by: GERALD L. JACKSON
As housing markets struggle to rebound, a new wrinkle has been thrown into the mix by the Massachusetts Supreme Court, which voided several foreclosures because the banks involved could not demonstrate they had an interest in the mortgages at the time of the foreclosure sales.?This much-anticipated ruling could have a spillover effect on the real estate markets everywhere – including Tulsa – because the problems it highlights could be widespread.?In the case of U.S. Bank Association, Trustee vs. Antonio Ibanez, after the closing on the home loans, both mortgages were transferred through a series of assignments, many of which were executed “in blank,” ultimately ending up pooled and securitized into mortgage-backed securities. ?However, the mortgages were not assigned to the banks that conducted the foreclosures until more than a year after the properties were foreclosed and sold.
Relying on well-recognized and long-standing Massachusetts law, the court held that the statutory power to foreclose can be exercised only by the mortgage holder, and any effort to foreclose by a party lacking such an interest is void. The banks could not produce any documents demonstrating that they were the actual mortgage holders by a proper assignment at the time foreclosure was initiated.?The banks’ reliance on the securitization documents for a sufficient interest on which to base the foreclosures was rejected by the court. The court also rejected assignments made in blank and reliance on post-sale assignments as a customary practice in the industry.
The problems experienced by the banks in this case may be common – as mortgages often moved through many banks before being pooled and securitized during the heady days of the real estate boom, the assignment paperwork may not have kept up. Some industry insiders and analyst believe many securitized mortgages may suffer from the kind of paperwork defects as in Ibanez, and banks with these mortgages may not be able to prove a good chain of title.?This ruling should not come as a surprise, and its rationale could very well be adopted in Oklahoma – it relied on basic property law concepts most lawyers learn in their first-year property class. With Tulsa leading the state in the number of foreclosures, this paperwork problem could disrupt the orderly disposition of residential properties in default and continue to hold back a local real estate recovery.
Before initiating foreclosure proceedings, banks need to carefully examine the documents to ensure that it is in fact the holder of the mortgage and has the legitimate right to foreclose. Banks may also want to give additional consideration to pre-foreclosure alternatives, such as modifications, short sales and deeds-in-lieu as a way to avoid these foreclosure issues.
Ultimately, Ibanez serves as a useful reminder that getting the paperwork right is like that old lawyer’s adage of wearing a belt and suspenders – you can never be too sure.