Borrowers: 1, Banks: 0

According to an article in the Wall Street Journal (Banks hit foreclosure hurdle, 6/1/11), courts are increasingly ruling in the favor of homeowners who claim the “show me the paper” defense to foreclosure.  For instance, this case against our very favorite bank, Chase:

In March, an Alabama court said J.P. Morgan Chase & Co. couldn’t foreclose on Phyllis Horace, a delinquent homeowner in Phenix City, Ala., because her loan hadn’t been properly assigned to its owners—a trust that represents investors—when it was securitized by Bear Stearns Cos. The mortgage assignment showed that the loan hadn’t been transferred to the trust from the subprime lender that originated it.

Specific deal agreements required Bear Stearns to assign the loan within three months of the securitization. Because it failed to do so, Alabama Circuit Court Judge Albert Johnson determined, the trust didn’t own the mortgage. “The court is surprised to the point of astonishment that the defendant trust did not comply with the terms,” of the securitization agreement, he wrote.

The ruling is one of the first in the nation to strip a mortgage trust of an asset it thought it owned. A similar case earlier this year was decided in the bank’s favor when it held that the borrower wasn’t a party to the securitization agreement.

Nick Wooten, the lawyer for Ms. Horace, says the case won’t necessarily influence other decisions unless it is upheld by a higher court. But he says it is “another brick in the wall of trial-court-level cases that clearly show the wheels fell off the bus in the securitization industry during the bubble.”

Apparently Chase knows it can’t win this one

J.P. Morgan Chase hasn’t appealed the case. A bank spokesman declined to comment.

This might be a good time to start asking Chase to prove they have the authority to foreclose on you.