Banks Lose Pivotal Massachusetts Foreclosure Case

Big news today in the foreclosure world as reported by Bloomberg.  The link to the actual decision is here.

U.S. Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts’s highest court that will guide lower courts in that state and may influence others in the clash between bank practices and state real-estate law. The ruling drove down bank stocks.

The state Supreme Judicial Court today upheld a judge’s decision saying two foreclosures were invalid because the banks didn’t prove they owned the mortgages, which he said were transferred into two mortgage-backed trusts without the recipients’ being named.

Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”

“This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said.

“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,” Justice Ralph D. Gants wrote for a unanimous court. …

The court rejected the banks’ request to apply the decision only to future foreclosures if they lost. It does that when it makes a big change in the law, which it didn’t do here, it said.

“All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements” in the law “in the rush to sell mortgage-backed securities,” Gants wrote.

In a concurring opinion, Justice Robert J. Cordy said he was struck by “the utter carelessness with which the plaintiff banks documented the titles to their assets.” …

Max Gardner adds his take on the ruling.

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 is both a title theory State and allows for extrajudicial foreclosure.

Furthermore, Ibanez constitutes the judicial exposure of a major and substantial flaw in the bogus arguments that have recently been advanced by the mortgage securitization industry, and specifically the American Securitization Forum.  These groups have argued that the Pooling and Servicing Agreements standing alone are sufficient to transfer the mortgage notes and security agreements to the mortgaged-backed trusts, even if the real documents are never physically delivered and transferred.  Ibanez clearly and succinctly debunks this position.  The Trustee in Ibanez had produced the PSA at trial before the Land Court but could not produce the physical proof that it had the Note and properly obtained the same through the complex securitization process created by the Wall Street Banksters.

Furthermore, the Court makes it crystal clear that you can “fix the deal” by an after the fact “confirmation assignment” when there is no real and timely assignment to confirm.  All of the bank stocks suffered losses on the NYSE this afternoon because of this decision and the fact that the sophisticated investors appreciate the legal implications thereof.