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North Carolina’s Supreme Court heard arguments Monday in a case that could decide whether mortgage lenders can foreclose on a home without producing original documents that prove they’re owed the money. The hearing in a state traditionally friendly to banks and home to U.S. industry leader Bank of America comes as paperwork problems have gummed up foreclosures nationwide. Those problems include missing documents validating a mortgage transaction and unqualified employees “robo-signing” affidavits improperly swearing to the accuracy of overdue mortgage debts. The problem of suspect documents could create legal trouble for homeowners and mortgage lenders for years. The case came before the state’s high court after years of an active secondary market which saw lenders loosen standards, then combine thousands of mortgages into securities which were then sold on to investors who might buy a slice of the new financial instrument. The court heard from attorneys representing Wells Fargo and a Duplin County homeowner whose $50,000 loan was transferred to a series of secondary financial companies. Lawyers for Linda Dobson of Magnolia argued that Wells Fargo and its affiliates can’t foreclose on her home without producing the original promissory note proving they’re due the debt, something they haven’t done after more than three years. “Mrs. Dobson was not clear who owned her mortgage,” said her lawyer Celia Pistolis, an attorney with Legal Aid of North Carolina. “That is, in essence, the issue before this court today.” Wells Fargo attorney John Mandulak said it hasn’t produced the original loan documents yet, but might be able to do that if the court agrees to revive its case and send it back to a lower court for trial. Meanwhile, Mandulak said, photocopied loan documents and sworn statements from employees that it is truly owed the money are sufficient for the case so far. “If the matter gets to trial, the note will most likely be present,” Mandulak said. What Wells Fargo “is arguing it should be allowed to do really reflects some of the lending and servicing practices that have been in the news a lot — for example robo-signing — foreclosure practices that have been perceived as very loose on the part of the lender,” said North Carolina Central University law professor Susan Hauser, who teaches bankruptcy and corporate law and attended the hearing. “Similar cases are coming up around the country. In many of them, the courts are really holding the banks to produce their proof, which makes sense,” she said. “The lender is in control of the proof, not the borrower. What we’re talking about are people losing their homes. Before I lost my home or you lost your home, I would want the banks held to a really rigorous standard of proof.” A state Supreme Court ruling in the case is expected in a few months, at a time that mortgage research firm RealtyTrac predicts the national foreclosure rate could accelerate after falling in the July-to-September period. The number of scheduled foreclosures as well as borrowers who have missed a mortgage payment but whose homes haven’t gone into foreclosure are on the rise, RealtyTrac reported last week. Dobson said after the hearing she remains in the home where she has lived since 1993 and thinks mortgage lenders should bear the burden of proving they have the right to collect on a past-due debt. “I still feel that Wells Fargo needs to prove some of what that man was saying,” she said, referring to Mandulak. Emery Dalesio can be reached at http://twitter.com/emerydalesio Copyright 2011 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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