Banks to Pay $125,000 to Those Hurt Worst in Foreclosures

Posted by revolt | Banks to Pay $125,000 to Those Hurt Worst in Foreclosures | Saturday 23 June 2012 3:52 pm

Banks to Pay $125,000 to Those Hurt Worst in Foreclosures

Jesse Hamilton, ©2012 Bloomberg News

Thursday, June 21, 2012

June 21 (Bloomberg) — U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. will pay as much as $125,000 plus equity to individual customers most harmed by mishandled foreclosures in 2009 and 2010, according to a remediation plan released by federal regulators.Page 1 of 1

“While we’ve made great strides since we took enforcement action against large mortgage servicers last year, much work is still ahead,” said Thomas Curry, U.S. comptroller of the currency, in a statement. This industry guidance “helps people who are considering requesting a free review to understand how they may be compensated for the financial injury they may have suffered,” he said.

A group of the largest mortgage servicers were ordered by the Office of the Comptroller of the Currency and other banking regulators last year to clean up their foreclosure practices and hire independent consultants to see whether their methods in 2009 and 2010 unfairly hurt customers. The 14 firms, also including Bank of America Corp. and Wells Fargo & Co., could be instructed to give lump-sum payments between $500 and $125,000 in each case involving improper practices, the regulators said.

Besides lump-sum payments, loan servicers who improperly handled foreclosures may have to rescind them, modify loans or correct credit reports, according to industry guidance issued today by the OCC and the Federal Reserve.

“I think the range of potential recovery is surprisingly large,” said David Dunn, a lawyer who represents lenders at Hogan Lovells U.S. LLP in New York. “Is there a rationale for those numbers? I haven’t seen it if there is.”

Potential Claimants:

The universe of potential claimants includes an unknown portion of the 4.4 million borrowers to whom regulators sent letters informing them they can ask for reviews. Of those, 4.4 percent, or 193,630, had done so by the end of May, according to a six-month report on the process also released by the regulators today. The independent consultants picked another 144,817 files to examine. About 12,000 cases have gone through review so far.

The guidance says a person whose house was foreclosed on when the mortgage wasn’t officially in default should be given $125,000 if the foreclosure can’t be rescinded. That borrower would also be entitled to any positive difference between what was owed on the mortgage and what the house was worth at the time of the error.

People who lost homes to foreclosure in 2009 and 2010 are being given a deadline extension from July 31 to Sept. 30 for filing to have their cases reviewed for potential errors and misrepresentations, and can do so through . www.independentforeclosurereview.com

Top States:

Borrowers from California have so far led the requests for review with 35,480, followed by Florida and Texas, according to the report.

“The servicers see this guidance as an important step toward completion of the Independent Foreclosure Review process,” according to a statement from the Housing Policy Council of the Financial Services Round Table, a Washington-based trade group representing the largest mortgage servicers.

Consumer groups are concerned the payouts won’t amount to much in regions with high real-estate costs.

“Whether it’s enough really depends a lot on where you live,” said Paul Leonard, the California director for the Durham, North Carolina-based Center for Responsible Lending. “If you no longer have your home, $125,000 may or may not get you back in a home in California.”
Editors: Anthony Gnoffo, Gregory Mott

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.

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Fraud Investigator Receives Foreclosure Settlement Worth $18 Million

Posted by revolt | Angel of Defense | Thursday 14 June 2012 1:52 pm

Fraud Investigator Lynn Szymoniak Receives Foreclosure Settlement Worth $18 Million.

(Source: Kimberly Miller The Palm Beach Post, Fla. (MCT)) — PALM BEACH GARDENS —

Tucked into the landmark $25 billion national foreclosure settlement filed this week in federal court is an $18 million payday for Palm Beach Gardens home­owner Lynn Szymoniak.

The 63-year-old attorney specializes in white collar crime cases and was featured last year on the CBS news show 60 Minutes for her role in uncovering mortgage and foreclosure fraud. She has fought the banks since her own foreclosure saga began in 2008.

On Tuesday, she said the settlement is the culmination of years of work combing through foreclosure documents to piece together how the banks took illegal shortcuts to repossess people’s homes.

“The $18 million is real, but it seems so surreal,” Szymoniak said. “I’ve worked very, very hard for this.”

Her award is included in a $95 million agreement reached among the U.S. Attorney for the District of South Carolina and Bank of America, JPMorgan Chase, Wells Fargo and Citigroup.

The agreement is part of an overall federal recovery written into the $25 billion nationwide settlement between five banks and 49 state attorneys general. The settlement also includes Ally Financial.

“It’s definitely been worth the fight,” said Szymoniak, whose Palm Beach Gardens home went into foreclosure after a dispute over her adjustable rate mortgage. “I don’t understand how if you see something like this happening that you wouldn’t fight to make it right.”

Szymoniak filed her lawsuit as a whistle-blower under the federal False Claims Act, which allows the government to bring civil actions against entities that knowingly use or cause the use of false documents to obtain money from the government. The whistle-blower provision allows for the filer to receive between 15 percent and 30 percent of the proceeds won by the government.

The lawsuit alleged that banks undertook a nationwide practice of failing to obtain required mortgage assignments, resulting in servicing misconduct and the use of false assignments to submit federal housing administration mortgage insurance claims.

A mortgage assignment is a document used to attest to the true owner of a mortgage, which proves that a bank has the right to foreclose on a home.

Mortgage assignments became necessary following the real estate sales run-up and the banking industry’s creation of the Mortgage Electronic Registration System, or MERS, which muddied the chain of ownership. MERS is used to internally track the transfer, sale or securitization of loans instead of each move being recorded in the public record. With MERS, banks also avoid paying recording fees.

When a bank forecloses on a home, it may need a mortgage assignment from MERS or another lender to prove ownership.

In the rush to foreclose on homes, banks, and some law firms, took shortcuts that led to robo-signed assignments.

Szymoniak identified one of the most prolific robo-signers, a woman named Linda Green, who once worked for a subsidiary of the Jacksonville-based company Lender Processing Services.

“By this agreement we are making an important first step to hold mortgage servicers accountable for fraudulent and abusive practices not only in South Carolina but nationwide,” said Bill Nettles, U.S. Attorney for the District of South Carolina.

Szymoniak, who is limited in what she can reveal because of continued litigation, said she plans to pay off her mortgage with her settlement money and donate to charities.

Nettles said Szymoniak was working with several attorneys who filed the case in South Carolina because the state has made a commitment to pursue these kinds of lawsuits. Because the practice was happening nationally, it could have been filed in any state, he said.

“We are able to move them through a little faster than bigger districts,” said Fran Trapp, assistant U.S. attorney for the District of South Carolina.

St. Petersburg foreclosure defense attorney Matt Weidner said he doesn’t believe Szymoniak would have received the support to pursue the case in Florida.

“Our state leadership has made it absolutely apparent they have no interest in going after the banks at all,” he said. “To an unfortunate degree, the courts have also allowed the banks to run roughshod over consumers.”

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The US Bank v. Ibanez Foreclosure Case Decision

Posted by revolt | The US Bank v. Ibanez Foreclosure Case Decision | Wednesday 13 June 2012 3:28 pm

U.S. BANK NATIONAL ASSOCIATION, trustee, [Note 1] vs. ANTONIO IBANEZ (and a consolidated case [Note 2], [Note 3]).

458 Mass. 637

October 7, 2010 – January 7, 2011

Court Below: Land Court

Present: MARSHALL, C.J., IRELAND, SPINA, CORDY, BOTSFORD, & GANTS, JJ. [Note 4]

Related Cases:

Records And Briefs:

Real Property, Mortgage, Ownership, Record title. Mortgage, Real estate, Foreclosure, Assignment. Notice, Foreclosure of mortgage.

In two separate civil actions brought in the Land Court pursuant to G. L. c. 240, § 6, by the plaintiff banks, as trustees, seeking judgments declaring that they held clear title in fee simple to properties that they had foreclosed on (having claimed the authority to foreclose as the eventual assignees of the mortgages) and purchased back at foreclosure sales, the judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were holders of the mortgages at the times of the publication of the notices of the foreclosure sales and of the sales themselves, and the judge therefore did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments. [645-655] Cordy, J., concurring, with whom Botsford, J., joined.

CIVIL ACTIONS commenced in the Land Court Department on September 16 and October 30, 2008.

Motions for entry of default judgment and to vacate judgment were heard by Keith C. Long, J.

The Supreme Judicial Court granted an application for direct appellate review.

R. Bruce Allensworth (Phoebe S. Winder & Robert W. Sparkes, III, with him) for U.S. Bank National Association & another.

Paul R. Collier, III (Max W. Weinstein with him) for Antonio Ibanez.

Glenn F. Russell, Jr., for Mark A. LaRace & another.

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The following submitted briefs for amici curiae:

Martha Coakley, Attorney General, & John M. Stephan, Assistant Attorney General, for the Commonwealth.

Kevin Costello, Gary Klein, Shennan Kavanagh & Stuart Rossman for National Consumer Law Center & others.

Ward P. Graham & Robert J. Moriarty, Jr., for Real Estate Bar Association for Massachusetts, Inc.

Marie McDonnell, pro se.


GANTS, J. After foreclosing on two properties and purchasing the properties back at the foreclosure sales, U.S. Bank National Association (U.S. Bank), as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z; and Wells Fargo Bank, N.A. (Wells Fargo), as trustee for ABFC 2005-OPT 1 Trust, ABFC Asset Backed Certificates, Series 2005- OPT 1 (plaintiffs), filed separate complaints in the Land Court asking a judge to declare that they held clear title to the properties in fee simple. We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied. [Note 5]

Procedural history. On July 5, 2007, U.S. Bank, as trustee, foreclosed on the mortgage of Antonio Ibanez, and purchased the Ibanez property at the foreclosure sale. On the same day, Wells Fargo, as trustee, foreclosed on the mortgage of Mark and Tammy LaRace, and purchased the LaRace property at that foreclosure sale.

In September and October of 2008, U.S. Bank and Wells Fargo brought separate actions in the Land Court under G. L. c. 240, § 6, which authorizes actions “to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto.” The two complaints sought identical relief: (1) a judgment that the right, title, and interest of the mortgagor (Ibanez or the LaRaces) in the property was extinguished

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by the foreclosure; (2) a declaration that there was no cloud on title arising from publication of the notice of sale in the Boston Globe; and (3) a declaration that title was vested in the plaintiff trustee in fee simple. U.S. Bank and Wells Fargo each asserted in its complaint that it had become the holder of the respective mortgage through an assignment made after the foreclosure sale.

In both cases, the mortgagors — Ibanez and the LaRaces — did not initially answer the complaints, and the plaintiffs moved for entry of default judgment. In their motions for entry of default judgment, the plaintiffs addressed two issues: (1) whether the Boston Globe, in which the required notices of the foreclosure sales were published, is a newspaper of “general circulation” in Springfield, the town where the foreclosed properties lay. See G. L. c. 244, § 14 (requiring publication every week for three weeks in newspaper published in town where foreclosed property lies, or of general circulation in that town); and (2) whether the plaintiffs were legally entitled to foreclose on the properties where the assignments of the mortgages to the plaintiffs were neither executed nor recorded in the registry of deeds until after the foreclosure sales. [Note 6] The two cases were heard together by the Land Court, along with a third case that raised the same issues.

On March 26, 2009, judgment was entered against the plaintiffs. The judge ruled that the foreclosure sales were invalid because, in violation of G. L. c. 244, § 14, the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages. [Note 7] The judge found, based on each plaintiff’s assertions in its complaint, that the plaintiffs acquired the mortgages by assignment only after the foreclosure sales and thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales. [Note 8]

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The plaintiffs then moved to vacate the judgments. At a hearing on the motions on April 17, 2009, the plaintiffs conceded that each complaint alleged a postnotice, postforeclosure sale assignment of the mortgage at issue, but they now represented to the judge that documents might exist that could show a prenotice, preforeclosure sale assignment of the mortgages. The judge granted the plaintiffs leave to produce such documents, provided they were produced in the form they existed in at the time the foreclosure sale was noticed and conducted. In response, the plaintiffs submitted hundreds of pages of documents to the judge, which they claimed established that the mortgages had been assigned to them before the foreclosures. Many of these documents related to the creation of the securitized mortgage pools in which the Ibanez and LaRace mortgages were purportedly included. [Note 9]

The judge denied the plaintiffs’ motions to vacate judgment on October 14, 2009, concluding that the newly submitted documents did not alter the conclusion that the plaintiffs were not the holders of the respective mortgages at the time of foreclosure. We granted the parties’ applications for direct appellate review.

Factual background. We discuss each mortgage separately, describing when appropriate what the plaintiffs allege to have happened and what the documents in the record demonstrate. [Note 10]

The Ibanez mortgage. On December 1, 2005, Antonio Ibanez took out a $103,500 loan for the purchase of property at 20 Crosby Street in Springfield, secured by a mortgage to the lender, Rose Mortgage, Inc. (Rose Mortgage). The mortgage was recorded the following day. Several days later, Rose Mortgage

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executed an assignment of this mortgage in blank, that is, an assignment that did not specify the name of the assignee. [Note 11] The blank space in the assignment was at some point stamped with the name of Option One Mortgage Corporation (Option One) as the assignee, and that assignment was recorded on June 7, 2006. Before the recording, on January 23, 2006, Option One executed an assignment of the Ibanez mortgage in blank.

According to U.S. Bank, Option One assigned the Ibanez mortgage to Lehman Brothers Bank, FSB, which assigned it to Lehman Brothers Holdings Inc., which then assigned it to the Structured Asset Securities Corporation, [Note 12] which then assigned the mortgage, pooled with approximately 1,220 other mortgage loans, to U.S. Bank, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z. With this last assignment, the Ibanez and other loans were pooled into a trust and converted into mortgage-backed securities that can be bought and sold by investors — a process known as securitization.

For ease of reference, the chain of entities through which the Ibanez mortgage allegedly passed before the foreclosure sale is:

Rose Mortgage, Inc. (originator)

Option One Mortgage Corporation (record holder)

Lehman Brothers Bank, FSB

Lehman Brothers Holdings Inc. (seller)

Structured Asset Securities Corporation (depositor)

U.S. Bank National Association, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z

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According to U.S. Bank, the assignment of the Ibanez mortgage to U.S. Bank occurred pursuant to a December 1, 2006, trust agreement, which is not in the record. What is in the record is the private placement memorandum (PPM), dated December 26, 2006, a 273-page, unsigned offer of mortgage-backed securities to potential investors. The PPM describes the mortgage pools and the entities involved, and summarizes the provisions of the trust agreement, including the representation that mortgages “will be” assigned into the trust. According to the PPM, “[e]ach transfer of a Mortgage Loan from the Seller [Lehman Brothers Holdings Inc.] to the Depositor [Structured Asset Securities Corporation] and from the Depositor to the Trustee [U.S. Bank] will be intended to be a sale of that Mortgage Loan and will be reflected as such in the Sale and Assignment Agreement and the Trust Agreement, respectively.” The PPM also specifies that “[e]ach Mortgage Loan will be identified in a schedule appearing as an exhibit to the Trust Agreement.” However, U.S. Bank did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement.

On April 17, 2007, U.S. Bank filed a complaint to foreclose on the Ibanez mortgage in the Land Court under the Servicemembers Civil Relief Act (Servicemembers Act), which restricts foreclosures against active duty members of the uniformed services. See 50 U.S.C. Appendix §§ 501, 511, 533 (2006 & Supp. II 2008). [Note 13] In the complaint, U.S. Bank represented that it was the “owner (or assignee) and holder” of the mortgage given by Ibanez for the property. A judgment issued on behalf of U.S. Bank on June 26, 2007, declaring that the mortgagor was not entitled to protection from foreclosure under the Servicemembers Act. In June, 2007, U.S. Bank also caused to be published in the Boston Globe the notice of the foreclosure sale required by G. L. c. 244, § 14. The notice identified U.S. Bank as the “present holder” of the mortgage.

At the foreclosure sale on July 5, 2007, the Ibanez property

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was purchased by U.S. Bank, as trustee for the securitization trust, for $94,350, a value significantly less than the outstanding debt and the estimated market value of the property. The foreclosure deed (from U.S. Bank, trustee, as the purported holder of the mortgage, to U.S. Bank, trustee, as the purchaser) and the statutory foreclosure affidavit were recorded on May 23, 2008. On September 2, 2008, more than one year after the sale, and more than five months after recording of the sale, American Home Mortgage Servicing, Inc., “as successor-in-interest” to Option One, which was until then the record holder of the Ibanez mortgage, executed a written assignment of that mortgage to U.S. Bank, as trustee for the securitization trust. [Note 14] This assignment was recorded on September 11, 2008.

The LaRace mortgage. On May 19, 2005, Mark and Tammy LaRace gave a mortgage for the property at 6 Brookburn Street in Springfield to Option One as security for a $103,200 loan; the mortgage was recorded that same day. On May 26, 2005, Option One executed an assignment of this mortgage in blank.

According to Wells Fargo, Option One later assigned the LaRace mortgage to Bank of America in a July 28, 2005, flow sale and servicing agreement. Bank of America then assigned it to Asset Backed Funding Corporation (ABFC) in an October 1, 2005, mortgage loan purchase agreement. Finally, ABFC pooled the mortgage with others and assigned it to Wells Fargo, as trustee for the ABFC 2005-OPT 1 Trust, ABFC Asset-Backed Certificates, Series 2005-OPT 1, pursuant to a pooling and servicing agreement (PSA).

For ease of reference, the chain of entities through which the LaRace mortgage allegedly passed before the foreclosure sale is:

Option One Mortgage Corporation (originator and record holder)

Bank of America

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Asset Backed Funding Corporation (depositor)

Wells Fargo, as trustee for the ABFC 2005-OPT 1, ABFC Asset-Backed Certificates, Series 2005-OPT 1

Wells Fargo did not provide the judge with a copy of the flow sale and servicing agreement, so there is no document in the record reflecting an assignment of the LaRace mortgage by Option One to Bank of America. The plaintiff did produce an unexecuted copy of the mortgage loan purchase agreement, which was an exhibit to the PSA. The mortgage loan purchase agreement provides that Bank of America, as seller, “does hereby agree to and does hereby sell, assign, set over, and otherwise convey to the Purchaser [ABFC], without recourse, on the Closing Date . . . all of its right, title and interest in and to each Mortgage Loan.” The agreement makes reference to a schedule listing the assigned mortgage loans, but this schedule is not in the record, so there was no document before the judge showing that the LaRace mortgage was among the mortgage loans assigned to the ABFC.

Wells Fargo did provide the judge with a copy of the PSA, which is an agreement between the ABFC (as depositor), Option One (as servicer), and Wells Fargo (as trustee), but this copy was downloaded from the Securities and Exchange Commission Web site and was not signed. The PSA provides that the depositor “does hereby transfer, assign, set over and otherwise convey to the Trustee, on behalf of the Trust . . . all the right, title and interest of the Depositor . . . in and to . . . each Mortgage Loan identified on the Mortgage Loan Schedules,” and “does hereby deliver” to the trustee the original mortgage note, an original mortgage assignment “in form and substance acceptable for recording,” and other documents pertaining to each mortgage.

The copy of the PSA provided to the judge did not contain the loan schedules referenced in the agreement. Instead, Wells Fargo submitted a schedule that it represented identified the loans assigned in the PSA, which did not include property addresses, names of mortgagors, or any number that corresponds to the loan number or servicing number on the LaRace mortgage. Wells Fargo contends that a loan with the LaRace property’s zip

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code and city is the LaRace mortgage loan because the payment history and loan amount matches the LaRace loan.

On April 27, 2007, Wells Fargo filed a complaint under the Servicemembers Act in the Land Court to foreclose on the LaRace mortgage. The complaint represented Wells Fargo as the “owner (or assignee) and holder” of the mortgage given by the LaRaces for the property. A judgment issued on behalf of Wells Fargo on July 3, 2007, indicating that the LaRaces were not beneficiaries of the Servicemembers Act and that foreclosure could proceed in accordance with the terms of the power of sale. In June, 2007, Wells Fargo caused to be published in the Boston Globe the statutory notice of sale, identifying itself as the “present holder” of the mortgage.

At the foreclosure sale on July 5, 2007, Wells Fargo, as trustee, purchased the LaRace property for $120,397.03, a value significantly below its estimated market value. Wells Fargo did not execute a statutory foreclosure affidavit or foreclosure deed until May 7, 2008. That same day, Option One, which was still the record holder of the LaRace mortgage, executed an assignment of the mortgage to Wells Fargo as trustee; the assignment was recorded on May 12, 2008. Although executed ten months after the foreclosure sale, the assignment declared an effective date of April 18, 2007, a date that preceded the publication of the notice of sale and the foreclosure sale.

Discussion. The plaintiffs brought actions under G. L. c. 240, § 6, seeking declarations that the defendant mortgagors’ titles had been extinguished and that the plaintiffs were the fee simple owners of the foreclosed properties. As such, the plaintiffs bore the burden of establishing their entitlement to the relief sought. Sheriff’s Meadow Found., Inc. v. Bay-Courte Edgartown, Inc., 401 Mass. 267 , 269 (1987). To meet this burden, they were required “not merely to demonstrate better title . . . than the defendants possess, but . . . to prove sufficient title to succeed in [the] action.” Id. See NationsBanc Mtge. Corp. v. Eisenhauer, 49 Mass. App. Ct. 727 , 730 (2000). There is no question that the relief the plaintiffs sought required them to establish the validity of the foreclosure sales on which their claim to clear title rested.

Massachusetts does not require a mortgage holder to obtain

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judicial authorization to foreclose on a mortgaged property. See G. L. c. 183, § 21; G. L. c. 244, § 14. With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servicemembers Act, a mortgage holder can foreclose on a property, as the plaintiffs did here, by exercise of the statutory power of sale, if such a power is granted by the mortgage itself. See Beaton v. Land Court, 367 Mass. 385 , 390-391, 393, appeal dismissed, 423 U.S. 806 (1975).

Where a mortgage grants a mortgage holder the power of sale, as did both the Ibanez and LaRace mortgages, it includes by reference the power of sale set out in G. L. c. 183, § 21, and further regulated by G. L. c. 244, §§ 11-17C. Under G. L. c. 183, § 21, after a mortgagor defaults in the performance of the underlying note, the mortgage holder may sell the property at a public auction and convey the property to the purchaser in fee simple, “and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity.” Even where there is a dispute as to whether the mortgagor was in default or whether the party claiming to be the mortgage holder is the true mortgage holder, the foreclosure goes forward unless the mortgagor files an action and obtains a court order enjoining the foreclosure. [Note 15] See Beaton v. Land Court, supra at 393.

Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” Moore v. Dick, 187 Mass. 207 , 211 (1905). See Roche v. Farnsworth, 106 Mass. 509 , 513 (1871) (power of

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sale contained in mortgage “must be executed in strict compliance with its terms”). See also McGreevey v. Charlestown Five Cents Sav. Bank, 294 Mass. 480 , 484 (1936). [Note 16]

One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” G. L. c. 183, § 21. Under G. L. c. 244, § 14, “[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person” is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void. Chace v. Morse, 189 Mass. 559 , 561 (1905), citing Moore v. Dick, supra. See Davenport v. HSBC Bank USA, 275 Mich. App. 344, 347-348 (2007) (attempt to foreclose by party that had not yet been assigned mortgage results in “structural defect that goes to the very heart of defendant’s ability to foreclose by advertisement,” and renders foreclosure sale void).

A related statutory requirement that must be strictly adhered to in a foreclosure by power of sale is the notice requirement articulated in G. L. c. 244, § 14. That statute provides that “no sale under such power shall be effectual to foreclose a mortgage, unless, previous to such sale,” advance notice of the foreclosure sale has been provided to the mortgagor, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town. Id. “The manner in which the notice of the proposed sale shall be given is one of the important terms of the power, and a

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strict compliance with it is essential to the valid exercise of the power.” Moore v. Dick, supra at 212. See Chace v. Morse, supra (“where a certain notice is prescribed, a sale without any notice, or upon a notice lacking the essential requirements of the written power, would be void as a proceeding for foreclosure”). See also McGreevey v. Charlestown Five Cents Sav. Bank, supra. Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void. [Note 17] See Roche v. Farnsworth, supra (mortgage sale void where notice of sale identified original mortgagee but not mortgage holder at time of notice and sale). See also Bottomly v. Kabachnick, 13 Mass. App. Ct. 480 , 483-484 (1982) (foreclosure void where holder of mortgage not identified in notice of sale).

For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests. Here, the plaintiffs were not the original mortgagees to whom the power of sale was granted; rather, they claimed the authority to foreclose as the eventual assignees of the original mortgagees. Under the plain language of G. L. c. 183, § 21, and G. L. c. 244, § 14, the plaintiffs had the authority to exercise the power of sale contained in the Ibanez and LaRace mortgages only if they were the assignees of the mortgages at the time of the notice of sale and the subsequent foreclosure sale. See In re Schwartz, 366 B.R. 265, 269 (Bankr. D. Mass. 2007) (“Acquiring the mortgage after the entry and foreclosure sale does not satisfy the Massachusetts statute”). [Note 18] See also Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885, 886 (Fla. Dist. Ct. App. 1990) (per curiam) (foreclosure

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action could not be based on assignment of mortgage dated four months after commencement of foreclosure proceeding).

The plaintiffs claim that the securitization documents they submitted establish valid assignments that made them the holders of the Ibanez and LaRace mortgages before the notice of sale and the foreclosure sale. We turn, then, to the documentation submitted by the plaintiffs to determine whether it met the requirements of a valid assignment.

Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G. L. c. 183, § 3; Saint Patrick’s Religious, Educ. & Charitable Ass’n v. Hale, 227 Mass. 175 , 177 (1917). In a “title theory state” like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1 , 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751 , 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315 , 316 (1880) (although “as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands,” mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass. App. Ct. 88 , 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.

Focusing first on the Ibanez mortgage, U.S. Bank argues that it was assigned the mortgage under the trust agreement described in the PPM, but it did not submit a copy of this trust agreement to the judge. The PPM, however, described the trust agreement as an agreement to be executed in the future, so it only furnished evidence of an intent to assign mortgages to U.S. Bank, not

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proof of their actual assignment. Even if there were an executed trust agreement with language of present assignment, U.S. Bank did not produce the schedule of loans and mortgages that was an exhibit to that agreement, so it failed to show that the Ibanez mortgage was among the mortgages to be assigned by that agreement. Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage — Structured Asset Securities Corporation — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale. [Note 19] Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.

Turning to the LaRace mortgage, Wells Fargo claims that, before it issued the foreclosure notice, it was assigned the LaRace mortgage under the PSA. The PSA, in contrast with U.S. Bank’s PPM, uses the language of a present assignment (“does hereby . . . assign” and “does hereby deliver”) rather than an intent to assign in the future. But the mortgage loan schedule Wells Fargo submitted failed to identify with adequate specificity the LaRace mortgage as one of the mortgages assigned in the PSA. Moreover, Wells Fargo provided the judge with no document that reflected that the ABFC (depositor) held the LaRace mortgage that it was purportedly assigning in the PSA. As with the Ibanez loan, the record holder of the LaRace loan was Option One, and nothing was submitted to the judge which demonstrated that the LaRace loan was ever assigned by Option One to another entity before the publication of the notice and the sale.

Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at

Page 651

the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 (“When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them”). See also Bayview Loan Servicing, LLC v. Nelson, 382 Ill. App. 3d 1184, 1188 (2008) (reversing grant of summary judgment in favor of financial entity in foreclosure action, where there was “no evidence that [the entity] ever obtained any legal interest in the subject property”).

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr. D. Mass. 2009). A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage. See In re Parrish, 326 B.R. 708, 720 (Bankr. N.D. Ohio 2005) (“If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant”). The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale (or the foreclosing entity must be one of the parties authorized to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14).

Page 652

The judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments. [Note 20]

We now turn briefly to three other arguments raised by the plaintiffs on appeal. First, the plaintiffs initially contended that the assignments in blank executed by Option One, identifying the assignor but not the assignee, not only “evidence[] and confirm[] the assignments that occurred by virtue of the securitization agreements,” but “are effective assignments in their own right.” But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment. See Flavin v. Morrissey, 327 Mass. 217 , 219 (1951); Macurda v. Fuller, 225 Mass. 341 , 344 (1916). See also G. L. c. 183, § 3.

Second, the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106 , 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id. (“In some jurisdictions it is held that the mere transfer of the debt, without any assignment or even mention of the mortgage, carries the mortgage with it, so as to enable the assignee to assert his title in an action at law. . . .

Page 653

This doctrine has not prevailed in Massachusetts, and the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity”). See Young v. Miller, 6 Gray 152 , 154 (1856). In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to “the mortgagee or his executors, administrators, successors or assigns,” but not to a party that is the equitable beneficiary of a mortgage held by another. G. L. c. 183, § 21, inserted by St. 1912, c. 502, § 6.

Third, the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry, and point to Title Standard No. 58 (3) issued by the Real Estate Bar Association for Massachusetts, which declares: “A title is not defective by reason of . . . [t]he recording of an Assignment of Mortgage executed either prior, or subsequent, to foreclosure where said Mortgage has been foreclosed, of record, by the Assignee.” [Note 21] To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced, because this proposition is contrary to G. L. c. 183, § 21, and G. L. c. 244, § 14. If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false. Nor may a postforeclosure assignment be treated as a preforeclosure assignment simply by declaring an

Page 654

“effective date” that precedes the notice of sale and foreclosure, as did Option One’s assignment of the LaRace mortgage to Wells Fargo. Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer. See In re Schwartz, supra at 269.

However, we do not disagree with Title Standard No. 58 (3) that, where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective. A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. See G. L. c. 183, § 21; MacFarlane v. Thompson, 241 Mass. 486 , 489 (1922). Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. See Bon v. Graves, 216 Mass. 440 , 444-445 (1914). A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73 , 76 (1904) (confirmatory deed “creates no title” but “takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made”). Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm. In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.

Finally, we reject the plaintiffs’ request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. See Papadopoulos v. Target Corp., 457 Mass. 368 , 384 (2010) (noting “normal rule of retroactivity”); Payton v. Abbott Labs, 386 Mass. 540 , 565 (1982). We have not

Page 655

done so here. The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.

Conclusion. For the reasons stated, we agree with the judge that the plaintiffs did not demonstrate that they were the holders of the Ibanez and LaRace mortgages at the time that they foreclosed these properties, and therefore failed to demonstrate that they acquired fee simple title to these properties by purchasing them at the foreclosure sale.

Judgments affirmed.


CORDY, J. (concurring, with whom Botsford, J., joins). I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it. As the opinion of the court notes, such strict compliance is necessary because Massachusetts both is a title theory State and allows for extrajudicial foreclosure.

The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought

Page 656

these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.

What is more complicated, and not addressed in this opinion, because the issue was not before us, is the effect of the conduct of banks such as the plaintiffs here, on a bona fide third-party purchaser who may have relied on the foreclosure title of the bank and the confirmative assignment and affidavit of foreclosure recorded by the bank subsequent to that foreclosure but prior to the purchase by the third party, especially where the party whose property was foreclosed was in fact in violation of the mortgage covenants, had notice of the foreclosure, and took no action to contest it.


FOOTNOTES

[Note 1] For the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z.

[Note 2] Wells Fargo Bank, N.A., trustee, vs. Mark A. LaRace & another.

[Note 3] The Appeals Court granted the plaintiffs’ motion to consolidate these cases.

[Note 4] Chief Justice Marshall participated in the deliberation on this case prior to her retirement.

[Note 5] We acknowledge the amicus briefs filed by the Attorney General; the Real Estate Bar Association for Massachusetts, Inc.; Marie McDonnell; and the National Consumer Law Center, together with Darlene Manson, Germano DePina, Robert Lane, Ann Coiley, Roberto Szumik, and Geraldo Dosanjos.

[Note 6] The uncertainty surrounding the first issue was the reason the plaintiffs sought a declaration of clear title in order to obtain title insurance for these properties. The second issue was raised by the judge in the LaRace case at a January 5, 2009, case management conference.

[Note 7] The judge also concluded that the Boston Globe was a newspaper of general circulation in Springfield, so the foreclosures were not rendered invalid on that ground because notice was published in that newspaper.

[Note 8] In the third case, LaSalle Bank National Association, trustee for the certificate holders of Bear Stearns Asset Backed Securities I, LLC Asset-Backed Certificates, Series 2007-HE2 vs. Freddy Rosario, the judge concluded that the mortgage foreclosure “was not rendered invalid by its failure to record the assignment reflecting its status as holder of the mortgage prior to the foreclosure since it was, in fact, the holder by assignment at the time of the foreclosure, it truthfully claimed that status in the notice, and it could have produced proof of that status (the unrecorded assignment) if asked.”

[Note 9] On June 1, 2009, attorneys for the defendant mortgagors filed their appearance in the cases for the first time.

[Note 10] The LaRace defendants allege that the documents submitted to the judge following the plaintiffs’ motions to vacate judgment are not properly in the record before us. They also allege that several of these documents are not properly authenticated. Because we affirm the judgment on other grounds, we do not address these concerns, and assume that these documents are properly before us and were adequately authenticated.

[Note 11] This signed and notarized document states: “FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to ______ all beneficial interest under that certain Mortgage dated December 1, 2005 executed by Antonio Ibanez . . . .”

[Note 12] The Structured Asset Securities Corporation is a wholly owned direct subsidiary of Lehman Commercial Paper Inc., which is in turn a wholly owned, direct subsidiary of Lehman Brothers Holdings Inc.

[Note 13] As implemented in Massachusetts, a mortgage holder is required to go to court to obtain a judgment declaring that the mortgagor is not a beneficiary of the Servicemembers Act before proceeding to foreclosure. St. 1943, c. 57, as amended through St. 1998, c. 142.

[Note 14] The Land Court judge questioned whether American Home Mortgage Servicing, Inc., was in fact a successor in interest to Option One. Given our affirmance of the judgment on other grounds, we need not address this question.

[Note 15] An alternative to foreclosure through the right of statutory sale is foreclosure by entry, by which a mortgage holder who peaceably enters a property and remains for three years after recording a certificate or memorandum of entry forecloses the mortgagor’s right of redemption. See G. L. c. 244, §§ 1, 2; Joyner v. Lenox Sav. Bank, 322 Mass. 46 , 52-53 (1947). A foreclosure by entry may provide a separate ground for a claim of clear title apart from the foreclosure by execution of the power of sale. See, e.g., Grabiel v. Michelson, 297 Mass. 227 , 228-229 (1937). Because the plaintiffs do not claim clear title based on foreclosure by entry, we do not discuss it further.

[Note 16] We recognize that a mortgage holder must not only act in strict compliance with its power of sale but must also “act in good faith and . . . use reasonable diligence to protect the interests of the mortgagor,” and this responsibility is “more exacting” where the mortgage holder becomes the buyer at the foreclosure sale, as occurred here. See Williams v. Resolution GGF Oy, 417 Mass. 377 , 382-383 (1994), quoting Seppala & Aho Constr. Co. v. Petersen, 373 Mass. 316 , 320 (1977). Because the issue was not raised by the defendant mortgagors or the judge, we do not consider whether the plaintiffs committed a breach of this obligation.

[Note 17] The form of foreclosure notice provided in G. L. c. 244, § 14, calls for the present holder of the mortgage to identify itself and sign the notice. While the statute permits other forms to be used and allows the statutory form to be “altered as circumstances require,” G. L. c. 244, § 14, we do not interpret this flexibility to suggest that the present holder of the mortgage need not identify itself in the notice.

[Note 18] The plaintiffs were not authorized to foreclose by virtue of any of the other provisions of G. L. c. 244, § 14: they were not the guardian or conservator, or acting in the name of, a person so authorized; nor were they the attorney duly authorized by a writing under seal.

[Note 19] Ibanez challenges the validity of this assignment to Option One. Because of the failure of U.S. Bank to document any preforeclosure sale assignment or chain of assignments by which it obtained the Ibanez mortgage from Option One, it is unnecessary to address the validity of the assignment from Rose Mortgage to Option One.

[Note 20] The plaintiffs have not pressed the procedural question whether the judge exceeded his authority in rendering judgment against them on their motions for default judgment, and we do not address it here.

[Note 21] Title Standard No. 58 (3) issued by the Real Estate Bar Association for Massachusetts continues: “However, if the Assignment is not dated prior, or stated to be effective prior, to the commencement of a foreclosure, then a foreclosure sale after April 19, 2007 may be subject to challenge in the Bankruptcy Court,” citing In re Schwartz, 366 B.R. 265 (Bankr. D. Mass. 2007).

Commonwealth of Massachusetts. Trial Court Law Libraries. Questions about legal information? Contact Reference Librarians.

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An Indictment Of The Securitized Mortgage System

Posted by revolt | An Indictment Of The Securitized Mortgage System | Wednesday 13 June 2012 3:21 pm

Breaking News: U.S. Bank v. Ibanez Foreclosure Ruling Upheld: An Indictment Of The Securitized Mortgage System

by Rich Vetstein on January 7, 2011

“[W]hat is surprising about these cases is … the utter carelessness with which the plaintiff banks documented the titles to their assets.” –Justice Robert Cordy, Massachusetts Supreme Judicial Court

Today, the Massachusetts Supreme Judicial Court (SJC) ruled against foreclosing lenders and those who purchased foreclosed properties in Massachusetts in the controversial U.S. Bank v. Ibanez case. Here is the link for the decision.

Background

For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.

In the Ibanez case, the mortgage assignment, which was executed in blank, was not recorded until over a year after the foreclosure process had started. This was a fairly common practice in Massachusetts, and I suspect across the U.S. Mr. Ibanez, the distressed homeowner, challenged the validity of the foreclosure, arguing that U.S. Bank had no standing to foreclose because it lacked any evidence of ownership of the mortgage and the loan at the time it started the foreclosure.

Mr. Ibanez won his case in the lower court in 2009, and due to the importance of the issue, the Massachusetts Supreme Judicial Court took the case on direct appeal.

The SJC Ruling: Lenders Must Prove Ownership When They Foreclose

The SJC’s ruling can be summed up by Justice Cordy’s concurring opinion:

“The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.”

The Court’s ruling appears rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of mortgage backed securities (MBS’s) –which constitute 60% or more of the entire U.S. mortgage market. The Court has held unequivocally that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts.

My Analysis

  • Winners: Distressed homeowners facing foreclosure
  • Losers: Foreclosing lenders, people who purchased foreclosed homes with this type of title defect, foreclosure attorneys, and title insurance companies.
  • Despite pleas from innocent buyers of foreclosed properties and my own predictions, the decision was applied retroactively, so this will hurt Massachusetts homeowners who bought defective foreclosure properties.
  • If you own a foreclosed home with an “Ibanez” title issue, I’m afraid to say that you do not own your home anymore. The previous owner who was foreclosed upon owns it again. This is a mess.
  • The opinion is a scathing indictment of the securitized mortgage lending system and its non-compliance with Massachusetts foreclosure law. Justice Cordy, a former big firm corporate lawyer, chastised lenders and their Wall Street lawyers for “the utter carelessness with which the plaintiff banks documented the titles to their assets.”
  • If you purchased a foreclosure property with an “Ibanez” title defect, and you do not have title insurance, you are in trouble. You may not be able to sell or refinance your home for quite a long time, if ever. Recourse would be against the foreclosing banks, the foreclosing attorneys. Or you could attempt to get a deed from the previous owner. Re-doing the original foreclosure is also an option but with complications.
  • If you purchased a foreclosure property and you have an owner’s title insurance policy, contact the title company right away.
  • The decision carved out some room so that mortgages with compliant securitization documents may be able to survive the ruling. This will shake out in the months to come. A major problem with this case was that the lenders weren’t able to produce the schedules of the securitization documents showing that the two mortgages in question were part of the securitization pool. Why, I have no idea.
  • The decision opens the door for foreclosing lenders to prove ownership with proper securitized documents. There will be further litigation on this. Furthermore, since the Land Court’s decision in 2009, many lenders have already re-done foreclosures and title insurance companies have taken other steps to cure the title defects.
  • We don’t know how other state court’s will react to this ruling. The SJC is one of the most well respected state supreme courts in the country. This decision was well-reasoned and I believe correct given that the lenders couldn’t even produce any admissible evidence they held the mortgages. The ruling will certainly be followed in states (such as California) operating under a non-judicial foreclosure system such as Massachusetts.
  • Watch for class actions against foreclosing lenders, the attorneys who drafted the securitization loan documents and foreclosing attorneys. Investors of mortgage backed securities (MBS) will also be exploring their legal options against the trusts and servicers of the mortgage pools.
  • The banking sector has already dropped some 5% today (1.7.11), showing that this ruling has sufficiently spooked investors.
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Video – Why Wall Street Gets A Free Pass – X-Bank Regulator Bill Black

Posted by revolt | Video - Why Wall Street Gets A Free Pass - X-Bank Regulator Bill Black | Monday 11 June 2012 5:44 pm

Why Wall Street Gets A Free Pass – Bill Black Video

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The First Bank Has Been Criminally Indicted for Mortgage Fraud

Posted by revolt | The First Bank Has Been Criminally Indicted for Mortgage Fraud | Monday 11 June 2012 5:40 pm

The First Bank Has Been Criminally Indicted for Mortgage Fraud

By Cynthia Kouril | June 10, 2012

Manhattan DA Cy Vance has indicted a bank, a very small bank, for mortgage fraud. The first bank to be indicted in the foreclosure crisis is Abacus Bank, along with some of its executives.

Manhattan District Attorney Cyrus R. Vance, Jr., today announced the indictment of ABACUS FEDERAL SAVINGS BANK (“ABACUS” or the “Bank”) and eleven of its former employees in a false document mortgage fraud scheme resulting in the sale of hundreds of millions of dollars worth of fraudulent loans to the Federal National Mortgage Association, commonly known as “Fannie Mae.” The District Attorney also announced that an additional eight former employees have already waived indictment and admitted their guilt in connection with this conspiracy.

FINALLY, we get a prosecutor with a working set of gonads.

I realize that this is a teeny tiny bank so you may be asking yourself, “What’s the big deal?” Let me explain: By bringing this case, the Manhattan DA’s Office (actually New York County DA’s Office) is demonstrating that all that bullshit nonsense that POTUS and Geithner have been spouting about “sloppy paperwork” and non criminal lack of best practices is a lie. It also shows up the Preet Bharara excuse that intent is too hard to prove.

Knowing how small the investigative staff at the NYC DA’s office is, I think it is very prudent of them to take on a small bank that cannot overwhelm them with truckloads of paper and armies of lawyers. This is closer to an even fight, though the bank still has many more resources than the DA’s Office. I think it is also telling that the bank is literally a neighbor of the DA’s office, so investigators and DA’s can walk to their target.

The indictment, representing the culmination of a two-and-a-half-year investigation, charges that ABACUS, its employees, and its managers engaged in a conspiracy involving the regular and systematic falsification of residential mortgage application documents. The defendants falsified these documents so that they could earn commissions and fees by ensuring that otherwise unqualified borrowers would receive loans, which ABACUS then sold to Fannie Mae pursuant to an ongoing agreement.

After purchasing these fraudulent mortgages, Fannie Mae repackaged them into mortgage-backed securities and sold them to outside investors. As a result of the hundreds of millions of dollars in charged fraudulent loans, ABACUS earned many millions of dollars in loan origination, purchasing, and servicing fees over the five-year period covered by the indictment.

They were aided in this investigation by two agencies you might not expect: FHFA, the Federal Housing Finance Agency and, of all folks, the IRS.

Where is the FBI? Well actually under resourced according to Bill Black, the man who cleaned up the Savings & Loan mess. He blames the bank regulators most of all for failing to do the preliminary work and for failing to file criminal referrals. According to Black, Office of Thrift Supervision has made zero referrals, the Comptroller of the Currency has made zero referrals, the Federal Reserve has made zero or 3 referrals, depending on which spokesperson you talk to, and the FDIC refuses to even answer the question.

You MUST watch this amazing Bloomberg news interview with Bill Black who does the best job I’ve seen so far of explaining why DOJ is not bringing criminal cases. He explains all the institutional wheels and cogs that are not turning in the bank regulatory system and in the criminal justice system. It’s 15 minutes of “must know” information.

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