Standing in the Wake of the Foreclosure Crisis: Why Procedural Requirements Are Necessary To Prevent Further Loss to Homeowners

• Author: Timothy A. Froehle
• Position: J.D., The University of Iowa College of Law, 2011; B.A., The University of Iowa, 2002
• Pages: 1719-1744

1719

Standing in the Wake of the Foreclosure

Crisis: Why Procedural Requirements Are

Necessary To Prevent Further Loss to

Homeowners

Timothy A. Froehle

ABSTRACT: In the current fallout from the foreclosure crisis and the

securitization of mortgages, an old procedural doctrine is becoming

increasingly relevant to homeowners facing foreclosure. The doctrine of

standing is surfacing in the contexts of judicial foreclosure and bankruptcy

proceedings as a defense to the foreclosing party’s right to foreclose.

Defendants and debtors are affirmatively compelling lenders to produce

evidence of ownership of the underlying note and mortgage, and lenders are

increasingly falling victim to the same haste and lack of foresight that led to

the crisis. Additionally, courts are beginning to raise these issues on their

own, a sign that they are inclined not to allow lenders to foreclose without

properly protecting the homeowners at risk. This protective stance, however,

fails to reach the homeowners whose foreclosures occur outside the judicial

system. Numerous defects in standing and ownership of the mortgages pass

through nonjudicial foreclosure without any scrutiny, and homeowners’

interests in retaining ownership of their property will continue to suffer

unless legislators respond with laws requiring proof of ownership of the loan

before foreclosure.

I. INTRODUCTION .................................................................................... 1721

II. SECURITIZATION AND THE PAPERWORK PROBLEM ............................... 1725

A. TRANSFERRING THE NOTE AND ASSIGNING THE MORTGAGE ............. 1726

1. Transferring Ownership of the Promissory Note .............. 1726

2. Proper Assignment of the Mortgage ................................... 1727

 J.D., The University of Iowa College of Law, 2011; B.A., The University of Iowa, 2002. I

would like to thank Professor Katie Porter for her suggestions and all her guidance in this field

and beyond, and thanks to Professor Patrick Bauer for his insight and assistance. To the editors

and student writers of Volumes 95 and 96, thank you for your hard work and patience in

editing this piece. To my family and friends, thank you for your love and support. To my best

friend and soon-to-be wife Sarah, thank you.

1720 IOWA LAW REVIEW [Vol. 96:1719

B. SECURITIZATION AND HOW THINGS FALL APART ............................. 1728

III. STANDING ............................................................................................ 1729

A. REAL PARTY IN INTEREST ............................................................... 1731

B. DEFECTS ........................................................................................ 1733

C. IN RE HWANG ................................................................................ 1734

IV. SUA SPONTE ......................................................................................... 1736

A. JUDICIAL FORECLOSURE AND BANKRUPTCY ...................................... 1736

B. SUA SPONTE IN THE CONTEXT OF NONJUDICIAL FORECLOSURE ......... 1737

V. POLICY RECOMMENDATIONS ................................................................ 1740

A. LEGISLATURES SHOULD ADD RECORD-OF-OWNERSHIP

REQUIREMENTS TO POWER-OF-SALE STATUTES ................................. 1740

B. LEGISLATURES SHOULD ADD FEE-SHIFTING PROVISIONS TO THEIR

FORECLOSURE STATUTES ................................................................ 1741

VI. CONCLUSION ....................................................................................... 1743