Mortgages

Massachusetts Registries of Deeds Planning Class Action Against MERS To Recoup Recording Fees

by Rich Vetstein on February 15, 2012 · 1 comment

in Liens, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects

Banker and Tradesman is reporting that Bristol, Plymouth and Norfolk County Registrars of Deeds plan to file a class action suit against Mortgage Electronic Registration System (MERS), aiming to recoup land recording fees they believe they are owed. B&T reporter Colleen Sullivan reports that:

The counties are being represented by Bernstein Liebhard LLP, a New York firm specializing in class actions which has already brought a similar suit on behalf of all the counties of Ohio. John Mitchell, a Bristol County commissioner, said the board considered pursuing a claim last year, but decided to hold off until the national mortgage settlement between the banks and the states’ attorneys general was resolved. But as it became clear that the vast bulk of the funds in that settlement would go towards foreclosures and loan modifications, he said the county decided to pursue the matter. Bristol County officials estimate the county may have lost out on millions of dollars in fees over the past decade because of the alleged use of MERS as a kind of private registry among large banks. A rough calculation prepared by county officials last year came up with a figure of between $3.1 million and $6.5 million lost, using a conservative estimate of one or two additional non-recorded assignments per MERS- registered property.

“Over the last month, we were approached by [Bernstein Liebhard] and other firms….they already had Norfolk and Plymouth, and we thought it made sense to get as many counties together,” Mitchell told Banker & Tradesman. Mitchell said he wasn’t sure if the remaining Massachusetts counties with county-level governance would join the suit. The relatively small size of counties like Nantucket and Dukes would mean far smaller sums at stake.

County-level governance was abolished in Massachusetts in eight of the state’s 14 counties around the turn of the century. Only Barnstable, Bristol, Norfolk, Plymouth, and Dukes retain county boards; Nantucket has a combined city-county government. The remaining boards retain the right to bring independent actions in court.

“We’re familiar with their claims, and there’s no merit to them,” said Janis Smith, spokeswoman for MERS. Smith said that by registering under the MERS name, banks fulfill the purpose of having a registry, that is, alerting the public of any existing leins on a property. “MERS does not eliminate or replace county records, and the recording fees are paid,” she said. “The MERS business model is legal in all 50 states and has been affirmed by Massachusetts courts.”

“I commend the counties,” said John O’Brien, the registrar of deeds in Essex County, who has been an active critic of MERS for the past two years. O’Brien was the first public official in Massachusetts to calculate how much the MERS system may have cost the state in allegedly lost recording fees, coming up with a figure of $22 million for his county alone. “If I had the authority, I would have filed this suit two years ago.”

The other registries fall under Secretary of State William Galvin’s jurisdiction. O’Brien said he plans to petition the legislature to recover his ability to bring suit on behalf of Essex County as one of its elected officials.

The Registrars are reportedly incensed that the MERS private recording system has deprived them of millions of recording fees. We will keep tabs on this important case.

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Breaking News: Massachusetts Joins National Foreclosure Abuse Settlement

by Rich Vetstein on February 9, 2012 · 1 comment

in Foreclosure, Massachusetts Property Values, Mortgage Crisis, Mortgages

Updated (2.9.12 6:30pm)

In the largest national settlement since the tobacco litigation, the Boston Globe is reporting that Massachusetts Attorney General Martha Coakley is expected today to sign on to a settlement brokered by attorneys general nationwide with five major US lenders over the banks’ role in the country’s foreclosure crisis. As we wrote about here, in December of last year AG Coakley pulled out of the settlement and brought a historical lawsuit against the big lenders over foreclosure abuses.

As reported in the Globe, Coakley has been been negotiating for days with lenders over the pact, which has been months in the making. Massachusetts is one of only a few states that have yet to agree to the settlement, which reportedly could total between $25 billion and $30 billion. The money is being promised by Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citibank, and Ally Financial Inc.

According to Coakley’s office, Massachusetts estimated total share of the settlement is nearly $318 Million:

Massachusetts borrowers will receive an estimated $224 Million in benefits from loan term modifications and other direct relief.
Massachusetts borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse would qualify for $14.6 Million in cash payments to borrowers.
The value of refinanced loans to Massachusetts underwater borrowers would be an estimated $32.7 Million.

Banker and Tradesman is reporting that homeowners still living in underwater properties may get up to $20,000 each for principal reductions. That may not be nearly enough for many victims of foreclosure abuses. It’s unclear how much money will be available for much needed mortgage principal reduction and loan modifications.

However, the state was told yesterday it could sign on to the pact without giving up its right to litigate other issues related to the five lenders and how they conducted foreclosures, according to the Globe. Under terms of the tentative agreement, Coakley apparently will still be able to pursue claims against MERS and lenders for foreclosures in Massachusetts without having the proper paperwork.

For more information, here is the Attorney General’s Press Release.

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The SmarterBorrowing.com Weekly Massachusetts Mortgage Rate Advisory (Feb. 7, 2012)

by Rich Vetstein on February 7, 2012 · 0 comments

in Fannie Mae, HUD, Mortgages

by Brian Cavanaugh, Senior Mortgage Banker, RMS Mortgage and SmarterBorrowing.com

Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.

If I were considering financing/refinancing a home, I would….

LOCK if my closing was taking place within 7 days…

LOCK if my closing was taking place between 8 and 20 days…

FLOAT if my closing was taking place between 21 and 60 days…

FLOAT if my closing was taking place over 60 days from now…

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed

There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week. There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.

Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.

Treasury Auctions Ahead

The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us a better indication of demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.

Unemployment Numbers

With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.

The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.

Consumer Sentiment

February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 74.0, down from January’s final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.

Are you a possible Massachusetts First Time Homebuyer?
Do you have a Real Estate client inquiring about current Mortgage Rates?
Do you have any Refinancing questions?
Should you be thinking about Refinancing out of your ARM (Adjustable Rate Mortgage)?
Have your Real Estate clients been Pre Approved?

bc@smarterborrowing.com 617.771.5021

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Supplemental and Friend-Of-The-Court Briefs Filed In Eaton v. Federal National Mortgage Ass’n (Fannie Mae)

by Rich Vetstein on January 31, 2012 · 14 comments

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

Update (6/22/12): SJC Issues Final Opinion (click to read)

For interested legal observers of the foreclosure crisis, it really doesn’t get any better than this.

Supplemental and amicus curie legal briefs have been filed in much awaited case of Eaton v. Federal National Mortgage Ass’n, and they make for great reading. The briefs were filed in response to the SJC’s concern, mid-appeal, over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. Click here for our past posts on the case.

Notably, the Federal Housing Finance Association, the congressional conservator of the bailed out Fannie Mae and Freddie Mac, filed a rare amicus brief and laid a shot across the SJC’s bow. It suggested that the congressional bailout law would trump an adverse decision by the SJC to the extent that it interfered with Fannie and Freddie’s mission to secure the health of U.S. secondary mortgage market. This is the first time that I’m aware of the federal agency intervening in a particular foreclosure case.

Not surprisingly, Fannie Mae, FHFA, and REBA (Real Estate Bar Ass’n) and the other industry groups argue against a retroactive application of an adverse ruling, claiming that it would have a disastrous effect on homeowners with foreclosures in their titles.

Eaton (which cited this Blog), the legal services groups and foreclosure defense groups say that the sky will not fall down if the unity rule is applied retroactively; indeed, foreclosures in Mass. have increased post-Ibanez. They also argue that the law is the law, and it’s the lenders fault for creating a securitization scheme in violation of the law, so they should have to deal with the repercussions.

I have also attached REBA’s and Attorney Glenn Russell’s (lead counsel in U.S. Bank v. Ibanez) submissions on the recent Land Court ruling in Wells Fargo v. McKenna where the Land Court Judge Gordon Piper held that Massachusetts does not require the unity rule.

A final decision is expected in February or March.

Click here for the particular brief:

Real Estate Bar Ass’n (REBA) Brief REBA Letter re. McKenna case

Land Title Ass’n Brief

WilmerHale Legal Services Brief

Appellee Henrietta Eaton Brief (citing this Blog)

Fannie Mae Brief

Federal Housing Finance Ass’n Brief

Ablitt Schofield PC Foreclosure Law Firm Brief

McDonnell Property Analytics Brief

Professor Adam Levitin Brief

National Foreclosure Defense Group Brief

Attorney Glenn Russell Foreclosure Defense Brief (Part 1 and Part 2)

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

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Buyer Loses $31,000 Deposit After Refusing To List Current Residence For Sale As Financing Condition

by Rich Vetstein on January 30, 2012 · 2 comments

in Massachusetts Real Estate Law, Mortgages, Offer To Purchase, Purchase and Sale Agreements, Real Estate Litigation

Standard Mortgage Contingency Language At Issue

I recently came across a very interesting and scary case from the Appeals Court, Survillo v. McDonough No. 11–P–290. Dec. 2, 2011. (It’s technically an “unpublished” opinion but it’s available to the public). The case underscores how carefully attorneys must craft the mortgage contingency to protect the buyer’s deposit in case financing is approved with adverse conditions.

“Prevailing Rates, Terms and Conditions”

The buyers, Mr. and Mrs. Survillo, submitted the standard Offer To Purchase the sellers’ home in Walpole. The offer provided it was “Not subject to the Sale of any other home.” The sellers accepted the offer. The buyers received a conditional pre-approval from a local bank for a first mortgage in the amount of $492,000. The pre-approval also stated that anticipated loan was “[n]ot based on sale of any residence.”

The parties then entered into the standard form purchase and sale agreement (P & S), with the typical mortgage contingency provision for a $429,000 mortgage loan:

“In order to help finance the acquisition of said premises, the [buyers] shall apply for a conventional bank or other institutional mortgage loan of $492,000.00 at prevailing rates, terms and conditions. If despite the [buyers] diligent efforts a commitment for such loan cannot be obtained on or before October 5, 2009, the [buyers] may terminate this agreement by written notice to the [sellers] and/or the Broker(s), as agent(s) for the [sellers], prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto “

Change In Circumstances: Lender Requires Piggyback Loan & Buyers List Their Residence

Due to the buyers’ debt to income ratios, the lender required that the loan be structured as a “piggyback” — a first mortgage of $417,000 and second mortgage of $73,400, and with the condition that the buyers listing their primary residence for sale prior to the loan closing. The buyers absolutely did not want to list and seller their residence, so they wanted out of the deal.

On the last day of the extended financing deadline, the buyers timely notified the sellers that they had “not received a loan commitment with acceptable conditions,” and attempted to back out of the agreement under the mortgage contingency provision. Ultimately, with the buyers refusing to sell their home, the bank denied the buyer’s the mortgage application based on the fact that the “borrower would be carrying three mortgage payments and the debt to income is too high.”

Focus On “Prevailing Terms” Language

The sellers refused to return the deposit, and litigation over the deposit ensued.

The Court framed the case as follows: “Before the extended mortgage contingency deadline of October 21, the buyers received a commitment from the bank for two mortgages totaling $492,000. The P & S’s mortgage contingency was accordingly satisfied unless the bank’s requirement that the buyers list their home for sale was not a “prevailing” term or condition.”

The court started with the assumption that “the typical loan condition for most borrowers is to require them to sell an existing home before the new loan closes. The condition here required only that the buyers list, not sell, their home and it was accordingly not a typical condition.” The buyers argued that because the condition was unusual, it was not a “prevailing” condition within the meaning of the contingency clause of the P & S, despite the fact that the condition was more favorable to them than the standard condition. The court flat out rejected that argument, citing prior rulings that terms of a mortgage contingency presuppose that the buyers will accept commercially reasonable loan terms. If less is required, the condition becomes an option. The court also noted that the buyers failed to notified the sellers that they were unwilling to list or sell their existing home, nor did they insert a proviso to that effect into the mortgage contingency clause. Subsequent events suggested that if the buyers had timely disclosed their intentions to the bank, the loan would have been disapproved, which may well have given the buyers the shelter they sought under the mortgage contingency clause.

The court ruled against the buyers who had to forfeit their $31,000 deposit.

An Ounce of Prevention Is Worth A Pound of Cure

I’m not sure who is to blame here, the buyer’s attorney or the buyers themselves. Probably both.

From a legal drafting approach and as the court pointed out, the buyer’s attorney could have insisted on language into the mortgage contingency provision that the buyers’ financing could not be conditioned on the listing or sale of the buyers’ present residence. After all, the language was in the Offer, so it could have easily been carried over into the P&S. There was no indication from the decision that this was raised or negotiated.

It also seems apparent that the buyers were not particularly up front with anyone on their insistence that they would not list and sell their current residence. If they had been more forthcoming about that, perhaps they could have avoided this situation.

A commenter on Boston.com also places some blame on the loan officer: “Not all pre-approvals are created equal. For a few minutes of work and adherance to a common standard of practice by the mortgage professional, a true pre-approval is supported by a credit report, the main criteria for ability to qualify for a mortgage. This is generated in a few seconds, and the pre-approval letter usually states subject to verification of income, assets, and property appraisal. Had this been done, THE DEBT TO INCOME RATIO ISSUE WOULD HAVE SURFACED EARLY.”

Based on the loan amount, this mistake or gamble cost the buyers around $31,000 plus legal fees. Ouch!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. Please contact him if you need assistance with a Massachusetts purchase or sale transaction.

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Breaking News: SJC Concerned Over Potential Disastrous Impact On Foreclosure Titles In Eaton v. Fannie Mae

by Rich Vetstein on January 9, 2012 · 11 comments

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

Update (6/22/12): SJC Issues Final Opinion (click to read)

The Supreme Judicial Court has just issued an unusual order in the very important Eaton v. Federal National Mortgage Association case, indicating its deep concern over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. The Court is seeking supplemental briefing and friend-of-the-court briefs on these decisive issues. A final decision is expected in February or March.

As outlined in my prior post on the case, the Court is considering the controversial question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. This is the essence of the “produce the note” defense. In a securitized mortgage pool, in which over 60% of all U.S. mortgage are part, the note and mortgage are separated between securitized trusts, mortgage services or Mortgage Electronic Registration System (MERS).

If the SJC rules against lenders, it could render the vast majority of securitized mortgage foreclosures defective, thereby creating mass chaos in the Massachusetts land recording and title community. If you thought U.S. Bank v. Ibanez was bad, Eaton v. FNMA could be the Nuclear Option.

The text of the order is as follows:

ORDER :Having heard oral argument and considered the written submissions of the parties and the various amici curiae, the court hereby invites supplemental briefing on the points described below. Supplemental briefs shall not exceed fifteen pages and shall be filed on or before January 23, 2012. 1. It has been claimed that requiring a unity of the mortgage and the underlying promissory note, in order for there to be a valid foreclosure, would cloud any title that has a foreclosure in the chain of title, regardless of how long ago the foreclosure occurred. The parties are invited to address whether they believe that such a requirement would have such an effect, and if so, what legal or practical measures exist that might limit the consequences of such a requirement. 2. It also has been suggested that, if the court were to hold that unity of the mortgage and note is required under existing law, the court’s holding should be applied prospectively only. The parties are invited to indicate on what authority they believe (or do not believe) the court could make such a holding prospective only.

Reading into this order, perhaps a majority of the justices are already leaning towards ruling against the lenders and want to limit the potentially disastrous effect it could have on existing titles and pending and future foreclosures. Interestingly, lenders in the U.S. Bank v. Ibanez case asked the SJC to apply its ruling prospectively, but it declined, thereby leaving hundreds to thousands of property owners and title insurers to clean up toxic foreclosure titles.

In my opinion, an adverse ruling against lenders in Eaton could be the apocalyptic scenario, rendering open to challenge any title with a previous foreclosure in it and inserting a fatal wedge into the current securitized mortgage system. Hopefully this time around the Court is more sensitive to how its ruling will impact the real estate community. It will be interesting to see how this case continues to develop. We will continue to monitor it.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

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2011 Massachusetts Real Estate Law Year In Review

by Rich Vetstein on December 30, 2011 · 0 comments

in Foreclosure, Homestead, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Real Estate Litigation, Title Defects, Trespass

It’s time again for our annual review of highlights in Massachusetts Real Estate Law for the past year. It’s been a very busy year. From the foreclosure fallout, to Occupy Boston, to the new homestead law, there’s been lots to report on. We’ll start in order of importance this year.

SJC Decides Controversial U.S. Bank v. Ibanez Case

2011 started off with a bang with the Supreme Judicial Court’s decision in the widely publicized foreclosure case of U.S. Bank v. Ibanez. Our coverage of the case can be read here and here. The Court’s ruling was rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of securitized mortgages bought and sold numerous times on Wall Street. The Court held that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts. The ruling left many innocent homeowners and title insurance companies scrambling to deal with titles rendered defective due to the ruling. The fallout continues to this day with no resolution by lawmakers.

AG Coakley Sues Major Banks For Foreclosure Fraud

2011 was certainly the Year of Foreclosure Fallout. Earlier in December, Attorney General Martha Coakley filed a huge consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought “to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007.” The case remains pending.

Massachusetts Real Estate Attorneys Win Legal Victory Ensuring Their Place At Closing Table

In the closely watched case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS), Massachusetts real estate attorneys won a huge legal victory reaffirming their long-standing role to oversee the closing process and conduct closings in Massachusetts. The case pitted Mass. attorneys vs. out of state notary companies who were trying to conduct notary real estate closings without trained attorneys. Siding with the consumer, the court required “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.”

New Homestead Law

This year saw the passing of the long-awaited comprehensive revision to our outdated Homestead Act. Here is a summary:

All Massachusetts homeowners receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
Homesteads are now available on 2-4 family homes, and for homes in trust.
The existing “elderly and disabled” homestead will remain available at $500,000.
If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse. Homesteads now pass on to the surviving spouse and children who live in the home.
You do not have to re-file a homestead after a refinance.

More Foreclosure Fallout With Bevilacqua and Eaton Cases

The U.S. Bank v. Ibanez case was the start, but certainly not the ending of the foreclosure fallout. The case of Bevilacqua v. Rodriguez considered property owners’ rights when they are saddled with defective titles stemming from improper foreclosures. The ruling with a mix of good and bad news. The bad news was that victims of defective foreclosure titles could not seek redress through the Land Court “quiet title” procedure. The good news was that the court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles.

Eaton v. Fannie Mae is the next foreclosure case awaiting final decision. As outlined in my prior post on the case, the Court is considering the very important question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Using the “produce the note” defense which has been gaining steam across across the country, the borrower, Ms. Eaton, was able to obtain an injunction from the Superior Court halting her eviction by a foreclosing lender. The SJC heard arguments in the fall and is expected to issue a final ruling early in 2012. A ruling against lenders would be as big, or even bigger, than the Ibanez case.

Lastly, another case to watch for in 2012 is HSBC Bank v. Jodi Matt which will decide whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. The case is should be ready for oral argument in late winter, early spring 2012.

Judge Evicts Occupy Boston Protesters

What would 2011 be without a homage to the Occupy Movement! Citing property and trespass law from centuries ago, Massachusetts Superior Court Justice Frances A. McIntyre issuing a ruling clearing the way for the eviction of the Occupy Boston protest which has taken over Dewey Square in downtown Boston. Our coverage of the ruling is here.

Well, that’s it for a very busy year 2011 in Massachusetts real estate law! The year 2012 is expected to be just as busy, and of course, we’ll be on top of all the breaking news here on the Blog.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

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Inertia Is Not An Option: Superior Court Rules BofA Can’t Drag Heels On HAMP Loan Modification

by Rich Vetstein on December 24, 2011 · 0 comments

in Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Real Estate Litigation

First Reported Mass. Ruling On Home Affordable Modification Program Liability

The fallout from the sub-prime and mortgage crisis continues in Massachusetts courts, and some judges are reacting in favor of sympathetic borrowers. In Parker v. Bank of America, Massachusetts Superior Court (Dec. 15, 2011), Judge Thomas Billings considered what is unfortunately now a very common fact pattern in borrowers’ quest to have their lenders approve loan modifications, or loan mods. The ruling is embedded below.

A Common Story of Lost Paperwork and Ineptitude

In 2007, Valerie Parker granted first and second mortgages on her home in Lowell to Bank of America. She paid the loans on time for the first 24 months. As the economy worsened, however, she anticipated difficulty in making payments, and so she called BofA for advice. The bank told her that because the loan was not in default they could not help her, and that she would have to cease payments if she wanted their assistance. (Is this not one of the most ridiculous, yet common, responses lenders give to troubled borrowers?)

After a lengthy period of lost and repeatedly re-submitted paperwork, BofA informed Parker she qualified for HAMP (Home Affordable Modification Program) relief, underwent a lengthy financial audit over the telephone, and was promised followup documentation and a halt to further collection and foreclosure efforts. BofA repeatedly lost her paperwork; she had to submit and re-submit documents; and she spent hours at a time on hold, waiting to speak with a human being. She did, however, receive the bank’s verbal assurance that she was “pre-qualified” for the HAMP program and that confirmatory paperwork would be forthcoming. BofA never sent the promised documentation, however, and refused to approve a loan modification. Lengthy and repeated telephone calls produced no documents, no approval, and no progress. Finally, BofA told Parker there was no record of her having qualified for the program. She requested and was given the opportunity to reapply, but the documentation still never came. All while, the collection calls continued and the late fees kept mounting, and the loan was at some point placed in foreclosure.

“Inertia Is Not An Option”

Parker asserted a number of different claims against BofA, but the two which stuck, according to the judge, were her claims for fraud and breach of contract. The judge went through a lengthy history of the recent sub-prime crisis, the TARP bailout plan, and the HAMP program, concluding that BofA’s actions against Parker were unfair under these consumer protection programs.

In a great line, the judge said that “inertia is not an option” when a lender considers a borrower’s legitimate request for a HAMP loan modification. Under HAMP, there are strict deadlines by which lenders must respond to a borrower’s application, and foreclosure activity must stop during the consideration period. The judge lamented that federal regulators had failed to pass enforcement mechanisms to protect borrowers from lenders dragging their heels on loan modifications. Noting that borrowers have no other forum in which their claims may be heard and adjudicated other than the courts, Judge Billings held that Parker could claim “third party beneficiary” status of BofA’s participation in the TARP/HAMP program–diverging from several colleagues opinions to the contrary.

Lastly, in a boon for borrowers, the court left open whether lenders could face Chapter 93A liability — with its triple damages and attorneys’ fees — for similar conduct. While Parker’s counsel dropped the ball by not sending BofA a required demand letter prior to filing suit, this option may be open for other borrowers.

Impact of Ruling

This is one of the first court rulings siding with a borrower on a lender’s liability for dropping the HAMP ball. Clearly, this particular judge is well-educated on what’s been going on with the mortgage crisis and was likely fed up with lenders’ shoddy treatment of some borrowers. But is his legal reasoning correct? The judge can certainly be accused of legislating from the bench here, as the vast majority of other court rulings have rejected his reasoning. (At least 6 opinions by my count, mostly from federal court).

But his reasoning does have some intrinsic appeal inasmuch as HAMP is clearly a consumer driven program and the judge is basically saying that lenders must treat HAMP applicants fairly in accordance with the program rules. If what Ms. Parker says is true, there is a minimum level of fairness that she did not receive. But the problem is what if she simply doesn’t qualify for a loan modification? And every lender who entertains a modification request can be subject to civil liability for rejecting an applicant? Would that chill HAMP modifications even more? Rest assured, we will see more cases like Parker reaching the Superior Court and the Massachusetts appellate courts in the near future.

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Richard D. Vetstein, Esq. is an experienced Massachusetts Real Estate Litigation Attorney who has litigated hundreds of cases in the Massachusetts Land and Superior Courts. For further information you can contact him at info@vetsteinlawgroup.com.

Parker v. Bank of America (BofA)

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Massachusetts Weekly Mortgage Rate Report (Dec. 20, 2011)

by Rich Vetstein on December 20, 2011 · 0 comments

in Massachusetts Real Estate Law, Mortgages

A Guest Post by Brian Cavanaugh of SmarterBorrowing.com.

Inquire within for current Mortgage Rates or Guidelines bc@SmarterBorrowing.com 617.771.5021

Overall, I am expecting to see some movement in the markets and mortgage rates, especially if we get some surprising results from the week’s data or news about Europe’s financial crisis. Despite the holiday season, we need to keep a cautious approach toward rates because we are likely to see very thin trading (light volume) as a result of many traders keeping short hours or home for the holiday altogether. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see.

The least important day for mortgage rates will likely be tomorrow unless something drastic happens overnight. We will probably see the most movement in rates Friday, but Thursday’s economic data can also move mortgage pricing noticeably. With the Christmas holiday next weekend, it is being observed next Monday. The bond market will close early this Friday afternoon ahead of the holiday and will reopen next Tuesday morning. Accordingly, proceed cautiously this week if still floating an interest rate and closing by the end of the year. proceed cautiously this week if still floating an interest rate and closing by the end of the year.

If I were considering financing/refinancing a home, I would….

LOCK if my closing was taking place within 7 days…

LOCK if my closing was taking place between 8 and 20 days…

LOCK if my closing was taking place between 21 and 60 days…

FLOAT if my closing was taking place over 60 days from now…

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed.

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Weekly Massachusetts Mortgage Rate Lock Report (Dec. 12, 2011)

by Rich Vetstein on December 12, 2011 · 0 comments

in Fannie Mae, FHA, Mortgages

Brian Cavanaugh of SmarterBorrowing.com is back with his Massachusetts Weekly Mortgage Rate Update. Scroll to the bottom for Brian’s valuable Massachusetts Mortgage Rate Lock Advice!

Inquire within for current Mortgage Rates or Guidelines bc@SmarterBorrowing.com 617.771.5021

Overall, I am expecting to see a much more active week in the financial markets and mortgage pricing than last week. The most important day of the week is either Tuesday or Friday due to the reports being posted those days and the FOMC meeting scheduled. Please maintain contact with your mortgage professional if you have not locked an interest rate yet because we may see sizable changes to mortgage pricing more than one day this week.

If I were considering financing/refinancing a home, I would….

LOCK if my closing was taking place within 7 days…

LOCK if my closing was taking place between 8 and 20 days…

LOCK if my closing was taking place between 21 and 60 days…

LOCK if my closing was taking place over 60 days from now…

Busy Week Ahead

This week is fairly busy in terms of the number of economic releases and other events scheduled that may influence mortgage rates. There are only four pieces of economic data for us to watch, but three of them are highly important to the markets. In addition to the economic reports, we also have the last FOMC meeting of the year and two important Treasury auctions that are likely to impact bond trading and mortgage pricing. Those events, coupled with the likelihood of further overseas developments from Europe and possibly others, make it highly likely that we will see plenty of movement in the markets and mortgage rates this week.

There is nothing of relevance scheduled for tomorrow. This means we can expect the stock markets to drive bond trading and mortgage rates again. If the major stock indexes open the week with gains tomorrow morning, bonds may move lower, pushing mortgage rates higher. But a weak open in stocks could lead to slightly lower mortgage rates tomorrow. We could also see traders position themselves ahead of the week’s agenda, so even though there is nothing concerning on the calendar, we could see mortgage rates change.

Consumer Price Index Out

The week’s most important economic data comes Friday morning when November’s Consumer Price Index (CPI) is posted. It is similar to Thursday’s Producer Price Index, except it tracks inflationary pressures at the more important consumer level of the economy. Current forecasts call for an increase of 0.1% in the overall index and a 0.1% rise in the core data reading. The core data is watched more closely because it excludes more volatile food and energy prices, giving a more stable reading for analysts to consider. This data is one of the most watched inflation indexes, which is extremely important to long-term securities such as mortgage related bonds. Rising inflation erodes the value of a bond’s future fixed interest payments, making them less appealing to investors. That translates into falling bond prices and rising mortgage rates.

Retail Sales Report

Tuesday has two important events, starting with November’s Retail Sales report. This 8:30 AM ET release will give us a key measurement of consumer spending by tracking sales at retail level establishments. This data is highly important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rapidly rising consumer spending raises the possibility of seeing solid economic growth. Since long-term securities such as mortgage bonds are usually more appealing to investors during weaker economic conditions, a large increase in retail sales will likely drive bond prices lower and mortgage rates higher Tuesday. Current forecasts are calling for an increase of 0.6% in November’s sales.

Last Fed Meeting

The last FOMC meeting of the year will also be held Tuesday, adjourning at 2:15 PM ET. There is not much debate about what the Fed will do at this meeting with no chance of them raising key short-term interest rates. Therefore, the post meeting statement will likely be the sole source of a market reaction. This statement has the potential to have a significant influence on the markets and mortgage rates as investors look for any indication of what and when the Fed may do next. One potential move would be more debt purchases by the Fed. An announcement of another round of quantitative easing (QE3) could help boost bond prices and improve mortgage rates Tuesday afternoon. Besides that, it is believed that there isn’t much more the Fed can do to help boost economic activity.

Treasury Auctions

There are Treasury auctions scheduled for several days this week, but the two important ones are the 10-year Note sale Tuesday and the 30-year Bond sale Wednesday. Tuesday’s auction is the more important of the two and will likely influence mortgage rates more. Results of each sale will be posted at 1:00 PM ET. If they were met with a strong demand from investors, particularly international buyers, we should see afternoon strength in bonds and improvements to mortgage pricing those days. On the other hand, a weak interest in the auctions could lead to upward revisions to mortgage rates during afternoon hours.

Wednesday has little to be concerned with, except for the 30-year Bond auction. November’s Producer Price Index (PPI) will be posted early Thursday morning. It measures inflationary pressures at the producer level of the economy. There are two portions of the index that are used- the overall reading and the core data reading. The core data is the more important of the two because it excludes more volatile food and energy prices. If Thursday’s release reveals stronger than expected readings, indicating that inflationary pressures are rising, the bond market will probably react negatively and drive mortgage rates higher. If we see in-line or weaker than expected numbers, the bond market should respond well and mortgage rates should fall. Current forecasts are showing a 0.2% increase in the overall index and a 0.1% rise in the core data.

Nov. Industrial Production Report

November’s Industrial Production data is also scheduled to be posted Thursday morning, but a little later than the PPI. This report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting it to show a 0.2% increase in output, indicating modest manufacturing growth. A smaller than expected rise would be good news for bonds, while a stronger reading may result in slightly higher mortgage pricing. However, the PPI release is more important to the markets than this data is.

Are you a possible Massachusetts First Time Homebuyer?
Do you have a Real Estate client inquiring about current Mortgage Rates?
Do you have any Refinancing questions?
Should you be thinking about Refinancing out of your ARM (Adjustable Rate Mortgage)?
Have your Real Estate clients been Pre Approved?

bc@smarterborrowing.com 617.771.5021

This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

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SJC Agrees To Hear Crucial Foreclosure Standing Case In HSBC Bank v. Matt

by Rich Vetstein on December 2, 2011 · 3 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Updated (1/14/13): SJC Rules Against Lender, Holds That Ownership of Mortgage Must Be Established

Court May Decide Lenders’ Standing In All Foreclosure Cases Involving Securitized Mortgages

With all the hoopla yesterday surrounding Attorney General Martha Coakley’s monumental lawsuit against the big banks over foreclosure practices, the Supreme Judicial Court on November 29, 2011 quietly agreed to hear an appeal over whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process.

The case is HSBC Bank v. Jodi Matt. The docket can be downloaded here.

The SJC will ostensibly decide whether lenders holding mortgages held in a securitized pool, with questions whether they in fact were validly assigned those mortgages, can start foreclosures in Massachusetts.

First Steps: The Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act is one of the first steps in the foreclosure process. Lenders must file a complaint in the Land Court under the Act to ensure the borrower is not in active military service. Once the Land Court determines the borrower’s status in the military, then the lender can proceed to advertise and hold a public foreclosure auction. Historically, the Servicemembers action was rather perfunctory, but today borrowers have begun to challenge lenders’ right to start foreclosures in these initial Land Court proceedings.

Lower Court Opinion

In the lower court, Land Court Judge Keith Long (the judge in both the landmark U.S. Bank v. Ibanez and Bevilacqua cases), ruled that HSBC Bank had standing to start the foreclosure process under the Servicemembers Civil Relief Act, despite serious questions as to whether HSBC validly held the mortgage. The original mortgage was held by New Century, which was in bankruptcy when it purported to assign the mortgage to HSBC. There was no evidence the assignment was authorized by the bankruptcy trustee and whether the signatory had any office or authority to transfer New Century’s bankrupt assets to other parties. Despite these questions, Judge Long ruled that HSBC, through a securitized pooling and servicing agreement, had the contractual right to become the holder of the mortgage, thereby conferring enough standing to start the foreclosure process.

SJC Takes Appeal Sua Sponte

The SJC, in a rare move, took the appeal on its own initiative (sua sponte in legalese) from the Appeals Court. It has not yet released an argument schedule. We’ll be following the case here, so stay tuned.

Notably, foreclosure defense attorney Glenn Russell, Esq., the attorney who prevailed before the SJC in the Ibanez case, is representing the home owner in this case.

The Land Court’s ruling is embedded below.

HSBC Bank v. Jodi Matt

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A Tale Of Two Opinions: Mass. AG Sues Major Banks and MERS Over Foreclosure Mess While Federal Judge Upholds MERS System

by Rich Vetstein on December 1, 2011 · 7 comments

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

Mass. AG Martha Coakley Credit: Reuters

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…” — Charles Dickens, A Tale of Two Cities

AG Martha Coakley Files Major Civil Action Against Big Banks

First, the big news. Attorney General Martha Coakley has filed a huge consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought “to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007.” Specifically, Coakley blames the banks for not complying with the U.S. Bank v. Ibanez decision in foreclosing mortgages without evidence of legal ownership of the underlying debt, improper statutory foreclosure notices and illegal “robo-signing.”

I’m sure Coakley will be able to extract a sizable settlement from the banks, but the question remains, what about the foreclosure mess and toxic titles left in its wake? I hope Coakley seriously considers setting up a toxic title monetary fund to assist homeowners who lack title insurance with clearing their titles due to bungled foreclosures in their chain of title.

Here is a link to the AG’s Complaint.

Culhane v. Aurora Loan Servicers: Federal Judge William Young Grapples With Legality Of MERS System

While AG Coakley was putting the finishing touches on her lawsuit, across the way at the Moakley Courthouse at Fan Pier, U.S. District Judge William G. Young and his cadre of law clerks were attempting to work their way through the legal maze which is the MERS (Mortgage Electronic Registration System) system. The case is Culhane v. Aurora Loan Services of Nebraska. We’ve written about MERS quite a bit here on the blog.

I can say with confidence that Judge Young is one of the smartest jurists on the federal bench and in the Commonwealth. I know this first-hand because I clerked for him in law school.

It took him 59 pages to sort though the myriad of legal issues implicated by the complex MERS system, and he had some very choice (and funny) remarks about the system:

“MERS is the Wikipedia of Land Registration Systems.” . . . “A MERS certifying officer is more akin to an Admiral in the Georgia navy or a Kentucky Colonel with benefits than he is to any genuine financial officer.”

Judge William G. Young

But ultimately, Judge Young concluded that MERS did not run afoul of Massachusetts law, by the “thinnest of venires.” So there you have it. MERS is kosher in Massachusetts, at least according to Judge Young.

However, Judge Young’s ruling came with some important caveats. First, he held that MERS does not have the power to foreclose in its own name. This is no longer an issue as MERS new policy is not to foreclosure in its name. But what about prior foreclosures in MERS’ name? Are those still considered valid?

Second, in accordance with Mass. Gen. Laws ch. 183, sec. 54B, he ruled that assignments from MERS’ vice presidents to loan servicers or holders are valid despite the signer’s lack of personal knowledge or proof of actual authority. This is a direct contradiction with AG Coakley’s claim that the MERS assignments are invalid.

Lastly, the most important aspect of Judge Young’s ruling was his agreement that foreclosing lenders must hold both the loan (promissory note) and the mortgage together in unity, to foreclose, following the controversial Superior Court opinion in Eaton v. FNMA which is now on appeal with the Supreme Judicial Court. However, Judge Young added an important distinction to this rule, saying that that loan servicers could foreclose in their names where the loan is held in a pooled securitized trust, provided they otherwise comply with Massachusetts foreclosure law. This is a very important distinction as a fair amount of foreclosures are brought in the name of the loan servicer. I’m not so sure Judge Young got this one right as a loan servicer rarely if ever holds the note as assignee, as Professor Adam Levitin notes, but the ruling certainly assists the industry.

So all eyes are back on the SJC awaiting its ruling in the Eaton case which could have even far more impact than the Ibanez decision. Of course, these two events underscore that foreclosures are still a mess crying out for legislative help (which hasn’t come at all), and the crucial importance of title insurance, which all buyers should elect at their closings.

I’ve done a quick video analysis and embedded Judge Young’s opinion below.

Culhane v. Aurora Loan Services

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Massachusetts Superior Court Again Endorses “Produce The Note” Foreclosure Defense

by Rich Vetstein on November 8, 2011 · 0 comments

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Final Say Will Come Soon At SJC In Eaton v. FNMA

In Adamson v. MERS (embedded below), Superior Court Judge Raymond Brassard became the second Massachusetts trial judge to endorse the so-called “produce the note” defense in a foreclosure defense case. The question of whether a foreclosing lender must hold both the promissory note and the mortgage at the same time is now before the Supreme Judicial Court in the eagerly awaited case of Eaton v. Fannie Mae.

In Adamson, Mortgage Electronic Registration System (MERS) claimed to be the holder of the mortgage at the behest of Deutsche Bank. America’s Servicing acted as the servicer. This was a classic sub-prime mortgage with $440,000 in principal at 8.5% interest, with a balloon payment of $370,000 at the end of 30 years. (No wonder the borrower couldn’t keep up with the payments).

The kicker in this case was when America’s Servicing sent the borrower a denial letter for a loan modification stating that it would not foreclose in the next 30 days under the federal HAMP program to give the borrower a chance to explore other modification option. It foreclosed the next day. Ouch.

Unification Theory

Relying on the Judge McIntyre’s earlier decision in the Eaton case, Judge Brassard was persuaded that Massachusetts still holds on to the unification theory where a foreclosing lender must hold both the note and the mortgage at the time of foreclosure. Judge Brassard expressed concern that separating the mortgage from the note could lead to double liability for the borrower (first, a foreclosure, then an attempt to collect the note).

In a ruling which will make foreclosure defense attorneys salivate, Judge Brassard found merit to the borrower’s claim that the lender and the servicer violated the Massachusetts Consumer Protection Act, Chapter 93A, for foreclosing the day after the denial letter was issued, in violation of the 30 day safe harbor period.

Impact & What’s Next?

With two Superior Court judges endorsing this theory and several bankruptcy court judges rejecting it, all eyes are now on the Supreme Judicial Court’s decision in the Eaton v. Fannie Mae case which will be the final say in the matter. If the SJC accepts the unification theory, it will be a bigger bombshell than the U.S. Bank v. Ibanez case last year.

Until the SJC decides the Eaton case, this ruling will continue to slow down the pace of foreclosures in Massachusetts. This will, in turn, keep the inventory of REO properties high, causing further drag on the troubled housing market.

Thank you to the blogging attorneys at the Massachusetts Land Use Monitor for bringing this case to my attention.

Adamson v. MERS Decision

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Will This HARP Carry A Tune? Obama Revamps Underwater Refinance Program

by Rich Vetstein on October 25, 2011 · 1 comment

in Fannie Mae, FHA, Mortgages

Home Affordable Refinance Program (HARP) Revamped

Homeowners who have not been able to refinance because they are “underwater” — their loans are more than the value of their home due to depressed real estate values — are being thrown a lifeline by the Obama Administration’s latest housing market rescue plan, announced yesterday.

Regulators are revamping a program rolled out in 2009, the Home Affordable Refinance Program, or HARP, which lets borrowers with homes whose values have dropped to refinance. So far, only 894,000 borrowers have used it, of which just 70,000 are significantly underwater. The refinancing program is open to homeowners whose mortgages are owned or guaranteed by Fannie Mae (FNMA) or Freddie Mac (FMCC), the two government-controlled mortgage giants whose rescue three years ago has cost taxpayers $141 billion to date.

The FHFA said the changes could at least double the number of homeowners enrolled. Analysts at Barclays Capital, however, estimated that between 1.9 million and 3.1 million homeowners could be eligible for help.

But underwater homeowners, as long as they have made all their mortgage payments on time in the past six months and meet a few other basic criteria, such as being gainfully employed, would be eligible for a new refinance product just rolled out by the Obama Administration.

According to Scott Van Voorhis at Boston.com, an estimated 230,000 homeowners across Massachusetts are underwater on their mortgages, owing an average of $120,000 more than what their properties are actually worth now. The savings could prove substantial, with $3,000 in savings each year on a $200,000 mortgage that is refinanced from 6 percent down to 4.5 percent, according to this explanatory piece put out by the Associated Press.

Given higher home prices here in Greater Boston, that could amount to $6,000 in savings a year for a homeowner with a $400,000 mortgage — nothing to sneeze at.

If this HARP finally sings a tune, it will be cause for joy among borrowers, mortgage bankers, and closing attorneys across the state. Let’s keep our fingers crossed.

________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney. Please contact him if you need a mortgage referral or assistance with a refinance or purchase transaction.

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What Now? Bevilacqua v. Rodriguez Leaves Toxic Foreclosure Titles Unclear

by Rich Vetstein on October 18, 2011 · 16 comments

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

No Easy Fix For Defective Foreclosure Titles After U.S. Bank v. Ibanez Ruling

The Massachusetts Supreme Judicial Court issued its opinion today in the much anticipated Bevilacqua v. Rodriguez case considering property owners’ rights when they are saddled with defective titles stemming from improper foreclosures in the aftermath of the landmark U.S. Bank v. Ibanez ruling last January. (Text of case is embedded below). Where Ibanez consider the validity of foreclosures plagued by late-recorded or missing mortgage assignments, Bevilacqua is the next step, considering what happens when lenders sell defective foreclosure titles to third party purchasers. Previously, I discussed the oral argument in the case here and detailed background of the case here.

The final ruling is mix of bad and good news, with the bad outweighing the good as fixing defective Massachusetts foreclosure titles just got a lot harder and more expensive. But, contrary to some sensationalist headlines, the sky is not falling down as the majority of foreclosures performed in the last several years were legal and conveyed good title. Bevilacqua affects those minority percentage of foreclosures where mortgage assignments were not recorded in a timely fashion under the Ibanez case and were otherwise conducted unlawfully. Importantly, Bevilacqua does not address the robo-signing controversy, which may or may not be considered by the high court in another case.

The Bad News

First the bad news. The Court held that owners cannot bring a court action to clear their titles under the “try title” procedure in the Massachusetts Land Court. This is the headline that the major news outlets have been running with, but it was not a surprise to anyone who has been following the case. Contrary to the Daily Kos, the court did not take the property away from Bevilacqua. He never held good title it in the first place–and you can blame the banksters for that. If you don’t own a piece of property (say the Brooklyn Bridge), you cannot come into court and ask a judge to proclaim you the owner of that property, even if the true owner doesn’t show up to defend himself. It’s Property Law 101.

The Good News

Next the good news. The court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles. Unfortunately, the SJC did not provide the real estate community with any further guidance as to how best to resolve these complicated title defects.

Background: Developer Buys Defective Foreclosure Title

Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to “try title” in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.

Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door on Mr. Bevilacqua, dismissing his case, but with compassion for his plight.

“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.

Given the case’s importance, the SJC took the unusual step of hearing it on direct review.

No Standing To “Try Title” Action In Land Court

The SJC agreed with Judge Long that Bevilacqua did not own the property, and therefore, lacked any standing to pursue a “try title” action in the Land Court. The faulty foreclosure was void, thereby voiding the foreclosure deed to Bevilacqua. The Court endorsed Judge Long’s “Brooklyn Bridge” analogy, which posits that if someone records a deed to the Brooklyn Bridge, then brings a lawsuit to uphold such ownership and the “owner” of the bridge doesn’t appear, title to the bridge is not conveyed magically. The claimant in a try title or quiet title case, the court ruled, must have some plausible ownership interest in the property, and Bevilacqua lacked any at this point in time.

The court also held, for many of the same reasons, that Bevilacqua lacked standing as a “bona fide good faith purchaser for value.” The record title left no question that U.S. Bank had conducted an invalid foreclosure sale, the court reasoned.

Door Left Open? Re-Foreclosure In Owner’s Name?

A remedy left open, however, was whether owners could attempt to put their chains of title back together and conduct new foreclosure sales in their name to clear their titles. The legal reasoning behind this remedy is rather complex, but essentially it says that Bevilacqua would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon by U.S. Bank. There are some logistical issues with the current owner conducting a new foreclosure sale and it’s expensive, but it could work.

That is if the SJC rules in the upcoming Eaton v. FNMA case that foreclosing parties do not need to hold both the promissory note and the mortgage when they foreclose. An adverse ruling in the Eaton case could throw a monkey wrench into the re-foreclosure remedy–it would also be an even bigger bombshell ruling than Ibanez, as it would throw into question the foreclosure of every securitized mortgage in Massachusetts.

In Bevilacqua’s case, he did not conduct the new foreclosure sale, so it was premature for the court to rule on that issue. Look for Bevilacqua to conduct the new foreclosure and come back to court again. The SJC left that option open.

Other Remedies & What’s Next?

The other remedy to fix an Ibanez defect, which is always available, is to track down the old owner and obtain a quitclaim deed from him. This eliminates the need for a second foreclosure sale and is often the “cleanest” way to resolve Ibanez titles.

Another option is waiting out the 3 year entry period. Foreclosure can be completed by sale or by entry which is the act of the foreclosure attorney or lender representative physically entering onto the property. Foreclosures by entry are deemed valid after 3 years have expired from the certificate of entry which should be filed with the foreclosure. It’s best to check with a real estate attorney to see if this option is available.

The last resort is to demand that the foreclosing lender re-do its foreclosure sale. The problem is that a new foreclosure could open the door for a competing bid to the property and other logistical issues, not to mention recalcitrant foreclosing lenders and their foreclosure mill attorneys.

Title insurance companies who have insured Ibanez afflicted titles have been steadily resolving these titles since the original Ibanez decision in 2009. I’m not sure how many defective foreclosure titles remain out there right now. There certainly could be a fair amount lurking in titles unknown to those purchasers who bought REO properties from lenders such as U.S. Bank, Deutsche Bank, etc. If you bought such a property, I recommend you have an attorney check the back title and find your owner’s title insurance policy. Those without title insurance, of course, have and will continue to bear the brunt of this mess.

More Coverage:

_____________________________________

Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure title defect matters & cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

Bevilacqua v. Rodriguez; Massachusetts Supreme Judicial Court October 18, 2011

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SJC Looks At Roles Of Mortgage Servicers and MERS In Eaton v. FNMA Arguments

by Rich Vetstein on October 3, 2011 · 12 comments

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Update (6/22/12): SJC Issues Final Opinion (click to read)

I just finished watching the oral arguments in the SJC case of Eaton v. Federal National Mortgage Ass’n, The webcast should be up soon on the SJC Website. You can read the briefs in the case here.

As outlined in my prior post on the case, the Court is considering the very important question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. If the SJC rules against lenders, it will be another national headline story — potentially bigger than U.S. Bank v. Ibanez.

Quick Recap: Ultimately, the SJC will have to decide how old common law decided in the late 1800′s now applies to mortgages in the 21st century with securitization, servicers and MERS. Does the law need to be modernized? I think it’s time. Unlike the U.S. Bank v. Ibanez case, this one is much harder to handicap. So I’m not even going to try!

For those unfamiliar with the facts of the case, I’ll state them again.

Borrower Able To Stop Foreclosure

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage (Mortgage Electronic Registration System) originally granted to BankUnited then assigned to Green Tree. Green Tree foreclosed in 1999 and assigned its winning bid to Fannie Mae who attempted to evict Eaton in January 2010.

Eaton was able to obtain an injunction from the Superior Court halting the eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This has been coined the “produce the note” defense and has been gaining steam across across the country. This is the first Massachusetts appellate case that I’m aware of to consider the defense and surrounding legal issues.

The Superior Court judge, Francis McIntyre, wrote a 10 page opinion, explaining that Massachusetts has long recognized that although the promissory note and the mortgage can travel different paths after the borrower signs them, both instruments must be “reunited” to foreclose. “The mortgage note has a parasitic quality, in that its vitality depends on the promissory note,” the judge ruled. As is becoming increasingly prevalent, neither Green Tree nor Fannie Mae could located the original signed promissory note; they were only able to produce a copy endorsed in blank without an amendment, or allonge, indicating when it was endorsed or who held it at the time of the foreclosure. Without the note properly endorsed and assigned to Green Tree, the foreclosure was a nullity, the judge held.

Pointed Questions During Oral Argument

The oral argument was pretty interesting with the majority of the justices’ questions centered around questions of the mortgage servicer’s authority to foreclose or enter into a loan modification, Fannie Mae’s role and the role of MERS. Here’s my running diary of the argument.

Fannie Mae Arguments

Attorney Richard Briansky, who did a solid job, represented the Fannie Mae side, and started first. Judge Gants asked whether there was any evidence that Ms. Eaton, the borrower, failed to pay insurance or real estate taxes to justify foreclosure on other grounds? There was no evidence; purely breach of note, replied Briansky.
The justices raised a question of the authority of the signer of the mortgage assignment. The signer was a “Monica” who worked for Green Tree Servicing and had signatory authority for MERS. Of course, this is the robo-signing question which is being raised across the county. (Read our post on the high percentage of robo-signed documents found at the Essex Registry of Deeds here). The justices asked was she employee or MERS or Green Tree? Dual roles. However, they agreed that this issue is not properly raised in this case.
Justice Cordy asked whether Green Tree, the servicer, was in a position to extinguish the debt? The answer was no. The loan proceeds are held in trust for note holder.
Justice Botsford was worried about the possibility of double liability where the note holder sues Eaton on note. Never been an issue, says Briansky.
Justice Lenk asked who determines whether or not to foreclose? Attorney Briansky said Green Tree, because it has been collecting payments and acts as servicer. Now the justices started exploring the contractual relationship between servicer and note holder. The discussed turned to the servicer’s authority for loan mods, etc.
Justice Botsford had questions over who could make important decisions under mortgage.
Justice Duffly asked about the status of MERS as nominee. It’s a “tripartite relationship,” explained Briansky. The justices seemed very skeptical of the MERS relationship.
Justice Ireland, citing the friend of the court brief, asked Briansky point blank whether Massachusetts law required unity of the note and mortgage holder at foreclosure. Briansky countered with argument that times have changed and current complex mortgage securitization requires a modernization of the law.
Justice Duffly pointed out that the proliferation of servicers and MERS has created a unique situation and is bad for consumers. She thinks that there is a disincentive for servicers to modify loans; that they make more money for foreclosure. An interesting point.
Justice Lenk asked a very good question: What would preclude Fannie Mae from holding the mortgage? I can tell you that as a matter of policy, Fannie Mae prefers not to hold mortgages themselves, instead letting the servicers do the “dirty work” of defaults and foreclosures.

That concluded the Fannie Mae side.

Eaton Arguments

Now for the Eaton side, Sam Levine, a Harvard Law student, argued under a SJC Rule permitting third year law students to argue in court. What a thrill it must have been for a law student who hasn’t even passed the Bar, to be arguing a major case in front of the SJC. However, his inexperienced showed at times, as he often slipped into prepared remarks when the justices where looking for an answer far more specific. But all in all, the kid did OK for not even being a real lawyer yet.

The justices ask about all the lower court and bankruptcy court decisions holding that you don’t need pure unity of note holder and mortgage holder to foreclose. Levine stood his ground on the older cases holding that this isn’t the law. The justices will have to grapple with whether the law needs to be modernized.
Justice Gants asked what’s wrong with an agent acting as servicer? Levine said for servicing it’s fine, but for foreclosure, the principal must foreclose.
There was an extended discussion over the standard MERS mortgage form as to MERS’ authority to invoke power of sale and foreclose. The justices appeared confused as to who has the right to invoke the power of sale and foreclose. Does MERS or does the lender, or both? And who is MERS’ successors and assigns?
Justice Cordy asked hasn’t borrower agreed in the mortgage that MERS can foreclose? Didn’t she waive any common law right that the note holder and mortgage holder be united for foreclosure. Good question.
Justice Lenk asked that if Fannie Mae had foreclosed, everything would have been fine. That’s ultimately true.
Justices Cordy and Spina were definitely getting frustrated with the simple fact that Eaton simply didn’t pay mortgage. Look for them to vote to reverse the lower court opinion in this case.

What’s Next?

The SJC will release a final opinion within 120 days or so. A lot of the questioning centered on side issues not squarely relevant in the case. The question in the case is simply whether a foreclosing lender must hold both the note and mortgage at foreclosure. Clearly, the justices have been reading the press reports about the foreclosure crisis and are trying to be responsive to it. But they have to decide cases based on the facts before them. Again, I’m not going to try to handicap this one, but I have a feeling it will be a close decision with concurring and dissenting opinions. If the SJC rules against lenders, it will be another national headline story, rest assured.

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney who’s handled numerous foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure and title dispute.

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SJC To Hear Oral Arguments In Eaton v. FNMA On Monday

by Rich Vetstein on September 30, 2011 · 1 comment

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Updated: Click Here For Our Oral Argument Recap

Just a reminder to those following the important SJC case of Eaton v. Federal National Mortgage Ass’n — oral arguments will be held on Monday, October 3rd, starting at 9am. You can view the oral argument live via webcast through the SJC Website. You can read the briefs in the case here. Interestingly, one of the foremost commentators on the mortgage meltdown, Adam Levitin of Georgetown Law, has filed his own friend of the court brief.

As outlined in my prior post on the case, the Court will consider the “produce the note” defense in foreclosure cases — whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Based on arguments asserted by the lender, the court may also consider the circumstances by which a mortgage granted to Mortgage Electronic Registration System (MERS) can be effectively foreclosed in Massachusetts.

Look for a new blog post on Tuesday after I watch the arguments.

~Rich

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Richard D. Vetstein, Esq. is an experienced real estate litigation attorney. He has handles many foreclosure defense and title defect cases in Land Court and Superior Court. Please contact him if you are dealing with a Massachusetts foreclosure and title dispute.

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The Trilogy: Explaining the Deed, Promissory Note and Mortgage at a Massachusetts Closing

by Rich Vetstein on September 9, 2011 · 0 comments

in Deeds, Massachusetts Real Estate Law, Mortgages

Prospective real estate buyers tend to think of the “mortgage” as the contract they are signing with the bank. This is misleading. The promissory note is the actual contract to loan and borrow money between lender and borrower. The mortgage is the lender’s instrument, or more accurately, its security interest, to enforce that loan contract. This is an important distinction because, if for example, a couple purchases property or refinances, and the loan is taken out solely in the wife’s name, then lining up the correct parties on the signing documents becomes important. But before discussing how to properly configure the closing documents, it is important to understand the definitions.

The Deed

The deed is the legal instrument conveying an ownership interest of the property to a grantee (buyer). The deed is typically drafted by the seller’s attorney. It includes the grantor (seller), the grantee (buyer), the manner in which the buyer is taking title (the tenancy), the consideration (the amount of the purchase price), a legal description of the property, and a cite to the recording information of the prior deed. Click here for an example of a Massachusetts quitclaim deed.

The Promissory Note

The promissory note is the lending contract between the borrower and the lender. The note includes the name(s) of the borrower and the property address. It also includes the amount of the loan, the term (number of years), and the interest rate. The lender generates the note and uses a FannieMae/ Freddie Mac standard template which reflects that it is a uniform instrument. A typical note includes a provision of whether the loan is fixed or adjustable, contains a “no pre-payment fee” clause, and includes language that sets the deadline for the 15th of the month for the lender to receive payment (and sets out a late fee penalty). Click here for a standard form Fannie Mae promissory note.

The Mortgage

The mortgage is the lender’s security interest in the property. In Massachusetts, a “title state,” the borrower is conveying his ownership interest in the home to the lender, such interest would be exercised only in the event of default. Thus, the lender has a lien on the property, which gives it authority to foreclose in the event of continued non-payment. The mortgage is also a uniform instrument whose template is typically generated by the lender and designed and approved by the above-referenced government housing agencies. The only unique terms in the mortgage are the names of the borrowers, the property address and the exhibit which provides a legal description of the property. The rest of the mortgage is standard, providing that the borrower agrees to keep the property insured and maintained, make it her primary residence (unless it’s an investment loan), and not to contaminate the property with hazardous waste, among other requirements. Click here for a sample Massachusetts Fannie Mae mortgage.

Thus, to return to our example, if husband and wife purchase a home and only wife is to be on the loan, then the grantees on the deed are husband and wife, reflecting their ownership interest in the property. The note will contain only the wife (since she alone is taking out the loan). The mortgage however must contain both owners of the property since this instrument tracks the deed. Thus, the husband and wife are both on the mortgage.

After the closing attorney explains the deed, mortgage and promissory note, there are a stack of other loan documents and disclosure to review. We’ve written posts about all the important ones:

Truth in Lending Disclosure
HUD-1 Settlement Statement/Good Faith Estimate
Title Insurance
Closing Document Checklist: What You Need to Bring at Closing

Good luck with your closing!

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Attorney Marc E. Canner brings years of experience working closely with Buyers, Sellers, mortgage brokers, loan officers and realtors to provide expert counsel on closing residential real estate transactions. Marc is the founding partner of the Law Offices of Marc E. Canner and a founder of TitleHub Closing Services LLC.

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SJC To Consider “Produce The Note” Foreclosure Defense In MERS Mortgage Case

by Rich Vetstein on September 8, 2011 · 12 comments

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Update: Update (6/22/12): SJC Issues Final Opinion (click to read)

SJC Orders Additional Briefing On Potential Impact of Ruling (1/6/12)

Oral Argument Analysis (10/3/11)

Do Lenders Need To Hold Both Promissory Note & Mortgage At Foreclosure?

In a rare “sua sponte” (on their own) direct appellate review, the Massachusetts Supreme Judicial Court has agreed to hear an appeal considering the controversial “produce the note” defense in foreclosure cases and whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Based on arguments asserted by the lender, the court may also consider the circumstances by which a mortgage granted to Mortgage Electronic Registration System (MERS) can be effectively foreclosed in Massachusetts.

This could be a very important decision — potentially as important as the landmark U.S. Bank v. Ibanez case issued in the spring. A ruling against the lenders could expose a gaping and fatal legal black hole with many foreclosure-bound mortgages that were hastily bundled and sold to Wall Street during the real estate boom years. A rejection of the borrower’s arguments as recently made by a bankruptcy judge in Worcester, however, could significantly reduce some MERS induced anxiety and heartburn presently being experienced by lenders and foreclosure attorneys.

The case is Eaton v. Federal National Mortgage Association (Fannie Mae), SJC-11041. The court will hear arguments in October, with a decision coming several months later. The court is also seeking amicus, or friend of the court, briefs from interested parties.

Where’s The Note?

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage originally granted to BankUnited then assigned to Green Tree. Green Tree foreclosed in 1999 and assigned its winning bid to Fannie Mae who attempted to evict Eaton in January 2010.

The Superior Court judge, Francis McIntyre, wrote a well-reasoned 10 page opinion, explaining that Massachusetts has long recognized that although the promissory note and the mortgage can travel different paths after the borrower signs them, both instruments must be “reunited” to foreclose. “The mortgage note has a parasitic quality, in that its vitality depends on the promissory note,” the judge ruled. As is becoming increasingly prevalent, neither Green Tree nor Fannie Mae could located the original signed promissory note; they were only able to produce a copy endorsed in blank without an amendment, or allonge, indicating when it was endorsed or who held it at the time of the foreclosure. Without the note properly endorsed and assigned to Green Tree, the foreclosure was a nullity, the judge held.

Potential Impacts Far and Wide

As I mentioned before, a ruling that foreclosing lenders must produce both the note and mortgage held by the same entity would drastically alter existing foreclosure practice in Massachusetts, and may open existing foreclosures to legal challenge. Although I don’t practice in foreclosures, I do know that rarely, if ever, are properly endorsed and assigned promissory notes in the hands of lenders when they foreclose. As with this case, they are typically endorsed in blank, that is, to no one, and in storage somewhere in New Jersey or Ohio held by a loan servicer. In fact, obtaining such promissory notes from lenders can be nearly impossible. They are often lost, missing pages, or destroyed.

This case, which is typical, illustrates the problem with the entire system. According to Fannie Mae’s brief, after the loan funded, the note was indorsed in blank and allegedly transferred to Fannie Mae. How does an entity as sophisticated as Fannie Mae purchase a loan without getting the promissory note properly indorsed and assigned to it? God only knows. So the best Fannie could do was produce a copy of the note indorsed to no one. That’s just great…

The mortgage took a different path along the securitization trail. This was a MERS mortgage, so it was originally granted to MERS, the electronic registry who admittedly acts only as a “nominee” and holds no financial stake in the loan. A Mass. bankruptcy court judge recently voided the foreclosure of a MERS mortgage for some of these reasons. Now while the paper is held by Fannie Mae, the mortgage supposedly gets assigned to Green Tree, the loan servicer, which like MERS has no financial stake in the loan. Green Tree then conducts the foreclosure sale, although it has no real financial interest in the loan–that remains with Fannie Mae. Now it doesn’t take a Louis Brandeis to ask, why didn’t the mortgage get assigned to Fannie Mae, and why didn’t Fannie Mae conduct the foreclosure sale since it held all the financial cards in this transaction? I would love someone to explain this to me because I don’t get it, and I’m not the only one. At this point, the whole system is FUBAR.

Of course, a favorable ruling for lenders would preserve the status quo and business-as-usual atmosphere for foreclosures in Massachusetts, while upholding the effectiveness of the MERS mortgage. The SJC wasn’t afraid to drop a bombshell in U.S. Bank v. Ibanez. Eaton v. Fannie Mae may be next. At the very least, the SJC joins a steady stream of jurists who have concerns about the way in which foreclosures are being conducted in a post-subprime world. When the decision comes down, I’ll be on it!

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Mass. Bankruptcy Judge Voids Foreclosure Of MERS Mortgage

by Rich Vetstein on August 23, 2011 · 19 comments

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

Judge Tells Lenders You Can’t Have Your MERS Cake & Eat It Too

“The sophisticated financial minds who wrought the MERS regime sought to simplify the process of repeatedly transferring mortgage loans by obviating the need and expense of recording mortgage assignments with each transfer. No doubt they failed to consider the possibility of a collapse of the residential real estate market, the ensuing flood of foreclosures and the intervention of state and federal courts.”

–Judge Melvin S. Hoffman, U.S. Bankruptcy Court Judge for Massachusetts, In Re. Schwartz, Aug. 22, 2011

Coming off a ruling (In re. Marron) that the MERS mortgage registration system does not run afoul of Massachusetts law, the same jurist, Bankruptcy Court Judge Melvin Hoffman, on Monday issued a ruling voiding a MERS-held mortgage which fell victim to sloppy paperwork. As Banker & Tradesman reports, the case is potentially troubling for any MERS held mortgage in default. The case is In Re. Schwartz and is embedded below.

Debtor Challenges Foreclosure Of Securitized Mortgage

During her bankruptcy proceeding, the debtor, Sima Schwartz, challenged the May 24, 2006 foreclosure of her Worcester home by Deutsche Bank. She asserted that under the U.S. Bank v. Ibanez decision issued by the Massachusetts Supreme Judicial Court earlier in the year, Deutsche did not own the mortgage on the property when it first started the foreclosure process.

The “lender” on her original mortgage was Mortgage Electronic Registration System (MERS), as nominee for First NLC. Many housing advocates have criticized MERS’ role in the foreclosure crisis, with the New York Times weighing in most recently. The mortgage loan was securitized and subsequently transferred at least 3 times, ultimately winding up held by Deutsche Bank. No assignments of mortgage were recorded with the registry of deeds until a day before the foreclosure sale on May 23, 2006. That assignment was executed by Liquenda Allotey, one of the hundreds of deputized vice presidents of MERS, and an alleged “robo-signer” for Lender Processing Service (LPS) which has come under fire for document irregularities. The assignment ran to Deutsche Bank, which completed the foreclosure sale on May 24, bid its mortgage debt and purchased the property.

There was no dispute that under the U.S. Bank v. Ibanez case, the late-filed mortgage assignment rendered the foreclosure defective unless Deutsche could establish its ownership of the mortgage loan when the foreclosure process started. During the trial, Deutsche submitted all the various agreements documenting the securitization process including the pooling and servicing agreement (PSA), loan purchase agreement, bill of sale and custodial log.

Judge: Lenders Can’t Have Their MERS Cake And Eat It Too

Critically, as the judge noted, the PSA provided that for a MERS mortgage such as this, assignments of mortgages did not have to be prepared or delivered to the buyer of the loans. As is endemic with most securitized mortgages, the participants in the securitization did not deliver and record any assignments documenting such transfers, instead, relying on the internal MERS registration system, which is out of the public records view. Throwing this provision back in the lenders’ faces, the judge basically said “you can’t have your cake and eat it too” — rendering his ruling that the mortgage itself (as opposed to the underlying loan) was never transferred through the securitization system from entity A, B, C, to Deutsche Bank, and that MERS had always held, and never relinquished, “legal title” to the mortgage. Accordingly, the judge held, Deutsche Bank was never the owner of the mortgage in the first place, could not foreclose in its name, and its foreclosure sale was null and void.

Impact: Are Foreclosures Of MERS Mortgages Now Open To Challenge?

I’m not sure what’s going to happen with Ms. Schwartz’s home. She’s been living in it since 2006 probably mortgage/rent free! Certainly, MERS could (and should have) started a second foreclosure and done it the right way. I’m perplexed why Deutsche and MERS kept fighting this case in court. As for the broader implications, it’s still unclear as to the effect on past and current foreclosures. One this is for certain, the ruling is yet another example of the legal fallout from the deficiencies in the MERS system.

Lastly, while I don’t claim to be a mortgage securitization expert, if the mortgage was not assigned/transferred properly and if it is MERS that holds legal title, then there is a mortgage backed security investor somewhere who THINKS he owns this mortgage but, in fact, does not. Even if MERS wanted to transfer the mortgage to the relevant trust or foreclose, sell the property and transfer cash, they may not be able to for legal and tax reasons. Now multiply by a million. So how many mortgage backed securities are missing how many mortgages? Are there mortgage backed securities out there that don’t actually own ANY mortgages? If someone sells a “mortgage backed” security that doesn’t legally own the mortgages in question, hasn’t that someone committed fraud? And furthermore, how the hell do we clean this up?

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In Re Schwartz

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Impact: Are Foreclosures Of MERS Mortgages Now Open To Challenge?

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This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Judge Tells Lenders You Can’t Have Your MERS Cake & Eat It Too

Debtor Challenges Foreclosure Of Securitized Mortgage

Impact: Are Foreclosures Of MERS Mortgages Now Open To Challenge?

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