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Foreclosure and Record Keeping Issues

These practices have gotten many banks in trouble with regulators. In fact, while investigating these "robo-signing" issues, regulatory bodies uncovered a host of improper practices by banks, including problems with foreclosure governance, document preparation methods, and proper record keeping. In some cases, many mortgages were being reported as delinquent and were foreclosed upon, even though they were completely satisfied, refinanced, or discharged through bankruptcy.

In many states, this has led to lawsuits by homeowners against banks. One of the most significant bases for such lawsuits has been the ownership of the note underlying the mortgage. In many jurisdictions, if a bank is unable to prove that it owns and holds the note underlying the mortgage, they lack the authority to foreclose. Because of the way that banks repackage and sell mortgages through complex security transactions, they are often unable to demonstrate that they own the note relating to a particular mortgage. If they don’t own the note, many courts have held, they lack the authority to foreclose.

The current state of the law in Minnesota is different from the general trend throughout the country. While a Minnesota homeowner can always challenge a foreclosure based on fraud, two cases suggest that the arguments that have succeeded in other states are more difficult to use in this state. In one case in 2009, in which the Minnesota Supreme Court discussed the connection between the mortgage and the note underlying it, the Court suggested that foreclosing party needed only to have a legal right to the mortgage (but not the note), and have its interest recorded, whether in its own name, or the name of an agent. This principle was reinforced in the holding from a late 2011 case in the United States Court of Appeals for the Eighth Circuit.

In spite of the differences between Minnesota law and the law in many other states, you may have options to challenge your foreclosure. If you have questions about the validity of your foreclosure, or if you have questions about the options you have on your mortgage, contact an attorney.

Article provided by Blaschko and Associates Law Firm, PLLC
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