Battle Over Invalid Foreclosures May Shift To Evictions In Housing Courts
In the closely watched case of Bank of New York v. Bailey (embedded below), the Massachusetts Supreme Judicial Court ruled on August 4, 2011 that the Housing Court may hear a homeowner’s challenge that a foreclosing lender failed to conduct a foreclosure sale in accordance with state law and under the now seminal U.S. Bank v. Ibanez decision. Previous to this decision, foreclosing lenders and their attorneys were quite successful in evicting homeowners even where there were defects in the foreclosures.
A Subprime Eviction
KC Bailey obtained a mortgage in 2005, which appears to have been of the sub-prime vintage (America’s Wholesale Lender), on his home in Mattapan. Merely two years later, he defaulted, and the lender commenced foreclosure proceedings. Bailey claimed that the lender never provided him with any notice of the foreclosure, and he first learned about it when an eviction notice was duct taped to his fence. The lender started an eviction in the Boston Housing Court. Bailey defended on the basis of the alleged defective notice. The Housing Court judge ruled in favor of the lender, and the case went up to the SJC.
Ruling: Housing Court May Hear Foreclosure Challenge
The SJC first ruled, in a case of first impression, that the Housing Court had jurisdiction to consider whether the lender had properly completed the foreclosure sale and provided adequate notice to Bailey. The court noted that such a challenged was “long-standing.” Next, the Court ruled that all foreclosing lenders seeking eviction must show that it has completed the foreclosure sale in full compliance with state law. This is a change in prior practice as lenders would typically submit the foreclosure deed as evidence of good title and ownership without additional investigation.
Impact: More Difficult To Evict, But More Opportunity For Loan Mods
This decision is going to make it more difficult and expensive to evict foreclosed homeowners and get these properties off lenders’ books. On the positive side, it may give homeowners more leverage to negotiate loan modifications to enable them to stay in their homes and recover from financial distress. Evictions based on faulty foreclosures will be nearly impossible to complete and could potentially drag on for months if not years.
This decision will also have a substantial impact on the already over-burdened Housing Court system. If you have ever been to the Thursday summary process session at Boston or Worcester Housing Court, it’s akin to a refugee camp, with hundreds of cases lined up and families facing homelessness. It’s very sad. I’m sure the judges will push lenders and homeowners dealing with faulty foreclosures to resolve their differences out of court, or tell them to wait in back of the line for trial assignment.