The legal question we asked yesterday “Can Banks Foreclose on Mortgages They Do Not Own?” has now been answered.

No, they cannot — at least not in Massachusetts:

“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.”

“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.”

More next week


See also:
Massachusetts Ibanez Appellees Brief to SJC (January 6 2011)

Banks Lose Pivotal Massachusetts Foreclosure Case
Thom Weidlich
Bloomberg, Jan. 7 2011

Category: Foreclosures, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “A Victory for Rule of law, Property Rights”

  1. BennyProfane says:

    OK, that’s it, I’ll go out on a limb here and bet everyone 100 bucks that thousands and thousands of Boomers are going to die in their homes over the next decade or two after refusing to pay their mortgage for years and years. And, those are going to be long, drawn out estate sales, afterwards.

  2. curbyourrisk says:

    Why do I think the bankstas will go to their cronies in DC and ask for this to be legislated away. Retro-active law changes….

    If this happens, it is times for pitchforks and torches to show up in DC.

  3. Julia Chestnut says:

    I haven’t read the opinion yet, but it seems that they are saying (from what I’ve read elsewhere) that the problem can be cured: in other words, it didn’t create an incurable defect in their ability to enforce the mortgage that they didn’t record a damn thing and passed bearer paper around in blank. It’s just that they have to get their ducks in a row BEFORE filing the foreclosure. Strikes me as something of a very low floor for bank behavior, doesn’t it strike you that way?

    When I get done reading all these other cases I have to read for work, I’ll get around to reading this one for my edification and possibly form a more nuanced opinion. Or perhaps I’ll go home and have half a bottle of bourbon instead – it’s been one of those kind of days.

  4. Tarkus says:

    Damn. With all those millions available for bonuses, couldn’t they hire some low-paid clerks to keep the paperwork straight?


    “there was no apparent actual unfairness here to the mortgagors, that is not the point. ”

    At least they aren’t saying the mortgagors were wronged to be foreclosed on as far as they still owe the money and weren’t paying it, etc

    “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”

    Just browsing the link and looking at what they said, it’s basically saying “your paperwork is sloppy, get it straightened out and then you can foreclose”. They are missing a paper trail at various points and just need to get the i’s dotted and t’s crossed.

    Note the judges aren’t even saying they have to be recorded, one of the big jabberings about MERS. The judges just want a paper trail, it doesn’t have to be one at the county recorders. If I was MERS I’d be really happy with this judgement.

  6. Mannwich says:

    @Tarkus: This is common at all big companies now where the perceived “low level, unimportant” work is either done by lowly paid temps or full-timers where turnover is high and institutional memory low and stuff falls through the cracks daily only to blow up well down the road on someone else’s watch. You can apply this kind of thing to most other industries too. It’s sadly a key part of corporate cultural pathology now – the IBGYBG mentality.

  7. san_fran_sam says:

    There go those damn activist judges again. Making up the law as they go along. Thwarting capitalism and free markets. Maybe someone should read them the Constitution before we hang ‘em. Damn Islamo-Communists.

  8. teraflop says:

    Hope the court paid their taxes on time and didn’t contribute to any infusion-flavored hot water party.

  9. RW says:

    Finally, good and good! The banks can fix this which is good because we don’t need another system-level shock right now but its going to cost them a fair chunk of money and effort to gather and connect all the pieces and that is good again.

    I suspect the record keeping and conduct of MERS so sloppy the banks are still going to lose some cases because of flat-out missing data but frankly that’s okay too.

  10. Jack says:

    If, as some here have said, it is a relatively easy hurdle to overcome, why were the banks in court? Could it be that fixing this paper trail might be “easy” but horrendously voluminous? Or maybe not as “easy” as the courts think? I suspect that was the banks’ argument: “just clerical stuff, Your Honor(s)”?

    I thought lawyers liked to stay out of court. If the paperwork was easy to fix, why wasn’t it fixed and the problem solved?

    I’m not big on schadenfreude, but in this case…

  11. DiggidyDan says:

    Here’s a novel idea. . . why don’t the banks just let underwater mortgagors Re-fi at the record low rates without requiring them to get an appraisal and pay down the principal to get back to “acceptable” LTV. That would lower the mortgagors monthly payments as well as reduce their propensity to strategically default and the volume of apparently burdensome backlog on the banks.

    Oh wait, then they couldn’t gouge American taxpayers while receiving their bailout and ZIRP money from them and then lending it back to them at usurious rates given the current interest rate climate. . . and then pay themselves giant bonuses with the profits while committing blatantly illegal acts.

    O’r the Land of the free (money to bankers) and home of the brave (act of defiance in the face of common law)!

  12. Guambat says:

    Some are suggesting the door is open to cure defects, even fix MERS. Justice Gants said this: “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.” They can get it right for future foreclosures, but as far as fixing past foreclosures there’s laches, clean hands and damages issues, etc that may make that problematic. And for MERS, as I understand it, the main point of that system was to avoid “properly recorded” documentation.
    Massachusetts Supreme Ct upholds law, banks quiver

  13. Sechel says:

    I suspect there will be some that will be unhappy that this ruling did not go far enough. The decision specifically said the transfer of mortgage rights/ownership did not have to be recorded, only that a clear chain of transfer be communicated each time. This was not a decision against “endorsement in blank” or the use of MERS. The judge even suggested a remedy and I believe said a mortgage schedule would have sufficed.

  14. “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

    Wow. I must be getting to you. But what, exactly is the “scientific knowledge” pertaining to mortgage foreclosure law in Massachusetts?

    This case could not have been decided any other way than it was. The bank didn’t produce the documents it was asked to produce. The bank didn’t/couldn’t prove it had been assigned the mortgage when it conducted the mortgage foreclosure sale–which is the clear requirement of the law in Mass. So the court had to void the sale. As the judge provided, it doesn’t mean the borrower gets his house back. It just means that the foreclosure must be redone, but correctly.

    Nothing about this case should be fundamentally detrimental to the securitization industry. As the court pointed out, the entities claiming ownership to the mortgage and note didn’t even follow their own rules, nevermind that they didn’t follow the laws that their rules provide must be followed. It is a fallacy to believe that the securitization industry was collectively so stupid as to believe that it could devise and implement agreements abrogating applicable laws. Their agreements were written with applicable laws in mind. That they don’t always follow their own agreements should come as no surprise, either. There’s plenty of sloppiness around the edges of legality in any industry.

    This is a good example of how the legal system, in at least one state, so far as real property is concerned, works fine and that the mortgage securitization industry does not represent a threat to the “rule of law”. The bank tried to foreclose a mortgage that it only gained title to fourteen months after foreclosure and the court justifiably said no, because the law did not allow it. The bank should have known better, but fought the law. And the law won.

    I hope I was acceptably uncivil in my discourse. I am, after all, The (anonymous) Curmudgeon:)

  15. Transor Z says:

    Curmudgeon, that’s exactly right. The fact that observers were very concerned about rule of law prevailing in this and other cases speaks volumes to views of our legal system. The Land Court trial judge kicked some serious ass (Judge Long) in his decision and the SJC had his back; that’s awesome. It’s how it’s supposed to work.

    For all of my own doubts, this confirms what I’ve been saying for some time now: don’t f–k with the judiciary; they’re worse than the mafia. Good or evil, 90% of judges fall in the category of “people who don’t like to be surprised.” Many, many are former partners in top firms, extrapolate what you will about the personality type that position tends to attract (hint: Type A)… The cardinal sin is to embarrass a judge. Have it be shown letter that he/she issued an order based on a fraudulent allonge or doctored evidence.

  16. Transor Z says: