Bankrupt, broke and living with their son, a retired Westchester couple scored a precedent-setting victory last week in the harsh world of distressed mortgage debt.
A federal judge in New York tossed out the claims of a vulture investor against the couple, who were represented by attorney Linda Tirelli. Investor Craig Marx failed to show a correct chain of title, or transfer of ownership, from the original lender through to the Florida hedge fund that sold the couple's mortgage debt to Marx.
"That's a fatal problem," said Judge Robert Drain.
The court win for this couple — who asked that their names not be used — came after a five-year struggle to learn who owned their debt and to fight dubious claims. Seven years into the foreclosure crisis, shoddy if not fraudulent mortgage documents continue to wreak havoc on ordinary New Yorkers and investors alike.
"The financial industry has devastated the US title recording system," said attorney Tom Cox. "Titles are interrupted and open to doubt."
Marx's documents claiming to detail the loans' path — from Bank of New York, to another bank, to a hedge fund and then to him — were ruled so problematic by the judge that it remains unclear who owns the couple's debt.
Back in 2003, the couple's comfortable retirement seemed assured. After the husband's 28-year career in customer service at Bank of New York, they had a substantial nest egg. In 2004, the couple took out a home-equity line of credit for up to $400,000, and then, in 2006, a second mortgage for $430,000, turning to a trusted lender, Bank of New York.
Then the Great Recession hit, wiping out more than $1.5 million from their retirement account when the stock market tanked. They began tapping their debt.
In 2009, Bank of New York told them a new loan servicer would be in touch. They didn't know whom to contact, and hoped their remaining assets would rebound. In 2011, they heard from Linear Mortgage Group. Soon after Marx introduced himself as owner, offering to pay taxes and throw in $2,500 if the couple would sign over the deed and clear out.
Investors like Marx buy up second mortgages at a discount, sometimes as low as pennies on the dollar, in hopes of making a windfall. Instead, he got burned by a broken chain of title.
In fact, chain of title problems are so widespread with second-lien debt that Peter Andrews, CEO of Manhattan hedge fund Dreambuilder Investments, sees them in roughly 20 percent of the loans he reviews for purchase.
The couple's problems aren't over. They still owe money on both loans, and still don't know whom to pay. They can't sell the house, because it doesn't have a clear title.
For now, they live as guests in their son's home—a house they bought as newlyweds in the 1960s and sold to him in 2003. Their house is boarded up.
"We're back to where we started, only we don't own the house we live in now," he said.
Marx and his attorney declined to comment. Officials at Linear could not be reached.
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