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What’s On Their Minds? The Supreme Court Wades Into the Foreclosure Mess–Standing and Real Party in Interest. Federal Home Loan Mortgage Corp. v. Duane Schwartzwald et al. — 8 Comments

  1. It would seem to me to be a decision based on the law of physics. That is, we have seen the havoc wreaked by the financial institutions business model. To loosen the standards would open the spigot for incremenal havoc.

    By contrast, holding the financial institutions to the standard of invoking the jurisdiction of the court would not predjudice the parties—-just insure proper paperwork.

  2. You missed what I thought was the oddest position advanced by Freddie Mac during argument. In the complaint, Freddie Mac’s lawyer alleged that Freddie was the holder of the note (it was not) and had been assigned the mortgage (it had not). Freddie Mac’s lawyer argued that these false allegations were enough to establish standing. But he admitted that the false allegations might have consequences under Rule 11 or R.C. 2323.51. In other words, Freddie Mac believes that frivolous conduct which could subject counsel to sanction can provide standing to invoke the court’s jurisdiction when the truth would be insufficient to do so.

    • You’re absolutely right, Andy, Freddie Mac’s lawyer did indeed say that. And when he did, Justice Lanzinger, looking a bit incredulous to my eye, said “you’re saying that if the allegation that you hold a note and mortgage on a specific date is false, you still have standing?” His answer was that’s when Civil Rule 17 kicks in.

  3. I was disappointed the justices didn’t explore the role of standing in justiciability, and Art. IV, Sec. 4(B)’s requirement of justiciability. By using Rule 17 to cure standing, the Court would effectively be using the rule to expand a court’s jurisdiction. A ruling that standing need not exist when suit is filed would deviate from the long line of precedent which provides that it is a preliminary requirement. I don’t see how they get there.

    • The Court could go the standing-is-jurisdictional route. Just because the justices didn’t explore this at oral argument doesn’t mean it won’t turn out that way. If it does, it will be interesting to see what remedy the Court fashions, given where things are now.

  4. This case presents additional issues. Who does the defendant countersue if there are contractual issues with the mortgage? Will the defendant actually have to wait until he/she actually learns who the mortgagee is? Conceivably the litigation could take years prejudicing the defendants case if such issues are present.

    • True. This is one of the reasons for Civil Rule 17(A) – to ensure that the defendant can assert claims which he may have against the true owner of the right being sued on (in this case the note and mortgage). Another reason is to permit Defendant access to discovery from the true owner. Judicial economy is definitely advanced by requiring the real party to prosecute the claim.

      The bigger problem is caused by the way the mortgage industry works. Because borrowers deal with servicers, they almost never know who owns, or claims to own the loan. Lenders can pass through the loan, buy it one day and sell it the next, without the borrowers ever knowing it because the servicer doesn’t change. To be fair, most issues which could give rise to a counterclaim would be because of the actions of the servicer, and RESPA gives remedies for servicer errors, etc. . But if the borrowers don’t know a lender was in title at some point, they won’t know to look for the documents relating to that lender’s ownership. This is especially true if a bank was, for instance, entitled to enforce the note but its interest is not noted on the face of the instrument, and then transfers the note to the foreclosing lender, again without noting the transfer on the instrument. There is a problem if a party enters the chain of title to a contract right, but leaves no fingerprints. A chain of title cannot be established with invisible links. This can turn a legal proceedings into a game of liars’ poker.

      • Andy, you have just perfectly described the issues that I am facing. I must file a motion to dismiss (being sued by late mother’s mortgage co in an individual capacity) and an answer. I KNOW that who claims to own the loan does not. They haven’t even filed a copy of the note with the complaint. They do their little Affidavit of Status of Account and somehow a robo signer says its so, so it must be right? Hell why prove anything at this point? Why not just file Affidavits claiming ownership with the complaint? That’s what its coming too……