Senate Bill 1987 Would Have Cleared Title For Innocent Homeowners
Acceding to the demands of fair housing community activists, Massachusetts Governor Deval Patrick has rejected Senate Bill 1987, An Act Clearing Titles to Foreclosed Properties. The bill would have cleared title of homes affected by defective foreclosures with a one year waiting period from enactment of the bill while giving homeowners three years to challenge wrongful foreclosures. The Governor filed an amendment to the bill, raising the statute of limitations for homeowners to challenge foreclosures from 3 years in the current bill to 10 years. The Senate and House are unlikely to agree on such an absurdly long statute of limitations, so Patrick’s action should effectively kill the bill.
This is truly devastating news for the thousands of innocent homeowners who are stuck with bad title due to botched foreclosures.
The bill had cleared the Senate and House with near unanimous support. The bill also received favorable press in the Worcester Telegram and Boston Globe. The bill preserves the right to challenge foreclosures and sue the banks, while helping innocent homeowners stuck with bad title. Despite this, organizations such as the Massachusetts Alliance Against Predatory Lending and activist Grace Ross were successful in getting Governor Patrick on their side.
The Governor’s statement accompanying his action on the bill states as follows:
Massachusetts is emerging from a period of far too many foreclosures, on far too many families, and in far too many communities facing significant economic challenges. It is no secret that, too often, the foreclosure was not properly effectuated. The entity purporting to foreclose did not have the legal authority to do so. The effect of these impermissible foreclosures has been lasting. Families were improperly removed from their homes. Buyers who later purchased the property — or, at least, believed they had done so — are now faced with title questions. Many of these buyers were investors, but many are now homeowners themselves. I commend the Legislature’s effort to address these problems. But I believe the proposed three year period is insufficient. A family improperly removed from its home deserves greater protection, and a meaningful opportunity to claim the right to the land that it still holds. The right need not be indefinite, but it should extend for longer than three years. Certainty of title is a good thing — it helps the real estate market function more smoothly, which ultimately can help us all. But this certainty should not come at the expense of wrongly displaced homeowners or, at least, not until we have put this period further behind us.
As a long time supporter of this bill, I am truly disheartened at this result. I thought the bill did a great job in balancing the rights of innocent home buyers who are stuck with unsellable properties through no fault of their own with the rights of folks who are fighting foreclosures. A three year statute of limitation — which is the same length for malpractice and personal injury claims — is a reasonable amount of time to mount a challenge to a foreclosure, especially when debtors have many months prior notice before a foreclosure sale. The people who would have benefited from this bill are everyday people who bought properties out of foreclosure, put money into them and improved them. I have personally assisted several of these families. Everyone agrees that the banks are largely at fault for the mess left behind with the foreclosure crisis but why put the rights of those who don’t pay their mortgages above those who do? I will never understand this rationale. Perhaps that’s why I could never be in politics!
So where do we go from here? I honestly don’t know. Fortunately, the Land Court recently issued a ruling which may help clear some of these toxic titles. Maybe the legislation will get another chance at the next session or when Patrick leaves office at the end of the year.
It appears we may be nearing the end of the misery resulting from the infamous U.S. Bank v. Ibanez foreclosure decision, which has caused hundreds if not thousands of title defects across the Commonwealth. A recent Land Court ruling combined with significant movement on curative legislation may clear the vast majority of these defective titles.
By way of background, titles of properties afflicted with Ibanez title defects came out of faulty foreclosures, and in worst cases, cannot be sold or refinanced. Many homeowners have been waiting for 5 years or longer for some kind of resolution so they can sell or refinance their homes.
Daukas v. Dadoun Land Court Ruling
This past week on July 23, 2014, Land Court Justice Keith Long (ironically the same judge who wrote the original Ibanez ruling) held that an Ibanez title can be cleared through the foreclosure by entry procedure as long as three years have passed since the faulty foreclosure. Typically in Massachusetts lenders use both the power of sale/auction method and entry method of foreclosure. Unlike the power of sale/auction method, however, a foreclosure by entry takes three years to ripen into good title. Judge Long ruled that even where the power of sale/auction method was defective due to non-compliance with the Ibanez decision, the foreclosure by entry method would not be affected by this non-compliance provided that the lender was the “holder” of the mortgage at the time of the entry and three years have passed since the entry.
So what does that mean in plain English? It means that titles with Ibanez defects may be insurable and marketable provided that (1) the foreclosing lender conducted and recorded a proper foreclosure by entry, (2) the entry was conducted by a lender who was the proper holder of the foreclosed mortgage, and (3) three (3) years have passed since the foreclosure entry. If you have been dealing with an Ibanez defective title, it’s best to contact an experienced title attorney and/or your title insurance company (if you have one) to see if you qualify. Feel free to contact me at [email protected].
Senate Bill 1987, sponsored by Shrewsbury State Senator Michael Moore and the Massachusetts Land Title Association, would render clear and marketable to any title affected by a defective foreclosure after 3 years have passed from the foreclosure. The bill, which has been passed by the Senate and is now before the House, is very close to being passed by both branches of the legislature, hopefully during this summer legislative session.
This is great news for the real estate market. I don’t have firm numbers, but there are probably hundreds, if not thousands, of these unsellable properties just sitting on the sidelines, and now they can get back onto the market. This is exactly what the inventory starved market needs.
Distressed Homeowners Lose Key Defense, While Foreclosure Purchasers Gain More Title Security
Last week, the Supreme Judicial Court decided yet another important foreclosure case, U.S. Bank v. Schumacher(embedded below). The issue considered in Schumacher was whether a foreclosing lender’s defective 90 day notice to cure was a defense in a subsequent post-foreclosure eviction (summary process action) by the borrower. The SJC said no it was not a valid defense, as it should have been raised much earlier in the legal process in a separate action in the Superior Court.
Schumacher considered a 2007 law requiring that foreclosing lenders provide a borrower with a 90 day right to cure prior to starting a foreclosure proceeding. Before Schumacher, some trial courts had ruled that a bank’s failure to strictly comply with those requirements was fatal to a foreclosure sale. In such cases, even a post-foreclosure buyer of the property would have potentially defective title. From a title perspective this result was especially problematic since a bank’s compliance or non-compliance with §35A would not appear in the property’s title at the registry of deeds.
By holding that a defective cure notice is no defense to a post-foreclosure eviction, the SJC has made it more difficult for distressed homeowners to challenge the legality of foreclosures in eviction cases. On the flip side, the ruling will help buyers of foreclosed property as it makes their titles less susceptible to challenge by the previous owners.
I was honored to talk about boundary line disputes on this week’s Real Estate Radio Boston broadcast on WBZ 1030, hosted by Rick Scherer and Ali Alavi, Esq. The broadcast is below. Just click the Play button to listen! Or click on this link: Real Estate Radio Boston | Richard Vetstein.
Tune into the broadcast every Saturday night from 8pm-9pm on WBZ 1030 AM. It’s a fantastic show!
Should Result In Much-Needed Inventory Boost To Housing Market
Good news to report for property owners saddled with toxic titles resulting from the seminal U.S. Bank v. Ibanez foreclosure ruling. Massachusetts lawmakers are poised to pass into law a new bill aimed at legislatively clearing up all of these defective titles.
By way of background, properties afflicted with Ibanez title defects, in worst cases, cannot be sold or refinanced. And homeowners without title insurance have been compelled to spend thousands in legal fees to clear their titles, while some have not been able to clear their titles at all.
The new legislation, Senate Bill 1987, would render clear and marketable any title affected by a defective foreclosure after 3 years have passed from the foreclosure. Most of these toxic titles were created prior to 2009, so the vast majority of them will be cleared up.
The bill does preserve any existing litigation over the validity of foreclosures. The legislation does not apply if there is an existing legal challenge to the validity of the foreclosure sale in which case record notice must be provided at the registry of deeds. The bill also does not shield liability of foreclosure lenders and attorneys for bad faith and consumer protection violations over faulty foreclosures.
The bill has recently been passed by the Senate and now moves on to the House. Word is that it should pass through the House and on to the Governor’s Desk.
Shrewsbury State Senator Michael Moore and the Massachusetts Land Title Association have sponsored this effort for several years now. I have been supporting this effort as well.
This is great news for the real estate market. I don’t have firm numbers, but there are probably hundreds, if not thousands, of these unsellable properties just sitting on the sidelines, and now they can get back onto the market. This is exactly what the inventory starved market needs.
(Hat tip to Colleen Sullivan over at Banker and Tradesman for passing along this important information).
Court Points Out Potential Problem with Standard Notary Acknowledgment Form
Could the the standard form notary acknowledgment clause used in virtually every recent Massachusetts deed, mortgage and other recorded instrument be defective in certain situations involving power of attorneys? That may be the result of a recent court decision by the First Circuit Bankruptcy Appellate Panel in Weiss v. Wells Fargo Bank (click for link to case).
The ruling is causing quite a bit of angst in the real estate conveyancing community. Since Revised Executive Order 455 – Standards of Conduct for Notaries Public was passed by Gov. Romney in 2004, notaries public and attorneys have been using the approved notary acknowledgment form providing that the document is signed “voluntarily for its stated purpose. ” In the Weiss case, however, the court held that the notary acknowledgment of an attorney-in-fact under a power of attorney was defective as it failed to indicate that the principal has signed under “his free act and deed.”
The facts in the Weiss case are rather unique so it may have limited effect. But it should serve as a wake-up call for notaries public, attorneys and lenders that the better practice may be to use a notary public acknowledgment with the “free act and deed” language as was common before the 2004 notary rules.
Practice Pointer: Going forward, I recommend that real estate attorneys, notaries public and lenders should consider using “free act and deed” language in notary public acknowledgments. See below for form language.
Fact of the Case: Botched Notarization With Power of Attorney
In the Weiss case, a bankruptcy trustee for Chicopee homeowners attempted to use his “strong-arm” powers to void a refinance mortgage. The borrowers took out a refinance loan on their Chicopee home with Wachovia Mortgage. They signed a limited power of attorney to enable a one Shannon Obringer (who I assume was a bank employee) to sign the mortgage. The actual signing of the mortgage occurred in Pennsylvania by a Pennsylvania notary (I assume at Wachovia’s offices). You know this wasn’t going to end well….
The pre-printed notary acknowledgment form on the mortgage was the approved MA Executive Order form, which the notary partially completed as follows:
On this 11 day of June 2007, before me, the undersigned notary public, personally appeared Shawn G. Kelley and Annemarie Kelley by Shannon Obringer as Attorney in Fact, proved to me through satisfactory evidence of identification which was/were ________________ to be the person(s) whose name(s) is/are signed on the preceding document, and acknowledged to me that he/she/they signed it voluntarily for its stated purpose.
Although there was some ambiguity from the wording as to who actually appeared before the notary and the notary failed to fill out the identification form blank space, the Court held that these were not necessarily fatal. However, the Court ruled that the language in the notarization that it was signed “voluntarily for its stated purpose” was fatally defective because it did not sufficiently demonstrate that it was the borrowers’ “free act and deed” by the attorney-in-fact’s signature, as required by Massachusetts statutory and case law. The Court went on to void the mortgage in favor of the bankrupt debtor.
New Notary Public Acknowledgment
Going forward, I would consider using a notarization acknowledgment with the older “free act and deed” language in power of attorney signing situations. The 2004 acknowledgment should be ok for typical individual notarizations. Of course, you should consult with your title company, lender and/or attorney before notarizing in any tricky situations.
If you have any questions about notarization after this court ruling, please contact me at [email protected] or 508-620-5352.
Rejects “In For One, In for All” Theory in Title Insurance Coverage
One little mistake in drafting and recording legal documents during a refinance can result in a huge problem for a lender — such as the lender having no legal ability to enforce the mortgage! (A slight problem..) GMAC Mortgage learned this the hard way last week at the Supreme Judicial Court in GMAC Mortgage v. First American Title Insurance Company (SJC-11161), where the court found in favor of First American Title Insurance Co., in a dispute over coverage under a lender’s title insurance policy.
A Doozy of a Mistake
As title defects go, this is a doozy, because it was easily preventable, and yet wrecked so much legal havoc in its aftermath. Elizabeth Moore and her husband, Thomas Moore, lived in a home in Billerica, the title to which was in Mr. Moore’s name. In 2001, for the purpose of refinancing the property, Mr. Moore executed a note and a mortgage to GMAC’s predecessor corporation (which obtained a lender’s title insurance policy from an agent of First American). Mr. Moore also signed a deed conveying the property from himself to himself and his wife as tenants by the entirety, as his plan was for both of them to hold title jointly as husband and wife. Under the “first in time” rule, in order for the mortgage to properly attach to the property, it should have been recorded before the deed went on record. However, the closing attorney mistakenly recorded the instruments in the wrong order, so the mortgage only attached to Mr. Moore’s 1/2 interest in the Property. Mr. Moore died in 2007. After his death, record title to the property vested solely in Mrs. Moore, and GMAC was left with no ability to enforce its mortgage against her or the property.
GMAC sued Mrs. Moore to enforce its mortgage rights, and she countersued for a slew of wrongful foreclosure and consumer protection claims. GMAC and Mrs. Moore wound up settling out of court, but GMAC tried to recoup all its legal fees and losses against the lender’s title insurance policy issued by First American.
Court Rejects Complete Defense Doctrine for Title Insurance
Unlike commercial general liability policies, which courts have ruled must provide coverage to all claims in a lawsuit if merely one claim is covered — the “in for one, in for all” theory — the SJC ruled that title insurance policies do not provide such wide-ranging coverage. Reaffirming the notion that a policy of title insurance is merely an indemnification policy and not a guaranty of perfect title, the justices ruled that First American’s duty was only to cover the aspects of Mrs. Moore’s claims affecting title, and not her wrongful foreclosure and consumer protection claims. This ruling will mostly affect the relationship between the large banks and lenders and title insurance companies, but provides a good reminder about what title insurance does and what it doesn’t cover.
Title Insurance Coverages Often Misunderstood
As a former outside claims counsel for a leading title insurance company, I have found that most insureds and claimants do not fully understand title insurance coverages. And why would they? It’s complicated stuff.
Most regular folks think that title insurance provides a full and complete guaranty and assurance that title to their home is pristine and clean. While title insurance gives an ordinary homebuyer “max coverage” available for title defects, it does not provide a 100% warranty that every conceivable problem affecting legal ownership of a home will be covered.
Subject to various exclusions and exceptions noted on the policy, a title insurance policy provides coverage for loss or damage sustained by reason of a covered risk as of the time of the closing. What are those covered risks? Some risks such as forgeries, improper legal descriptions, and recording errors are covered. Other risks such as certain encroachments, boundary line disputes, wetland issues, and zoning issues are not covered. Defects or liens arising after the issuance of a policy are likewise not covered, unless a new policy is issued. Also, the new enhanced policies provide for more expanded coverages than the older standard policies. It’s best to consult an experienced title insurance attorney for a complete explanation of what a title policy covers.
Richard D. Vetstein, Esq. is an experienced Massachusetts title insurance claims and coverages attorney who was previously outside claims counsel to a leading title insurance company. You can reach him at [email protected] or 508-620-5352.
Federal Appeals Court Reinstates Borrower’s Wrongful Foreclosure Claim
Noted Massachusetts foreclosure defense attorney Glenn Russell is on a roll of a lifetime, yesterday winning a rare victory on behalf of a borrower at the U.S. Court of Appeals for the First Circuit in Boston. The case is Juarez v. Select Portfolio Servicing, Inc. (11-2431) (click for opinion). It is, I believe, the first federal appellate ruling in favor of a wrongful foreclosure claimant in the First Circuit which covers the New England area, and one of the first rulings to delve into the problem of back-dated mortgage assignments.
Melissa Juárez purchased a home in Dorchester, Massachusetts on August 5, 2005, financing it with reputed sub-prime lender New Century Mortgage. The mortgage was packaged and bundled into a real estate mortgage investment conduit (“REMIC”), a special type of trust that receives favorable tax treatment, ultimately being held by U.S. Bank, as trustee. Juárez could not afford the payments on the mortgage and defaulted. Foreclosure proceedings began in the summer of 2008, culminating in the sale of her home at an auction in October 22,2008. She claims, however, that lender did not hold the note and the mortgage at the time they began the foreclosure proceedings against her, and that the foreclosure was therefore illegal under Massachusetts mortgage law.
The problem in the case centered around the mortgage assignment into U.S. Bank, as trustee — the same problem the same bank faced in the landmark U.S. Bank v. Ibanez case. The “Corporate Assignment of Mortgage,” appears to have been back-dated. It was dated October 16, 2008 and recorded in the corresponding registry of deeds on October 29, 2008, after the foreclosure had been completed. However, at the top of the document, it stated: “Date of Assignment: June 13, 2007,” in an obvious attempt to date it back prior to the foreclosure.
First Circuit Reinstates Borrower’s Wrongful Foreclosure Claims
After federal judge Denise Casper dismissed Juarez’s claims entirely on a motion to dismiss, the First Circuit reinstated the majority of Juarez’s claims. U.S. Bank claimed that the back-dated mortgage assignment was merely a confirmatory assignment in compliance with the Ibanez ruling, but the appeals court concluded otherwise:
Nothing in the document indicates that it is confirmatory of an assignment executed in 2007. Nowhere does the document even mention the phrase “confirmatory assignment.” Neither does it establish that it confirms a previous assignment or, for that matter, even make any reference to a previous assignment in its body.
Lacking a valid mortgage assignment in place as of the foreclosure, U.S. Bank lacked the authority to foreclose, the court ruled, following the Ibanez decision. Ms. Juarez and Glenn Russell will now get the opportunity to litigate their claims in the lower court.
Will Lenders Ever Learn Their Lesson?
The take-away from this case is that courts are finally beginning to scrutinize the problematic mortgage assignments in wrongful foreclosure cases. This ruling may also affect how title examiners and title insurance companies analyze the risk of back titles with potential back-dated mortgage assignments. If a lender records a true confirmatory assignment, it must do much better than simply state an effective date.
Court Uses Novel Equitable Assignment of Mortgage Theory
In what could be the first test case of a new theory to clear up defective foreclosure titles — and much welcome news for property owners stuck with toxic titles — Massachusetts Land Court Judge Gordon Piper has ruled that the theory of equitable assignment of an improperly foreclosed mortgage can be used to clear title of an improperly foreclosed property.
The case is Cavanaugh v. GMAC Mortgage LLC, et al., 11 MISC 447901 (embedded below) and was recently appealed by noted foreclosure attorney, Glenn Russell, Esq., who represented the prevailing homeowners in the landmark U.S. Bank v. Ibanez case. The case will now go up to the Massachusetts Appeals Court, or, given its importance, perhaps taken up by the Supreme Judicial Court on direct appellate review.
In this case, GMAC Mortgage foreclosed a mortgage given by Maureen Cavanaugh of Fairhaven, then granted a foreclosure deed to Fannie Mae. The foreclosure, however, was defective because notice of the foreclosure sale was not published in the local newspaper as required by Massachusetts foreclosure law. Fannie Mae later sold the property to Timothy Lowney.
Ms. Cavanaugh sued the lenders and Mr. Lowney in a Land Court “quiet title” action to re-claim her property back. This is essentially the same situation as presented in the Bevilacqua vs. Rodriguez case where a property owner was stuck with a defective foreclosure title. The Court in Bevilacqua suggested an alternative theory to solve the defective title by using the conveyance of the foreclosure deed as an equitable assignment of the original mortgage, so the new property owner could foreclose and obtain clear title in the process.
Judge Piper used this equitable assignment theory in the Cavanaugh case, ruling that Lowney, the new buyer, holds the GMAC Mortgage through equitable assignment, and may now foreclose upon Ms. Cavanaugh, thereby clearing the way to get clean title. Equally important, Judge Piper ordered GMAC and Fannie Mae to assign the underlying promissory note from Ms. Cavanaugh to Lowney so that he holds both the note and the mortgage as required by after the important Eaton v. Fannie Mae case several months ago.
This is an important and much-needed judicial development for assisting homeowners who have been unable to refinance or sell their properties due to “Ibanez” and other foreclosure related title defects. This case also illustrates the importance of obtaining an owner’s policy of title insurance which appears to have provided coverage to Mr. Lowney in this matter.
Score One For Lenders and Mortgage Servicers In Long-Awaited Eaton v. Fannie Mae Case
The Massachusetts real estate community has been waiting 8 long months for a decision from the Massachusetts Supreme Judicial Court (SJC) in the much anticipated Eaton v. Federal National Mortgage Association(link) case. The decision came down June 22, and now that the dust has settled, I don’t think there is any question that lenders and the title community have been given a judicial Maalox. ((Some smart foreclosure defense folks disagree with me, but I’m confident in my analysis.))
The SJC held that lenders must establish they hold both the promissory note (indebtedness) and mortgage (a major problem for securitized or MERS mortgages where the note and mortgage are split between securitized trust and servicer). However, responding to pleas from the real estate bar, the Court declined to apply the new rule retroactively, thereby averting the Apocalyptic scenario where thousands of foreclosure titles would have been called into question. This would have been disastrous for folks who purchased distressed and foreclosed properties.
Even better, the Court outlined new procedures, including filing a statutory affidavit, to ensure that foreclosures are fair to borrowers going forward. The ruling gave lenders and the foreclosure industry a huge pass for past errors, and will clear the way for foreclosures to accelerate and run their course in Massachusetts and possibly other states if this case is followed. Let’s break it down.
Background: Borrower Used “Produce the Note” Defense 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.
Ms. Eaton was able to obtain an injunction from the lower Superior Court halting her eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This is the “produce the note” defense and has been gaining steam across the country. Superior Court Judge Francis McIntyre bought into that argument, and stopped the foreclosure. Given the importance of the case, the Supreme Judicial Court granted direct appellate review.
FHFA Files Amicus Brief and SJC Asks For More Guidance
This case garnered substantial local and national attention from the lending, title and real estate community on one side, and housing advocates on the other side. Notably, the Obama Administration’s Federal Housing Finance Agency filed a rare friend-of-the-court brief in a state court proceeding, arguing for a ruling in favor of lenders. Spirited oral arguments were held back in October which I briefed here.
In January, when a decision was expected, the Court surprisingly asked the parties for additional briefing on whether a decision requiring unity of the promissory note and mortgage would cloud real estate titles. This was the apocalyptic scenario that the real estate bar and title community urged the Court to avoid. (The Court listened, as I’ll explained below).
The Opinion: Unity Endorsed, A Foreclosing Lender Must “Hold” Both Note & Mortgage
The first issue considered by the court was the fundamental question of “unity” urged by the Eaton side: whether a foreclosing mortgagee must hold both the promissory note (underlying indebtedness) and the mortgage in order to foreclose. After reviewing Massachusetts common law going back to the 1800’s, the Court answered yes there must be unity, reasoning that a “naked” mortgagee (a holder of a mortgage without any rights to the underlying indebtedness) cannot foreclose because, essentially, there is nothing to foreclose. If the Court stopped there, lenders and MERS would have been in big trouble. But, as outlined below, the Court significantly limited the effect of this decision.
Disaster Averted: Ruling Given Prospective Effect
Swayed by the arguments from the Massachusetts Real Estate Bar Association that retroactive application of a new rule would wreak havoc with existing real estate titles in Massachusetts, the SJC took the rare step of applying its ruling prospectively only. As Professor Adam Levitin (who drafted an amicus brief) noted on his blog, this “means that past foreclosures cannot be reopened because of this case, so the financial services industry just dodged billions in liability for wrongful foreclosures and evictions, and the title insurance industry did as well.” So going forward, lenders must establish unity of both note and mortgage, but past foreclosures are immune from challenge.
MERS System Given Blessing?
Ms. Eaton’s mortgage was a MERS (Mortgage Electronic Registration System) mortgage. MERS is a private system created by the largest national lenders and title companies to track assignments and ownership of loans as they are bought and sold in the secondary mortgage market. MERS has come under fire from distressed homeowners and registrars of deeds (especially our own Essex County Registrar John O’Brien) for robo-signing and bungled foreclosures. Although the Court did not specifically rule on the validity of the MERS system, the decision cited several new MERS policies and said that lenders who follow these new policies will likely be in compliance with the court’s holding. So MERS will continue doing business in Massachusetts for the foreseeable future.
Make Way For the “Eaton” Affidavit
The most important aspects of the Eaton ruling, in my opinion, are what came after the two “headline” rulings above. First, the Court made the explicit point that lenders do not have to physically possess both note and mortgage to be deemed a “holder” able to foreclose. This is huge given the pandemic paperwork deficiencies common with securitized mortgage trusts.
Second, the court also stated in a very important footnote that it will “permit one who, although not the note holder himself, acts as the authorized agent of the note holder, to stand “in the shoes” of the “mortgagee” as the term is used in these [foreclosure statute] provisions.” This footnote opens the door wide open for servicers and MERS to establish that they are authorized to foreclose, and acting on behalf of, the securitized trusts who hold legal title to the mortgages.
Lastly, the court approved the use of a statutory affidavit filed at the county registry of deeds in which the note holder or mortgage servicer confirms that it either holds the promissory note or is acting on behalf of the note-holder. We will surely be seeing these “Eaton” affidavits being prepared and recorded in connection with foreclosures.
Potential Bad News For U.S. Bank v. Ibanez Defect Victims
The Court’s ruling may be bad news for those property owners stuck with defective title issue stemming from a botched foreclosure under the seminal U.S. Bank v. Ibanez case. Last year, the Court, in Bevilacqua v. Rodriguez, suggested that 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 the current owner would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon. The Eaton v. Fannie Mae ruling, however, may have killed that remedy because the current owner now needs to hold both the promissory note and the mortgage. Ibanez titles remain toxic, and I am hearing that title insurers who are on the hook for them are not even willing to try to fix them until a legislative fix.
What’s Next?
As a real estate and title attorney, what I appreciate about this decision is that the SJC took into account the disastrous effect a retroactive rule would have on past titles (now held by innocent third party purchasers) and came up with new ground rules for foreclosing lenders to follow going forward. It’s like the court said “what’s done is done, now let’s move forward doing it the ‘right’ way.” We will definitely see foreclosures that were in a holding pattern resume again. On the closing side, when I am reviewing a title with a past foreclosure, my client and I can sleep better knowing that the risk of a defective title just got a reduced substantially. This is good for the housing market and it makes more properties marketable.
However, this is not the end of foreclosure litigation in Massachusetts. As with most landmark cases pronouncing a new rule of law, subsequent litigation to clarify what the court meant is likely to follow in this case. Some remaining unanswered questions include:
Is the produce the note defense truly dead for previously completed foreclosures–even where promissory notes are lost and not produced?
If challenged, what further documentation, if any, will suffice to establish agency for MERS and mortgage servicers of mortgages held in securitized trusts.
Will borrowers be able to challenge new “Eaton” affidavits which appear to be fraudulent or robo-signed?
All things considered, I will agree with Prof. Levitin who opined: “In the immediate term, I’d score the case as a major victory for the financial services industry, which avoided liability for its failure to comply with state law foreclosure requirements. Going forward, however, things are more complicated.”
Real Estate Crash Has Resulted In Many More Forms and Disclosures
These days buyers are leaving closing rooms with not only their keys but a mild case of carpal tunnel syndrome! The reason for sore forearms and wrists is the voluminous stack of closing documents which are now required to be signed and notarized at every Massachusetts real estate purchase or refinance closing.
One of my opening “break the ice” lines at closings is to suggest that the buyers start massaging their writing hands. Then I show them the 2 inch stack of documents they must review and sign, and they usually say, “Are you serious? We have to sign all that?” Yep, I reply. You can thank Fannie Mae and the real estate collapse for that! All the new rules and regulations passed in the last 5 years have resulted in, you guessed it, more forms. Do you think the Feds and state ever eliminate old or out-dated forms? Nope.
Let me quickly go over some of the more important — and less important — documents signed at a typical Massachusetts real estate closing.
The Closing Documents
HUD-1 Settlement Statement. This is arguably the most important form signed at closing. It breaks down all the closing costs, lender fees, taxes, insurance, escrows and more. We did a full post on the HUD-1 and all the closing costs you can expect to pay here. Under the newer RESPA rules, most closing costs must be within 10% tolerance of the Good Faith Estimate provided by the lender (which you will also re-sign at closing).
Promissory Note & Mortgage. These two documents form what I like to call the “mortgage contract.” The promissory note is the lending contract between borrower and lender and sets the interest rate and payment terms of the loan. It is not recorded at the registry of deeds. The Mortgage or Security Instrument is a long (20+ page) document and provides the legal collateral (your house) securing the loan from the lender. The Mortgage gets recorded in the county registry of deeds and is available to public view. Read a full explanation of the Note and Mortgage in this post.
Truth in Lending Disclosure (TIL). The Truth in Lending should really be called “Confusion In Lending,” as the federal government has come up with a confusing way to “explain” how your interest rate works. This is a complex form and we’ve written about it extensively in this post. Your closing lawyer will fully explain the TIL form to you at closing.
Loan Underwriting Documents. With increased audit risk on loan files, lenders today are requiring that borrowers sign “fresh” copies of almost all the documents they signed when they originally applied for the loan. This includes the loan application, IRS forms W-9 and 4506’s.
Fraud Prevention Documents. Again, with the massive mortgage fraud of the last decade, lenders are requiring many more forms to prevent fraud, forgeries, and straw-buyers. The closing attorney will also make a copy of borrowers’ driver’s licenses and other photo i.d. and submit the borrower’s names through the Patriot Act database. They include Occupancy Affidavit (confirming that borrowers will not rent out the mortgaged property), and the Signature Affidavit (confirming buyers are who they say they are or previously used a maiden name or nickname).
Escrow Documents. Unless lenders waive the requirement, borrowers must fund an escrow account at closing representing several months of real estate taxes and homeowner’s insurance. This provides a cushion in case borrowers default and the taxes and insurance are not paid.
Title Documents. For purchase transactions, Massachusetts requires that the closing attorney certify that a 50 year title examination has been performed. Buyers will counter-sign this certification of title, as well as several title insurance affidavits and documents which the seller is required to sign, to ensure that all known title problems have been disclosed and discovered. Of course, we always recommend that buyers obtain their own owner’s title insurance which will provide coverage for unknown title defects such as forgeries, boundary line issues, missing mortgage discharges, etc.
Property Safety Disclosures. In Massachusetts, buyers and sellers will sign a smoke/carbon monoxide detector compliance agreement, lead paint disclosure, and UFFI (urea formaldehyde foam insulation) agreement. These ensure that the property has received proper certifications and will absolve the lender from liability for these safety issues.
Servicing, EOCA and Affiliated Business Disclosures. Chances are that your lender will assign the servicing rights to your mortgage to a larger servicer, like JP Morgan Chase or CitiMortgage. You will sign forms acknowledging this. You will be notified of the new mortgage holder usually within 30-60 days after closing. In the meantime, the closing attorney will give you a “first payment letter” instructing you where to send your first payment if you don’t hear from the new servicer. You will also sign forms under the federal and state discrimination in lenders laws and forms disclosing who the lender uses for closing services.
Well, those are most of the documents that buyers will sign at the closing. Sellers have a slew of their own documents to be signed at closing, and I’ll cover that in a future post. As I said, at your closing, massage your signature hand, grab a comfy pen, and sign your life away!
When you are considering purchasing a home in Massachusetts, the property may have the benefit or burden of an easement. Most easements and restrictions are quite “harmless” and standard, however, some can have a major impact on future expansion possibilities and the right to use portions of the property. In this post, I’m going to go through the most common types of easements and how they can affect property.
What Is An Easement?
In plain English, an easement is a right that another person or company has to use your property. They don’t own your property, but the easement gives them the legal right to use your property as specified in the easement instrument. The property that enjoys the benefit of the easement is sometimes referred to as the “dominant estate,” and the property over, under, or through which the easement runs is sometimes referred to as the “servient estate.” Easements are usually recorded in the registry of deeds, but sometimes they can arise from “implication” or “by necessity.” I’ll explain those later.
Utility Easements
The most common types of easements in Massachusetts are utility easements for such things as overhead and underground power lines, cable lines, gas lines, and water mains. These easements allow the utility companies to use portions of residential property to provide their respective utility services. Sometimes, the easements will show up on a plot plan or survey, and some will be found recorded in the title, usually when the lot was first laid out. The majority of these easements do not materially affect the use and expansion of your property, however, the one type of easement to take note of are high pressure gas line easements. For obvious safety reasons, these easements usually carry with them strict restrictions on what can be built on or near them.
Driveway or Access Easements
Another common type of easements that are found in Massachusetts are access easements for driveways and the like. Properties with shared driveways will often have easements enabling such sharing– or they should! These easements should also provide for common maintenance and upkeep responsibilities and expense. Other types of access easements include walking and bike paths and beach access – very common down the Cape and on the Islands.
Drainage Easements
Another common type of easements are drainage easements which are typical for newer subdivisions. Drainage easements allow for one lot to drain its storm water onto another or into a detention pond.
Prescriptive Easements
If you have heard of adverse possession, then you know what a prescriptive easement is all about. An easement by prescription is an easement acquired through adverse possession – which is the hostile adverse use of someone else’s property for 20 or more continuous years. Prescriptive easements arise where people have acted as though an easement has existed but there is no instrument of easement recorded at the registry of deeds. For example, a prescriptive easement can arise if a neighbor’s family has used a walking path on the neighbor’s property for over 20 years. twenty years. I’ve written extensively on adverse possession in this post.
Easements by Implication and by Necessity
An easement by implication is found in the law when there is no recorded easement, but where the circumstances show an easement was intended to exist. It usually exists where there is common ownership of a lot, the seller conveys a portion of the land under current ownership, and both parties intended to create an easement at the time of conveyance. If someone claims an easement by implication which negatively affects one’s property, the owner’s title insurance policy, if any, will typically cover that situation. Easements by necessity occur when a property is sold in a land-locked configuration without any legal access. An easement is therefore created “by necessity” to prevent the land-locking. An adverse easement by necessity would also be covered by an owner’s title insurance policy.
In a decision which could impact foreclosure cases involving missing or lost loan documents, the Appeals Court held that a mortgage is unenforceable and must be discharged where the underlying promissory note securing the mortgage could not be found.
Seller Second Mortgage Financing
This case involved an unconventional second mortgage for approximately $15,000 taken back from a private seller. The homeowner subsequently refinanced the first mortgage several times, but the refinancing lenders’ attorneys never obtained a subordination from the second lien-holder. That was a mistake. The first mortgage wound up in Wells Fargo’s hands which realized that due to the lack of recorded subordination, the second mortgage was senior to its first mortgage.
Alas, a title claim arose and the title insurance company had to step in and file an “equitable subrogation” action. In this type of legal action, a first mortgage holder asks the court to rearrange the priorities of mortgages due to mistake, inadvertence or to prevent injustice.
Where’s The Note?
The second mortgage holder had lost the promissory note which secured its mortgage, and notably, could not locate a copy of it. The mortgage itself referenced the amount of the loan and the interest rate but was silent on everything else, including the payment term, maturity date, and whether it was under seal. The second mortgage holder argued that enough of the terms of the missing note could be “imported” from the mortgage, but the Appeals Court disagreed, reasoning that there wasn’t enough specificity on key terms to enforce the mortgage.
Lesson One: Safeguard Original Loan Docs
This decision underscores the importance of safeguarding original promissory notes and other debt instruments, or at a minimum keeping photocopies so that if enforcement is required, the material terms of the original can be proved to the satisfaction of the court. With all the paperwork irregularities endemic with securitized mortgages these days, missing or lost promissory notes and loan documents have become more prevalent. This decision is potentially problematic for those foreclosures where the original promissory note is lost. The standard Fannie Mae form mortgage does not spell out the loan terms with specificity, instead, it references the promissory note. Indeed, the Fannie Mae mortgage does not even reference the interest rate. Based on this decision, a mortgage without sufficient evidence of a promissory note could be rendered unenforceable and un-forecloseable.
(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.
Lesson Two: Get Subordinations For Junior Liens
This decision also underscores the importance of getting a subordination agreement for second mortgages and other junior lien-holders when closing refinances. A subordination agreement is a contract whereby a junior lien-holder agrees to remain in junior position to a first mortgage or other senior lien-holder during a refinancing transaction. Otherwise, the first in time rule of recording would elevate a junior lien-holder to first, priority position after a refinance. If a subordination was obtained and recorded here, this case would not have occurred.
Disclaimer: I drafted the original complaint in this case while working at my previous law firm. I had long since left when the case was decided at the Appeals Court.
Massachusetts Senate Bill 830 Addresses Toxic Foreclosure Titles
Finally, Massachusetts lawmakers have taken action to help innocent purchasers of foreclosed properties in the aftermath of the U.S. Bank v. Ibanez and Bevilacqua v. Rodriguez decisions, which resulted in widespread title defects for previously foreclosed properties. The legislation, Senate Bill 830, An Act Clearing Titles To Foreclosed Properties, is sponsored by Shrewsbury State Senator Michael Moore and the Massachusetts Land Title Association. Full text is embedded below.
The bill, if approved, will amend the state foreclosure laws to validate a foreclosure, even if it’s technically deficient under the Ibanez ruling, so long as the previously foreclosed owner does not file a legal challenge to the validity of the foreclosure within 90 days of the foreclosure auction.
The bill has support from both the community/housing sector and the real estate industry. Indeed, the left-leaning Citizens’ Housing and Planning Association (CHAPA), non-profit umbrella organization for affordable housing and community development activities in Massachusetts, has filed written testimony in support of the bill.
Properties afflicted with Ibanez title defects, in worst cases, cannot be sold or refinanced. Homeowners without title insurance are compelled to spend thousands in legal fees to clear their titles. Allowing such foreclosed properties to sit and languish in title purgatory is a huge drain on individual, innocent home purchasers and the housing market itself.
A recent case in point: I was recently contacted by a nice couple who bought a Metrowest condominium in 2008 after it had been foreclosed. Little did they know that the foreclosure suffered from an “Ibanez” title defect. Unfortunately, the lawyer who handled the closing did not recommend they buy owner’s title insurance. They have been unable to track down the prior owner who went back to his home country of Brazil, and now they are stuck without many options, unable to refinance or sell their unit. This bill will help people like this who have helped the housing market by purchasing foreclosed properties, and improving them.
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.
Plot Plans, also called Mortgage Inspection Plans, were once part of every Massachusetts real estate purchase closing. These days, some lenders do not require them and I will tell you why in this post. However, despite the limitations of a plot plan, I think it’s a good idea for buyers to purchase a plot plan at closing. The typical cost of a plot plan is around $125.00 so it’s affordable.
While it is not nearly as accurate as a full instrument land survey, a plot plan will give the buyer a visual of the lot lines, the approximate location of the home and accessory structures, and any easements running through the land. Also, when you go to sell your property, a plot plan is helpful for prospective buyers to review as part of the marketing package.
What Is A Plot Plan?
A plot plan, also called a Mortgage Inspection Plan, confirms the following information:
Does the house or building, as well as accessory structures (pools, sheds, etc), conform to the local setback zoning by-laws?
Does the house or building, as well as accessory structures, fall within the FEMA flood hazard zone (which would require flood insurance)?
Are there any building encroachments?
Are there any recorded easements running through the property?
In addition to answering these questions, a plot plan includes helpful reference information such as the deed book and page numbers, property plan numbers, land court plan numbers (if applicable), assessor map and lot numbers and F.E.M.A. rate map numbers. This information can be very helpful to the homeowner and a potential buyer as well.
How Is A Plot Plan Prepared?
It is important to point out that a plot plan is NOT a land survey, and is not prepared using standard instrument survey instruments. A plot plan is prepared using visual inspection and measuring tapes only. A physical inspection of the dwelling’s exterior is made, with tape measurements to show the approximate location of the dwelling. The preparer will review the recorded deed and plan(s) obtained at the Registry of Deeds or town offices to determine the lot configuration. Information from the field is merged with record information to create a drawing of the property (the plot plan) and the approximate location of the dwelling on the lot. The flood zone is determined. A quality review performed by Professional Land Surveyor.
The accuracy of a plot plan is usually within two to three feet. The field work involved in preparing the Mortgage Inspection Plan does not include the setting of property line stakes. Therefore, although tape measurements are sufficient to make zoning and flood hazard determinations, the plan should not be used as a substitute for a “Building Permit Plot Plan” or to determine property lines. A plot plan cannot be used as a substitute for a full instrument land survey.
What is Not Provided by a Mortgage Plot Plan?
As stated before, a plot plan has its limitations, which is a reason cited by lenders for not requiring them, such as:
No representation is made as to the accuracy of the depicted property lines.
No attempt has been made to verify the boundary configuration or, typically, the mathematical correctness of the legal property description.
Property corners can not be located based on this type of plan, therefore no fences, hedge rows or other improvements can be determined or located.
The location of any improvements shown are approximate, and therefore any planned construction should not be based on the locations as shown.
What is a Certified Plot Plan, Boundary, Land or Instrument Survey?
An accurate instrument land survey involves the location of established monuments or survey control points, which are then mathematically tied in to the property being surveyed. This process utilizes sophisticated, state-of-the-art equipment, and precisely locates both the property lines and the improvements on the property in relation to those property lines. The cost of a full instrument survey can range from $1,000 to $5,000, depending on the property. You can use a land survey for construction, Land Court, and Registry of Deeds plans.
How Do I Get A Plot Plan?
If your lender requires a plot plan at closing — check your Good Faith Estimate or closing cost worksheet — it will order one for you and you’ll have it at closing. If your lender does not require a plot plan, speak to your closing attorney and they will gladly order one for you!
Joe Paterno Conveys Home to Wife For $1, “Love and Affection”
For topical reasons, I have had no reason to post about the despicable Penn St. child abuse scandal on this blog. Until now — when I came across an interesting New York Times article on Joe Paterno’s recent real estate activity. The Times reports that this summer “Joe Pa.” transferred title to his State College home to his wife for $1 and “love and affection.” Some say the transfer was intended to avoid the inevitable fallout from the Penn St. child abuse scandal and legal action brought by victims of the scandal. Joe Paterno’s attorney, however, says that this transfer was part of the Paternos’ long standing estate plan.
Fraudulent Transfers
The debate centers over what’s known legally as a fraudulent transfers. Fraudulent transfers are property conveyances made with the specific intent to place the property outside the reach of creditors, or made where “the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent.” The latter definition, in plain English, means the owner was broke and received less than market value for the sale of the property. Fraudulent transfers can be undone by the courts so creditors can tap into a home’s equity to satisfy legal judgments.
In Joe Paterno’s case, the $1.00 stated consideration for the transfer to his wife typically raises a red flag as a potential fraudulent transfer. If Paterno can prove that the transfer was indeed made as part of a legitimate estate plan, then he could avoid a fraudulent transfer determination. If the transfer is determined to be fraudulent so as to avoid liability for the child abuse scandal, the transfer to his wife can be undone by his creditors with the help of the court. And this is true even if Joe were to file bankruptcy. Moreover, the look-back period for fraudulent transfers is rather long–as long as 4 years under the Massachusetts Uniform Fraudulent Transfer Act, and even up to 10 years in the case of conveyances into trusts (where the debtor holds the beneficial interest) under 2005 bankruptcy law amendments.
Also, fraudulent transfers are typically excluded from coverage under owner’s title insurance policies. So if you purchased a property which later becomes the subject of a fraudulent transfer lawsuit, you may be on your own, which is a scary proposition.
Asset Protection, Homesteads and More
There’s nothing wrong or illegal about protecting your assets for the future. There are a myriad of legal and safe methods from protecting your property. But, if you wait until there is a problem, it’s usually too late to fix it. The same is true for asset protection planning. Simply put, do it as early as possible, well before creditors are chasing you down.
The first choice should almost always be to declare homestead protection on your principal residence. We’ve written about the new, enhanced Massachusetts homestead protection quite a bit. In a nutshell, a homestead will protect up to $500,000 in equity from most creditors. It’s a relatively simply form recorded with the county registry of deeds.
For more sophisticated asset protection devices such as trusts, family limited partnerships, LLC’s, and even offshore vehicles, I would recommend a reputable estate planning attorney. My friends at Pabian & Russell in Boston are a good place to start.
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.
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.
Don’t Let An Undischarged Mortgage Ruin Your Closing
Real estate attorneys are often confronted with difficult and complex title defects which need to be cured. With the refinancing boom of the last 10 years, sloppy, high-volume closing attorneys occasionally failed to obtain discharges of mortgage they were paying off at closing. Likewise, home equity closings at local bank branches were also notorious for not tracking down and recording mortgage discharges.
These undischarged mortgages and “missing” discharges from years ago rear their ugly heads when the homeowner goes to sell his property and a full 50 year title examination is undertaken by a competent closing attorney. Some of these missing discharges are from old banks and financial institutions which have gone bankruptcy, are now in FDIC receivership, or were merged with other banks several times. Some are with private lenders who are no where to be found. Of course, title must be cleared prior to closing or there is no closing!
This is when even the most experienced real estate closing attorney has to call in the cavalry. And that person is someone like Kurt Stuckel, Esq.
I like to call Kurt the Jedi Master Discharge Tracker. Operating out of a small office in little Pepperell, Mass., Attorney Stuckel handles and solves thousands of title requests every year for real estate attorneys and title companies throughout the Commonwealth. He’s handled several thorny issues for me in recent months – even one where I thought “there’s no way he can get this one” from the FDIC–and low and behold, he did. His fees are reasonable, and he makes the closing attorney look good in front of their clients.
If you are in need of excellent title curative services, please contact Kurt Stuckel, Esq. at 978.443.5241 or email at [email protected]. And tell him I sent you!
L to R, bottom: Clarence Thomas, Antonin Scalia, John Roberts, Anthony Kennedy, Ruth Ginsberg; top: Sonya Sotomayor, Steven Breyer, Samuel Alito, Elana Kagan
U.S. Supreme Court To Hear Edwards v. First American Title
In a case closely watched by the title insurance and real estate settlement services industry, the United States Supreme Court has agreed to hear a class action which will decide whether consumers can sue under the Real Estate Settlement Practices Act (RESPA) over a title insurance referral arrangement that allegedly violated RESPA’s anti-kickback provisions. The case’s outcome could shield title insurers, banks and other lenders from litigation under RESPA and a wide range of federal and state laws. If First American wins this case, we could see title insurance companies in Mass. taking a much more active role in the operations of their favorite and most profitable agents.
The case is Edwards v. First American Title Co. For more coverage of the case, read the SCOTUS Blog summary here.
No Kickbacks
Class action attorneys file hundreds of cases each year on behalf of borrowers alleging violations of RESPA, which prohibits “any fee, kickback or thing of value,” in exchange for a business referral. RESPA also forbids that a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service” be paid for services that are not actually rendered to the customer. If a violation of the statute is proven, a court can award a plaintiff treble damages, or triple the amount, for any charge paid.
In a lawsuit filed in 2007, Denise Edwards claimed her title insurer, Tower City Title Agency LLC of Highland Heights, Ohio, entered into a “captive insurance agreement” with First American Title that was illegal under RESPA. The lawsuit said that because First American paid $2 million for a 17.5% minority interest in Tower City in 1998, it received the majority of the local agent’s referral business which violated RESPA. The suit sought class action status on behalf of all consumers who purchased title insurance through a title agency that was subject to an exclusive referral agreement with First American, and damages of up to $150 million.
The case went up to the 8th Circuit Court of Appeals which sided with Edwards that “the damages provision in RESPA gives rise to a statutory cause of action whether or not an overcharge occurred.”
Supreme Court Review
The Supreme Court will review the constitutional issue of whether consumers must prove they were actually injured under RESPA and other truth in lending laws. A favorable ruling for First American could mean a significant dent in costly class action suits under RESPA and TILA. Oral argument is expected in the Fall term, in October.
Massachusetts Impact: Cozier Agent Relationships?
Beyond curtailing or expanding consumers’ ability to bring all sorts of claims under RESPA and Truth in Lending (TILA), a favorable result for First American could enable title companies to get into much cozier relationships with attorney agents in Massachusetts.
Massachusetts is a so-called attorney agency state, where attorneys issue title insurance policies. Title insurance companies in Massachusetts cannot (yet) legally invest in or own law firms (although this rule is being challenged nationally). So we don’t have a “captive insurance agreements” or the like. Certainly, some attorney agents prefer to give their business to one or two particular title insurance companies, but to my knowledge, there’s no formal agreement among insurers and agents here in Mass.
If First American wins this case, we could see title insurance companies in Mass. considering captive insurance agreements and taking a much more active role in the operations of their favorite and most profitable agents. We will see….
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With 25 years in practice, he was voted a "Super Lawyer," a "Top Lawyer" by Boston Magazine and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Senate Bill 1987 Would Have Cleared Title For Innocent Homeowners
