM&refer=patrick.n...

Feb. 22 (Bloomberg) -- Joe Lents hasn't made a payment on his $1.5 million
mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his home in
Boca Raton, Florida. The Seattle-based lender failed to prove that it owned
Lents's mortgage note and dropped attempts to take his house. Subsequent
efforts to foreclose have stalled because no one has produced the paperwork.

``If you're going to take my house away from me, you better own the note,''
said Lents, 63, the former chief executive officer of a now-defunct voice
recognition software company.

Judges in at least five states have stopped foreclosure proceedings because
the banks that pool mortgages into securities and the companies that collect
monthly payments haven't been able to prove they own the mortgages. The
confusion is another headache for U.S. Treasury Secretary Henry Paulson as
he revises rules for packaging mortgages into securities.

``I think it's going to become pretty hairy,'' said Josh Rosner, managing
director at the New York-based investment research firm Graham Fisher & Co.
``Regulators appear to have ignored this, given the size and scope of the
problem.''

More than $2.1 trillion, or 19 percent, of outstanding mortgages have been
bundled into securities by private banks, according to Inside Mortgage
Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be
sold several times before they land in a security. Mortgage servicers, who
collect monthly payments and distribute them to securities investors, can
buy and sell the home loans many times.

Housing Boom

Each time the mortgages change hands, the sellers are required to sign over
the mortgage notes to the buyers. In the rush to originate more loans during
the U.S. mortgage boom, from 2003 to 2006, that assignment of ownership
wasn't always properly completed, said Alan White, assistant professor at
Valparaiso University School of Law in Valparaiso, Indiana.

``Loans were mass produced and short cuts were taken,'' White said. ``A lot
of the paperwork is done in the name of the original lender and a lot of the
original lenders aren't around anymore.''

More than 100 mortgage companies stopped making loans, closed or were sold
last year, according to Bloomberg data.

The foreclosure rate, at 1.69 percent of all U.S. homeowners, is the highest
since the Mortgage Bankers Association began tracking it in 1993. The
foreclosure rate for subprime borrowers, who have bad or incomplete credit
and whose mortgages typically are securitized by private banks rather than
government-sponsored entities Fannie Mae and Freddie Mac, is at a four-year
high, according to the mortgage bankers.

750,000 Homeowners

More than 1.5 million homeowners will enter the foreclosure process this
year, said Rick Sharga, executive vice president for marketing at RealtyTrac
Inc., the Irvine, California-based seller of foreclosure information. About
half of them, 750,000, will have their homes repossessed, Sharga said.

Borrower advocates, including Ohio Attorney General Marc Dann, have seized
upon the issue of missing mortgage notes as a way to stem foreclosures.

``The best thing to do is to keep people in their homes and for everybody to
take steps necessary to make that happen,'' said Chris Geidner, an attorney
in Dann's office. ``These trusts are purchasing these notes, and before they
even get the paperwork, they foreclose on people. They become foreclosure
machines.''

Lost-Note Affidavits

When the mortgage servicers and securitizing banks that act as trustees of
the securities fail to present proof that they own a mortgage, they
sometimes file what's called a lost-note affidavit, said April Charney, a
lawyer at Jacksonville Area Legal Aid in Florida.

Nobody knows how widespread the use of lost-note affidavits are, Charney
said. She's had foreclosure proceedings for 300 clients dismissed or
postponed in the past year, with about 80 percent of them involving
lost-note affidavits, she said.

``They raise the issue of whether the trusts own the loans at all,'' Charney
said. ``Lost-note affidavits are pattern and practice in the industry. They
are not exceptions. They are the rule.''

State laws generally make it difficult to foreclose because they favor the
homeowner, said Stuart Saft, a real estate lawyer and partner at the New
York firm Dewey & LeBoeuf LLP.

``All these loan documents are being sent to the inside of a mountain in the
middle of America and not being checked very carefully,'' Saft said. ``The
lenders can't find the paper. We're dealing with a lot of paper produced in
a mortgage closing.''

`Waste of Time'

Requiring banks to produce the paperwork at a foreclosure hearing is a
nuisance, said Jeffrey Naimon, a partner in the Washington office of Buckley
Kolar LLP.

``It's a gigantic waste of time,'' Naimon said. ``The mortgage may have
transferred five, six, eight times. It's possible that you don't have all
the pieces of paper, but it was enough to convince the next guy in the
chain. There's no true controversy over whether the owner owns the loan.''

Judges are becoming increasingly impatient with plaintiffs who produce no
more proof of ownership than a lost-note affidavit or a copy of the note,
said Michael Doan, an attorney at Doan Law Firm LLP in Carlsbad, California.

``Things are heating up,'' Doan said.

In Ohio, where RealtyTrac reported an 88 percent jump in foreclosures last
year, Dann, the attorney general, is now arguing 40 foreclosure cases that
challenge ownership of mortgage notes, according to his office.

`Cavalier Approach'

U.S. District Judge David D. Dowd Jr. in Ohio's northern district chastised
Deutsche Bank National Trust Co. and Argent Mortgage Securities Inc. in
October for what he called their ``cavalier approach'' and ``take my word
for it'' attitude toward proving ownership of the mortgage note in a
foreclosure case.

John Gallagher, a spokesman for Frankfurt-based Deutsche Bank AG, said the
bank had no comment.

Federal District Judge Christopher Boyko dismissed 14 foreclosure cases in
Cleveland in November due to the inability of the trustee and the servicer
to prove ownership of the mortgages.

Similar cases were dismissed during the past year by judges in California,
Massachusetts, Kansas and New York.

``Judges are human beings,'' said Kenneth M. Lapine, a partner at the
Cleveland law firm Roetzel & Andress LPA. ``They no doubt feel the little
guy needs all the help he can get against the impersonal, out of town,
mega-investment banking company.''

Warning Plaintiffs

U.S. Bankruptcy Judge Samuel L. Bufford in Los Angeles issued a notice last
month warning plaintiffs in foreclosure cases to bring the mortgage notes to
court and not submit copies.

``This requirement will apply because developments in the secondary market
for mortgages and other security interests cause the court to lack
confidence that presenting a copy of a promissory note is sufficient to show
that movant has a right to enforce the note or that it qualifies as a real
party in interest,'' the notice said.