There has been such a backlash against the subprime mortgage market that even homeowners in foreclosure have realized the fraud that has been perpetrated on them. In such times of economic crisis and blatant corruption, government representatives have little choice but to pretend they are protecting the public from greedy mortgage companies and bad loan products.

It is in this environment that some homeowners have begun to contest their foreclosures and have actually had some lawsuits thrown out of court until the bank can prove its case. The two most publicized cases have involved the ownership of the mortgage paperwork and the lender having standing to sue for foreclosure, and the underlying fraud of the loan contract invalidating the entire agreement.

The first type of case, in which the homeowners ask for proof that the foreclosing bank has the ability to sue, has certainly been a temporary blow to the banks. One of the main reasons for inflating the subprime market was so that loan originators could sell the mortgages to financial institutions or other banks which could then sell the rights to the monthly mortgage payment income to investors and transfer the responsibility to collect these payments to specialized mortgage servicing companies.

The problem with this approach is that it has resulted in the slicing up of the mortgage contract, with no party really having ownership of the original paperwork. When homeowners fall behind, the servicer or trustee tries to initiate lawsuit proceedings to sell the house at a foreclosure auction, but judges are beginning to realize that neither of these parties originated the mortgage and can not prove that they own the loan.

In order for a second bank or financial institution to have standing to bring a foreclosure lawsuit into court, they must have been assigned the mortgage. Because this was not done in many cases where mortgages were originated and quickly sold off in large loan packages, banks do not have signed assignment paperwork; and with the collapse of the housing market, many of the subprime lenders have gone out of business, making it impossible to contact the originating mortgage company.

This puts these mortgage loans into a kind of limbo, where the homeowners are not making their payments but the banks can not prove they have any rights to those payments anyway. Homeowners who argue this case have met with some level of success so far, with the banks being forced to stop foreclosure proceedings on the house until they can prove they were assigned the loan from the originating company.

The only drawback to this victory for the homeowners is that these cases are being dismissed without prejudice, meaning that the bank can begin the lawsuit again if they can prove ownership of the mortgage. The judges are not ruling on the merits of the case (whether the owners are behind and their home must be auctioned to satisfy the debt), but only on the lack of standing to sue -- if the bank can get an original assignment, they can begin to foreclose again.

But in a mortgage environment where so many homeowners were given bad loans that they did not deserve and banks are being bailed out by the public for bad loans they never should have made, it is only fitting that the owners should score a handful of victories in the courts. In the future, there is a good possibility that judges will argue that banks do not need to own loans to foreclose on houses, thereby erasing the legal standing defense of people against corporations; but for now, homeowners have one more defense they can use to stop foreclosure.

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