Consumer Law

Massachusetts SJC Voids Foreclosure Sales with Bad Transfers

By Alan White

The Massachusetts Supreme Judicial Court today released its opinion in U.S. Bank v. Ibanez.  In two related mortgage cases, the SJC voided nonjudicial foreclosure sales because the securitized trust selling the homes did not have a valid chain of title to the mortgages.  The decision includes three key holdings that will have a broad impact on nonjudicial foreclosures.

The trustees in both cases claimed that the pooling and servicing agreement, taken together with the blank mortgage assignment prepared by the record mortgage holder, were sufficient.  The SJC explicity rejected the theory of "bearer mortgages":

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.

Of course, the foreclosing servicer could have avoided this problem by filling out the blank assignment and recording it BEFORE the foreclosure sale, but did not find it expedient to do so.

Second, the court held that in Massachusetts at least, the mortgage does not literally follow the Note.  In other words, the fact that the trusts claimed to hold the mortgage Notes in question did not mean that they could foreclose without having a valid mortgage assignment.  Owning the Note means only that the trusts were entitled to sue for an assignment of the mortgage from its current holder.

Finally, the SJC held that a mortgage assignment cannot be retroactive, i.e. cannot be executed and delivered after a foreclosure sale to validate the sale. 

The Court also declined the banks' unusual request to make the ruling prospective only:  "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."

Full post as published by CL&P Blog on January 07, 2011 (boomark / email).