Delaware Bankruptcy Judges to Weigh Mortgage Document Destruction

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<ul><li><p>8/6/2019 Delaware Bankruptcy Judges to Weigh Mortgage Document Destruction</p><p> 1/2</p><p>Delaware Bankruptcy Judges to weigh mortgage</p><p>document destructionSun, Jan 23 2011 14:50 PM EST</p><p>By Scot J. Paltrow</p><p>WASHINGTON (Reuters) - Federal bankruptcy judges in Delaware are due to hold separate hearings</p><p>Monday on requests by two defunct subprime mortgage lenders to destroy thousands of boxes ororiginal loan documents.</p><p>The requests, by trustees liquidating Mortgage Lenders Network USA and American Home Mortgage,</p><p>come despite intense concerns that paperwork critical to foreclosures and securitized investments may</p><p>be lost.</p><p>A series of recent court rulings have increased the importance of original loan documents, holding that</p><p>they are essential for investors to prove ownership of mortgages and to have the right to foreclose.</p><p>In the Mortgage Lenders case, the U.S. Attorney in Delaware has formally objected to the requested</p><p>destruction because loss of the records "threatens to impair federal law enforcement efforts."</p><p>The former subprime lender shut down in February 2007. In a January 6, 2010, motion, Neil Luria, the</p><p>liquidating trustee, asked Bankruptcy Judge Peter J. Walsh for permission to destroy nearly 18,000 boxes</p><p>of records now warehoused by document storage company Iron Mountain Inc.Luria stated that destruction is necessary to eliminate $16,000 per month in storage costs as he disposes</p><p>of the last assets of the bankrupt company.</p><p>In the American Home Mortgage case, the liquidating trustee, Steven Sass, has asked Bankruptcy Judge</p><p>Christopher Sontchi to approve destruction of 4,100 boxes of loan documents stored in a dank parking</p><p>garage beneath the company's former headquarters in Melville, Long Island.</p><p>AHM had been one of the biggest originators of subprime loans until it abruptly collapsed and closed in</p><p>August 2007. The boxes are the last still held by AHM. Sass stated that the local fire marshal wants the</p><p>documents removed as a fire hazard, and he said the cost of moving them would be prohibitive.</p><p>In accordance with a 2009 court order, the bankrupt company earlier had destroyed the contents of</p><p>thousands of other boxes after banks and other loan servicers had been given a chance to request and</p><p>pick up particular files.</p><p>The issue of document destruction is sensitive because in recent months evidence has turned up that</p><p>vast numbers of original loan documents by major lenders were never transferred as required when the</p><p>mortgages were securitized and sold to investors.</p><p>Lawyers for homeowners have strongly objected to AHM's document destruction, contending that vital</p><p>evidence borrowers need to defend themselves in foreclosure cases will be lost.</p><p>Earlier this month, Massachusetts' highest court voided the foreclosure of two homes by Wells Fargo &amp;</p><p>Co and US Bancorp after the banks failed to produce records showing that they owned the mortgages at</p><p>the time they foreclosed.</p></li><li><p>8/6/2019 Delaware Bankruptcy Judges to Weigh Mortgage Document Destruction</p><p> 2/2</p><p>The decision spooked investors, who feared it could threaten lenders' ability to work through hundreds</p><p>of thousands of pending foreclosures.</p><p>The two companies' bankruptcy cases are unrelated, and the overlapping timing of the two hearings</p><p>Monday in Wilmington, Delaware, bankruptcy court is coincidental, people involved with the cases said.</p><p>In court documents, Sass stated that most of the records AHM still has in storage relate to mortgages</p><p>issued more than eight years ago. He also said that employees had searched the files and pulled out all</p><p>vital original records, such as promissory notes, and had handed them over to the appropriate mortgage</p><p>servicers, and that most of the documents had been electronically imaged and retained in a database.</p><p>But people involved in winding down AHM's affairs say that neither the contents of the boxes or the</p><p>database have been audited, and that it's possible the boxes still contain crucial documents such a</p><p>promissory notes. Investors must have the original promissory notes, not copies, to be able to foreclose.</p><p>(Reporting by Scot J. Paltrow, Editing by Tim Dobbyn and Diane Craft)</p></li></ul>