The current housing and economic crisis is attributed to derivative trading conducted by the country’s major banks. Millions of mortgages were bundled into investment pools and traded like stocks. This worked well for banks but things collapsed and the housing market suffered serious blows. But one Pennsylvania man, along with his foreclosure attorney, has filed an unusual suit to prevent foreclosure, according to a story appearing in the Pittsburgh Post-Gazette.
According to lawsuit, homes that were part of the investment pool should not be subject to foreclosure. The argument is that once the mortgages became investment products they gave up the right to take the house. If the court accepts this argument then it would have a huge impact on the entire mortgage market. This would pave the way for foreclosure lawyers to use this as a valid argument when challenging a foreclosure.
The home under question was purchased by Jayson Schott in 2004, who took out an adjustable rate mortgage from America’s Wholesale Lender. His mortgage rate rose to a level he was unable to pay. America’s Wholesale Lender was later bought by Bank of America and began the foreclosure process against Schott in 2008.The complaint states that the loan had ceased to be a mortgage because it was securitized, which turned it into a tax-exempt investment that could be traded like stock.
Under U.S. law mortgages and stock are separate and the loan ceased to be tied to the house as security, therefore making a foreclosure invalid. If the court approves of this argument then foreclosure attorneys may be able to use this to prevent their clients from losing their homes.
