Consumer Law

What Is The Legal Status Of A Property Bought After An Unlawful Foreclosure?

By Brian Wolfman

Alan White and I blogged last week about the decision from the Massashusetts Supreme Judicial Court in U.S. Bank v. Ibanez that nixed foreclosures by major banks because the banks could not document title to the properties. Now, Paul McMorrow has penned this article in the Boston Globe on the ruling discussing, among other things, the legal status of property bought after an insufficiently documented foreclosure. He writes:

Last week's Supreme Judicial Court decision, in which the court upended a pair of Springfield foreclosures and upbraided Wells Fargo and US Bank for maintaining sloppy records is great news for homeowners facing foreclosure. Mortgage-servicing banks, which were in the habit of trading mortgages around like cheap baseball cards, will be forced to slow the pace of foreclosures even more, and carefully verify that they actually own the mortgages on the properties they want to foreclose on. But the decision brings uncertainty to buyers of foreclosed properties ? buyers who might not have clear title to their homes anymore. * * * Because of the Ibanez case, and the staggering volume of sloppy paperwork that accumulated during the housing boom and bust, those other 44,000 foreclosures are suddenly subject to new scrutiny. It?s highly unlikely that just two properties, out of more than 44,000, were seized based on deficient records. I took a random sample of 30 foreclosure deeds from Chelsea (one of the cities hit hardest by foreclosures) since the beginning of 2006. Of those 30 foreclosure cases, 10 had paperwork on file with the Registry of Deeds that raised the sort of chain-of-custody concerns at the heart of the Ibanez decision. In one case, no mortgage was on file with the registry. Another showed no paperwork assigning the note to a mortgage servicer. In other cases, mortgage originators didn?t sign off on documents transferring the notes into mortgage pools, or transfer paperwork was filed after a foreclosure occurred. All of the properties have since been re-sold. * * * [The decision in Ibanez] presents a series of terrible questions to anyone who bought a foreclosed house from a big bank. Among them: Is my mortgage valid? Will I be able to refinance or sell my home? Do I even really own my house?

I am not an expert on these issues, and perhaps there are easy answers to these questions. Are there?

Full post as published by CL&P Blog on January 14, 2011 (boomark / email).