Antoine Duvall and his wife and young son waited until after Christmas to move into their freshly renovated two-story house in Cleveland's Collinwood neighborhood. It was 2006 and Duvall, a salesperson for a legal document services company, had just happily signed a mortgage and a promissory note to get his loan from Wells Fargo. But soon, he started to get letters about his loan.
Antoine Duvall: We started to receive a lot of different information in the mail, not coming from Wells Fargo, saying that the process had changed a little bit and had been transferred or sold to a different entity. So, it was kind of a little confusing.
Confusing, perhaps, but definitely the norm. Like many mortgages during the real estate boom, Duvall's loan was bundled into a bond and sold on Wall Street to a new owner. And like so many loans, that transfer was never recorded in the county recorders office. Antoine Duvall's attorney Gary Cook:
Gary Cook: The issue that we've encountered is, as in Mr. Duvall's case, once the note is transferred there is a major difficulty in identifying who the actual owner of the note is.
And that becomes an issue when the owner of that note and mortgage wants to take back the house. US Bank, as the trustee of the bond that held Duvall's mortgage, sued to foreclose when he fell behind on his mortgage payments. But at that time, court records showed Wells Fargo - not US Bank - owned his loan. Legal Aid of Cleveland's Howard Strain says lenders filing for foreclosure need to prove they should be paid on the debt.
Howard Strain: I always say, if I went into a bank with a check that was payable to you, Mhari, a photocopy of that check, and I said, 'Please cash it for me.'' I think we all know that the bank wouldn't cash it. The security guard would escort me out.
Cuyahoga County and the 8th District Appellate courts dismissed the case against Duvall because the US Bank trust didn't prove it owned his loan before it filed for foreclosure. But other courts around the state have ruled differently on similar cases, so the Ohio Supreme Court has taken Duvall's case to settle the question. Peter Swire is a former housing official with the Obama administration who now teaches law at Ohio State University. He says the judges will have to deal with tough arguments from both sides.
Peter Swire: The homeowner says show us the note, you don't have a right to this house, you can't kick me out of this house. On the other side, the bank's view is there's a homeowner who stopped paying their mortgage. They knew they had a mortgage, they knew it when they bought the house and they get to laugh and stay in the house while the bank has to come up with paperwork they don't have.
US Bank doesn't comment on pending litigation. But in a friend of the court brief, attorneys for government-owned mortgage giants Fannie Mae and Freddie Mac sided with them, warn a ruling against the banks would create a "jurisprudential quagmire" that would slow Ohio's mortgage markets. Foreclosure is the most common type of case in Ohio's courts. About 80,000 suits are filed a year. Again, law professor Peter Swire.
Peter Swire: If the homeowners win, the banks will have to work harder to prove they have the paperwork. The banks might have to pay some settlement to get the family out of the house. But our system of property will not collapse.
The Duvall case seemed like a good one for the state Supreme Court to rule on to settle the issue, but it has taken an unusual twist. You might even call it another bank snafu. The homeowner, Duvall, now owes nothing on his mortgage because - in an action unrelated to the supreme court case - the loan servicer cleared his debt completely in June. Duvall doesn't know why it happened and neither his loan servicer nor US Bank's attorneys are commenting. It's not clear what the state Supreme Court will do, but attorneys for both sides say the legal question is not going away. The court could still take up the Duvall case or it could address several other cases on the same issue, now waiting in the wings.