Update (10/18/11): The Court has issued its opinion, affirming the Land Court’s dismissal. For a full analysis, click here.
Update (9/10/11): The Court has suspended its rule for the issuance of the final opinion within 130 days of oral argument. Hopefully, the decision will come down soon.
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The Massachusetts Supreme Judicial Court heard arguments today in the case of Bevilacqua v. Rodriguez on whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner, after the U.S. Bank v. Ibanez landmark ruling in January. This case, which national legal experts are watching closely, may determine the rights of potentially thousands of innocent purchasers who bought property at foreclosure sales that have been rendered invalid after the Ibanez ruling.
Land Court Ruling
The case started in the Land Court where Judge Keith Long (ironically the same judge who originally decided the Ibanez case) ruled that the buyer of property out of an invalid foreclosure has no right to bring a “try title” action to establish his ownership rights because he never had good title in the first place. Judge Long’s ruling can be read here.
“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.
Whose Side Are They On Anyways?
Given the importance of the case, the SJC accepted it on direct appellate review. The oral arguments can be viewed here.
The positions taken by the case participants were curious to say the least. While the mortgage lobby argued in favor of the homeowner’s right to clear his title, the state Attorney General’s office argued against that position. Doesn’t the Commonwealth have a vested interest in assisting the thousands of innocent home buyers who have been impacted by the sloppiness of the mortgage and foreclosure industry? Maybe Attorney General Coakley didn’t want to give the impression that she was favoring the mortgage industry? But she’s short-sighted if she doesn’t realize that Ibanez title problems have hurt a lot of innocent folks. These people have transformed foreclosed properties from blighted eyesores into nice homes.
Tough Options
The AG feels that existing remedies are sufficient to assist home buyers clear Ibanez related title problems. From the front line trenches, I can tell you, they are often not. The remedies are: (1) sue the foreclosing lender for damages, (2) sue to force the lender to fix the deficiencies with the original foreclosure and re-foreclose, or (3) obtain a deed from the original owner, if the person is still even around. Options 1 and 2 are a non-starters. Homeowners want their titles cleared, not a huge legal battle with the likes of a U.S. Bank. And what about the lenders who are bankruptcy and out of business? What do homeowners do then? Option 3 has worked in cases I’ve handled. But what if the previous owner is long gone? Homeowners are out of luck then.
There is also a potential solution under a “foreclosure by entry theory” where home owners can wait 3 years from the foreclosure where their title will ripen into good title. However, in many of bungled foreclosures I’ve seen, the lenders have performed the entry improperly, so that option doesn’t work. And who’s wants to wait 3 years to sell or refinance their homes?
A Workable Solution?
The high court is being asked to craft a judicial solution to this huge mess. To backtrack, there has been legislation filed on these matters, to much initial fanfare, but it is still making its way through the legislative sausage making machine. If anyone has an legislative update, please comment below.
So isn’t it a good idea to have some kind of streamlined judicial remedy to help innocent home purchasers clear these toxic titles? I think so, and here’s why. First, the previous owners won’t get harmed because they defaulted on their mortgage, and in the vast majority of cases have no financial means or interest in making mortgage payments and returning to their foreclosed homes. If they want back in the game, well, pay your mortgage. Second, the innocent home buyers who purchased these toxic foreclosure titles won’t be left holding the bag and having to sue the foreclosing lenders many of whom are out of business. They won’t have to chase old owners across the U.S. either, often being forced to pay these owners ransom money to sign a deed over. Third, the title insurance companies won’t have to pay out huge claims and hire pricey attorneys to fix these messes, thereby keeping premiums level. Lastly, good public policy favors enabling blighted foreclosed properties to be sold and rehabilitated.
Better yet, get the banks to fund the system.
Broad Effect
Bevilacqua’s case could affect the securitized trusts that bundled mortgages and sold securities to investors. Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new home buyers who may hesitate to complete a purchase for fear of uncertain title. That may be especially so in states such as Massachusetts that don’t require court action to seize a house.
“The Massachusetts case will have significant repercussions in many states that allow nonjudicial foreclosure,” Alan White, a law professor, commented to Businessweek. “The decision in Bevilacqua will not only determine the fate of past foreclosure sale deeds, but hopefully provide guidance so that lenders and their lawyers can get it right going forward.”
The final ruling should be release in several months. We’ll report on it then. In the meantime, I will continue to help clear the titles of the true victims of U.S. Bank v. Ibanez.
