Lost in the shuffle: Judges rule that banks can't foreclose if they've lost the paperwork

If you're facing foreclosure in California, New York, Kansas Massachusetts, or Ohio and your lender can't find your original loan closing paperwork, there's a good chance the judge will dismiss the case.

Lenders who want to foreclose regularly file what's called a "lost-note affidavit" when they can't find the original documents you signed at closing. That's happening a lot lately because many times a loan is sold over and over again after the original loan closing. In a rush to package and sell mortgages, shortcuts were taken, and sometimes the lender who currently collects your payments does not actually hold the original note.

In fact, according to a report at Bloomberg today, 19% of outstanding mortgages have been bundled into private securities for a total of $2.1 trillion in loans. Alan White, an assistant professor at Valparaiso University School of Law in Indiana told Bloomberg that in a rush to package these loans from 2003 to 2006 assignment of ownership was not always properly completed. If you hold one of these loans it is possible that the paperwork is lost forever because many of the originating loan companies have since gone bankrupt or were gobbled up by a larger lender.

Judges in at least five states -- named above -- have decided not to allow a foreclosure without the original note signed at the time the loan was closed. They believe that without that original paperwork the lenders can't prove they actually hold the note. One of the first judges to take this strong stance was Judge Christopher Boyko in Ohio.

If you are facing foreclosure in a state not mentioned here and your lender is using a "lost-note affidavit," contact an attorney for help. You may be able to save your home.

Lita Epstein has written more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure."