Ibanez Update: Massachusetts Land Court Decision Invalidates Foreclosures Based On Post-Sale Assignments

by Rich Vetstein on August 27, 2009 · 17 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Breaking News (1.7.11): Mass. Supreme Court Upholds Ibanez Ruling, Thousands of Foreclosures Affected

Update (2/25/10)Mass. High Court May Take Ibanez Case

Breaking News (10/14/09)–Land Court Reaffirms Ruling Invalidating Thousands of Foreclosures. Click here for the updated post.

In late March of this year in the case of U.S. Bank v. Ibanez, Massachusetts Land Court Judge Keith C. Long issued one of the most controversial rulings in recent years which has called into question hundreds if not thousands of foreclosure titles across Massachusetts. The Ibanez decision is what happens when you mix equal parts of a deteriorating real estate market with Wall Street’s insatiable demand for mortgage back securities with sloppy lending practices and outdated state foreclosure statutes.

The Facts

In the Ibanez case, the Land Court invalidated two foreclosure sales because the lenders failed to show proof they held titles to the properties through valid assignments. In modern securitized mortgage lending practices, the ownership of a mortgage loan may be divided and freely transferred numerous times on the lenders’ books, but the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind. The Land Court ruled that foreclosures were invalid when the lender failed to bring  the ownership documentation (the assignments) up-to-date until after the foreclosure sale had already taken place. This was true even if the lender possessed an assignment with an effective date (i.e., backdated) before the first foreclosure notice.

The net effect of the Ibanez decision is to call into serious question the validity of any foreclosure where the lender did not physically hold the proper paperwork at the time it conducted its auction. This has already caused significant uncertainty in the ownership of many properties that have already been foreclosed and are awaiting foreclosure.

In deciding the case, Judge Long took a very pro-consumer approach to the foreclosure law, persuaded that the apparent title defect would chill a foreclosure sale and harm debtors:

None of this is the fault of the [debtor], yet the [debtor] suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents any time it chooses. And who can say that problems won’t be encountered during this process?

Also of significance was that Judge Long rejected a customary Massachusetts conveyancing standard which provides that recording out of order assignment documents does not create a title defect. I think Judge Long got it wrong as he elevated form over substance and didn’t give enough credence to the legal principle that the note follows the mortgage, but hey, I’m just a lowly attorney.

What now?

The Ibanez ruling is not final as the lenders have filed a motion to reconsider with the Land Court. And now the heavy hitters have gotten involved. The Real Estate Bar Association of Massachusetts has taken the unusual step of filing a friend of the court brief, urging the Land Court to reconsider its decision.

On the consumer side, the National Consumer Law Center and well known consumer class action attorney Gary Klein have joined the fray and filed a brief. Attorney Klein has also filed a class action in federal court to challenge completed foreclosures and future foreclosures on the same facts as the two foreclosures voided in Ibanez.

As of now, Judge Long of the Land Court has not made a final decision which should come in a matter of weeks. I will update you when the ruling comes down. Either way, in my opinion, given the widespread impact of this case, it is destined for the Massachusetts Supreme Judicial Court. It’s hard to say how the SJC will come down on this.

What can you if you are affected by the Ibanez ruling?

Well, if you are a homeowner facing foreclosure, consider Ibanez an early Christmas present. You now have a powerful tool to argue for the invalidation of the foreclosure sale. (I won’t comment on the fact that you still owe the lender money).

If you are contemplating purchasing a property out of foreclosure or are selling a previously foreclosed property, pray that there’s an existing title insurance policy on the property, and ask the title company to insure over the issue. Some are willing to do this. Others are not. The other option (albeit expensive) is to hire an attorney to file a Land Court “quiet title” action to validate the proper assignment of the mortgage loan, assuming you can track the documents down and they were not backdated. In Ibanez, the lender couldn’t produce the assignment until 14 months after the auction. The last option, and unfortunately probably the safest bet, is to sit, wait and see how the Land Court and appellate courts will rule ultimately. Not the answer you probably want to hear, but it’s reality.

Please contact Richard D. Vetstein, Esq. for more information.

  • kookiebella970

    Thought-provoking article ! I learned a lot from the details , Does anyone know if I might be able to locate a template MA Form 501 copy to edit ?

  • Paul Nakian

    See comment above. Thanks

  • Paul Nakian

    I’m just researching this for the first time today (11/17/10). Has Ibanez been upheld by higher court? I possibly will find the answer when I switch to–check out– other sites, but thought I’d post this in the intermim. If anyone is reading this and has the answer, I’ll check back! Many thanks. Paul Nakian (CT)

    • http://www.vetsteinlawgroup.com Rich Vetstein

      Paul, no decision yet. You’ll hear it here first when the ruling comes down.

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  • john

    Good evening Rich,
    Could you tell me if there is anything new with this. Do you have any insight or opinions on which way it will go ?
    Thank You

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      John, I hear that the case is in a holding pattern. The lenders have hired the super law firm of KL Gates for the appeal. The attorneys are currently assembling the record for the appeal. I would bet that the lenders will file an application for direct appellate review with the SJC. Given the current make-up of the SJC, my prediction is that they will side with the consumer on this.

      It may not matter that much as lenders have been re-doing their foreclosures with the assignments up to date.

      Richard D. Vetstein, Esq.

  • Becky

    Have there been any recent updates to this ruling? I have been trying to purchase a foreclosed home for 4 months now and have been unable to because of this situation. The previous owners want nothing to do with the property and it seems like a big waste of time!

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      The lenders have appealed the Land Court’s ruling. So the case will now go to the Appeals Court. The appellate process will take many months to resolve, unfortunately.

  • John

    I purchased a forclosed home last November. I tried to re-fi recently and two hours prior to closing the attorney called and told me we could not close and he was not sure when it would close if ever. Thats when I learned of this mess. After reading many articles on the subject .. I have a much better understanding of what is going on.
    I have spoken to several attorneys and RE Brokers and the responses from them differ on my situation. Most tell me that I am the owner of record and I dont have a single thing to worry about. And others say that I may not own the home.
    When I purchased the house I was given a mortgage and Title Insurance.
    The Title Ins. Co. has committed to insuring the Re-Fi but the bank wont close .
    Do you have any thoughts on my situation ?

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  • http://richrosa.typepad.com/mass_foreclosed Rich Rosa

    Another option may be to ask the owners that were foreclosed on to sign a release deed.

    • http://www.vetsteinlawgroup.com Richard D. Vetstein, Esq.

      Assuming you can find them…


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