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Mortgage Lawsuits News | Mortgage Litigation Index
Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.

Massachusetts Decision "Far-Reaching"

State supreme court upholds overturned foreclosures

Jan. 7, 2011

By staff

A high court in Massachusetts has decided to uphold a lower court's reversal of two foreclosures because of inadequate proof that the lenders owned the notes. The Massachusetts court is the most significant court to date to make such a decision -- which one legal expert calls "far-reaching."

The Massachusetts Supreme Court Friday upheld a lower-court judge's decision to declare two foreclosures invalid because they failed to follow proper legal procedure in the mortgage transfer and securitization process, according to a statement from Rep. Maxine Waters (D-Calif.).

One case involved a foreclosure by U.S. Bank, N.A., while Wells Fargo Bank was the trustee in the other foreclosure. The trial judge ruled that the foreclosure sales were invalid because of a failure to meet the requirement of the Massachusetts foreclosure statute.

"We are seeing that the banks also neglected to follow the rules of the road when documenting ownership of these borrowers' mortgages and therefore the right to foreclose," Waters stated. "This latest failure to follow the law not only creates uncertainty for mortgage investors but also produces some of the horror stories we've seen recently involving wrongful foreclosures."

Waters, who is chairwoman of the Subcommittee on Housing and Community Opportunity, called the ruling a "victory" for homeowners.

The decision, however, is not so good for mortgage companies.

"It will have far-reaching implications," according to Anthony Laura, a partner at the Washington, D.C.-based firm of Patton Boggs LLP who has been following the case. "It will call into question, at least in theory, the procedures ... and the power of sale process that banks in Massachusetts have employed for years ... with respect to loans that are pooled into securitized instruments."

Laura said in a telephone interview that Massachusetts mortgage firms need to make sure they have clear documentation of the chain of assignments.

He noted that the Massachusetts Supreme Court is the highest court to decide on the issue to date.

"While other courts have reached similar conclusions about requiring a clear showing of the mortgagee's ownership of the mortgage, none of ... those decisions have come out of the highest court with any jurisdiction," Laura stated.

A few other states are likely to follow with similar decisions, Laura said. In particular, two cases in New Jersey -- one in a bankruptcy court and the other in a superior court (Bank of New York v. Giannis) -- are likely to see a decision by the state's supreme court.

A U.S. Bank spokeswoman didn't immediately respond to a request for a statement.

Wells Fargo issued a statement indicating that it was only the trustee in the transaction and did not originate, own, service or foreclose on the loan. It expects the actual servicers in the case to abide by state laws.

Wells did say, however, that it believes that the court's ruling doesn't prevent foreclosures on securitized loans.

"The court simply set forth a standard legal process that mortgage servicers must follow in Massachusetts," Wells concluded.

But Waters sees the problem as going far deeper.

"Make no mistake: the failure to properly transfer loans through the appropriate legal 'chain of title' is no technicality, but rather part of a long pattern of predatory and negligent behavior by Wall Street," the U.S. representative said.

Assignments Hold Up Foreclosures
A Massachusetts judge recently ruled against two securitization trustees who foreclosed before the loans had been properly assigned. The cases are part of a growing national trend and offer the mortgage industry insight into how to avoid similar situations.

U.S. Bank National Association v. Ibanez.
08 MISC 384283 (KCL) (Massachusetts Land Court)

Wells Fargo Bank v. Larace
08 MISC 386755 (KCL) (Massachusetts Land Court)

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