We have suggested before the foreclosure fiasco seems to be coming down to a matter of not what banks or servicers know but what they can prove. For all we know, the banks and mortgage servicers are correct when they state that virtually all of the foreclosures they are seeking are legitimate because the debtor has stopped making payments. But that isn't necessarily flying in all cases. In fact, more judges seem to be dubious.

The latest example comes from U.S. bankruptcy courts, notably in Atlanta, where the  U.S. trustee for the region is scrutinizing whether banks have proven they have the right to foreclose, notes the New York Times. The judge has held up foreclosures in at least two cases.

On the surface, this would appear to be a stunning development, since it seems almost common sense that if a mortgagor stops paying, the mortgagee has the right to foreclose. But the court obviously wants to ensure that the documentation is proper, which is understandable given the daisy chain of owners that most mortgages spawn. If the paperwork is in order, there's no reason to stand in the way of a foreclosure.

At issue as well is the reputation of banks and servicers. It has apparently gotten so bad that not all judges are willing to give them the benefit of the doubt, the presumption that they have the standing to foreclose. This is a certainly a big change, as judges at all levels historically sided with creditors by default. We're still seeing that in the Florida Rocket Dockets that have proven so controversial. But banks and servicers should assume this new skeptical mindset will take hold. If they can prove they own a note, they should do so.

For more:
- here's a New York Times article

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