As Yves Smith describes here, it's because mortgage securitization practices evolved in a way that, to reduce costs, many of the mortgage notes were never conveyed to the trustees responsible for bringing the foreclosure actions.  In 45 23 states a creditor can't foreclose without exhibiting the original note in court.  This widespread problem has been "solved" by a new industry of document forging.  Obviously, there are going to be criminal prosecutions and jail time, but what does this do to the value of mortgage-backed securities, many of which have been purchased, probably at face value, by the Fed in its "quantitative easing" program? Perhaps the trustees of these securities will discover merit in loan modifications which, if nothing else, will give them new notes and a second chance not to foul up the paperwork. [corrected 10/12/2010.]