As banks work to clean up some of the subprime mortgage mess, they are finding new obstacles in unraveling the massive paper trail used to pool individual loans into mortgage-backed securities.

A U.S. federal judge in Ohio threw out 14 foreclosure proceedings brought on behalf of Deutsche Bank AG National Trust Company last month, saying the Trust had not proved it legally owned the mortgage loans when it filed the foreclosure proceedings.

While some claim the proceedings were thrown out due to messy paperwork, others say the issue is widespread and could stall proceedings throughout the country.

The opinion from Ohio hopefully will help stop some foreclosures in their tracks, said April Charney, a legal aid attorney who represents troubled homeowners in Jacksonville, Florida. You can't file a lawsuit in court saying you own something, when you don't actually own and hold it on the date that you file.

In the opinion, Judge Christopher Boyko said he ordered the representative of the trust to produce an assignment showing it held the rights, titles and interest in the mortgages it was trying to foreclose.

But the trust was unable to prove it legally owned the loans before it started the foreclosure proceedings, so Boyko concluded the trust did not have standing in the case, according to the opinion.

The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance, Boyko, wrote in the opinion, issued on Oct 31. Finally put to the test, their weak legal arguments compel the Court to stop them at the gate.

Industry lawyers said the assignment process can be costly when multiplied over tens of thousands of loans pooled into a security, so the legal paperwork transferring ownership from the original lender is not typically filed until a loan gets into trouble.

It's typically done as a matter of cost efficiency, since for some extremely high percentage of mortgages there will never be any foreclosure activity, there's no legal need for the assignments to be recorded until they need to be used, Deutsche Bank spokesman John Gallagher said on Thursday.

The judge dismissed the foreclosure proceedings without prejudice, suggesting they could be brought again if the proper paperwork is in place.

They could refile either in federal court, which is where this happened to be, or in state court, Gallagher added.

(Reporting by Emily Chasan; editing by Andre Grenon)

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