Massachusetts foreclosure law

Foreclosure2.jpgRuling Enables Foreclosed Owner to Live in Premises For Over 6 Years, Leaving New Owner with Defective Title

In a decision which could affect how title examiners and title insurance companies underwrite title to foreclosed properties, the Supreme Judicial Court has ruled that a lender’s defective notice of default is grounds to void and nullify a foreclosure sale — even after the property was purchased at auction by a third party without knowledge of the problem. The decision is Pinti v. Emigrant Mortgage Co. Inc. (SJC-July 17, 2015).

The defective aspect of the default notice was relatively minor. The notice was required to say that the borrower had the right to bring “a court action” to challenge the default or foreclosure. The actual notice instead referenced a “lawsuit for foreclosure and sale.” The problem is that in Massachusetts there is really no such thing as a lawsuit for foreclosure, because we are a non-judicial foreclosure state. In order to challenge a foreclosure, a borrower must bring an injunction proceeding in Superior Court. Over this minor discrepancy, the Court throw out a 3 year old foreclosure, leaving the subsequent buyer with defective title.

“This ruling is yet another reason why it’s absolutely critical to obtain owner’s title insurance for any home purchase–especially a foreclosure property.”

This ruling had a disastrous impact on the foreclosing lender and the buyer of the property at foreclosure (and his title insurance company, presumably). The borrower, who was represented by Greater Boston Legal Services, stopped paying her mortgage six years ago in 2009, and the lender foreclosed in 2012. A third party purchased the property (with the borrower in occupancy) shortly thereafter, then commenced eviction proceedings. It appears that the borrower has been able to live in the premises for the entirety of the litigation, presumably mortgage payment free. After this ruling, the lender will need to re-start foreclosure proceedings from square one.

Change In Title Exam Practices?

In a typical title examination involving a previously foreclosed property, the examiner and attorney will only look at the foreclosure notices and “green cards” — the certified mail foreclosure notices. In light of this ruling, the examiner may be required to look back even further to the default notices sent by the lender (which are not recorded with the registry of deeds) and ensure compliance with the mortgage and loan documents. Attorneys should consult their title companies for guidance on this ruling. (The ruling’s effect is prospective only; a title insurance company that I work with has already stated that they will not be changing their underwriting standards after Pinti).

Effect On Foreclosures

The SJC’s reasoning for requiring strict compliance with the default notice provisions in the mortgage was based on the fact that Massachusetts uses a non-judicial foreclosure process. That is, lenders do not need a judge’s approval to start foreclosure (with the except that they need Land Court approval that the borrower is not in the armed services). Accordingly, even the most hyper-technical defect in a default notice by the lender could render a foreclosure void.

Following a long series of pro-borrower rulings starting with the historic U.S. v. Ibanez decision, the SJC’s decision in this case is yet another cautionary tale to lenders that they must dot their “i’s” and cross their “t’s” before conducting a valid foreclosure sale.

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Distressed Homeowners Take Another Hit

In another court ruling against embattled homeowners facing foreclosure, the Massachusetts Appeals Court has ruled that a defective 150 day cure notice is not a valid defense to a foreclosure sale. The case is Haskins v. Deutsche Bank (click for link to case). The ruling will make it more difficult for distressed homeowners to challenge foreclosure and could accelerate the pace of pending foreclosures.

150 Day Cure Notice

The 2010 Foreclosure Prevention Act requires that foreclosing lenders provide a borrower with a 150 day right to cure prior to starting a foreclosure proceeding. The notice must identify the current “holder” of the mortgage. Before this ruling, some trial courts had ruled that a bank’s failure to strictly comply with those requirements was sufficient grounds to halt a foreclosure sale.

In the Haskins case, the borrower challenged his foreclosure on technical grounds because the cure notice incorrectly identified the holder of the mortgage as IndyMac Mortgage Services. IndyMac was the mortgage servicer and mortgage was legally held in a securitized trust operated by Deutsche Bank.

Justice Mark Green, a former Land Court judge and former banking general counsel, recognized that today the vast majority of residential mortgages are serviced by large mortgage servicers while owned and held in securitized trusts. Rejecting the borrower’s form-over-substance argument, Justice Green ruled that as long as the borrower receives an accurate cure notice with the correct loan balance information and payment address so the borrower can pay up and cure, an erroneous identification of the actual mortgage holder should not affect the validity of the pending foreclosure.

Massachusetts foreclosure defense attorney Adam Sherwin, who represented the borrower, put up a valiant fight in this case. However, with this ruling and several recent decisions before it, foreclosure defense attorneys have suffered several setbacks in the courts, making it more difficult for distressed homeowners to challenge and stop foreclosures.

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Massachusetts foreclosure defenseFederal 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.

Alleged Backdated Mortgage Assignment Proves Fatal

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.

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney who writes frequently about new foreclosure issues concerning the real estate industry. He can be reached at info@vetsteinlawgroup.com.

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ForeclosureLegal Standing For Mortgage Lender/Servicer Must Be Established To Start Foreclosure

Today the Massachusetts Supreme Judicial Court has issued what I believe to be another very important ruling involving foreclosures in the case of HSBC Bank v. Matt (embedded below). This case is the latest piece in the trilogy of recent landmark foreclosure opinions, starting with U.S. Bank v. Ibanez then Eaton v. Fannie Mae  — which has now come full circle from very limited judicial oversight of foreclosures to a much stricter legal environment for lenders.

In my opinion, the net effect of the HSBC v. Matt ruling is to make Massachusetts somewhat closer to a judicial foreclosure state than a non-judicial foreclosure state, as the ruling requires a foreclosing lender or mortgage servicer to submit actual evidence of legal standing to foreclose when they start a Servicemembers Act proceeding, a requirement that has never existed under Massachusetts law. This new requirement could prove to be potentially problematic to mortgages which are held in complex mortgage backed securitized trusts. However, a portion of the Court’s ruling — that only military members can raise a challenge — could turn out to blunt its impact. In the short-term, the Land Court will have to determine what evidence and documentation is legally sufficient for lenders to establish proper legal standing to foreclose.

Servicemembers (f/k/a Soldiers & Sailors) Civil Relief Act

The case involves the Servicemember’s Act proceeding which protects active military members from foreclosure. In Massachusetts, after a lender issues default notices, it will commence a Soldiers and Sailors Civil Relief Act in the Land Court to ensure that the borrower is not on active military duty and to cut off any rights to challenge the foreclosure based on military status. Although a Soldiers and Sailors Act proceeding is not mandatory in order to legally foreclosure, the customary practice in Massachusetts is for lenders to go through the proceeding in order to ensure clear title to the foreclosed property. A Soldiers and Sailors Act proceeding has historically been perfunctory, but in recent years with the mortgage meltdown, borrowers have increasingly tried to challenge foreclosure in the Soldiers and Sailors Act proceeding.

Jodi Matt, represented by noted foreclosure defense attorney, Glenn Russell, Esq. (who also brought the Ibanez case), challenged HSBC Bank’s ability to foreclose in the Soldier’s and Sailors proceeding, arguing that HSBC could not establish that it held the right to foreclose as the trustee of the securitized trust which purported to hold Matt’s mortgage. The Land Court rejected Matt’s challenge on the grounds that Ms. Matt was not in military service. The SJC took the case on direct appellate review.

SJC Changes The Foreclosure Landscape Yet Again

Although it recognized that Ms. Matt was not in the military service — and ruled that borrowers not in the military cannot bring challenges under the Soldiers & Sailors Act  —  the SJC reached the question whether HSBC Bank had legal standing to start the foreclosure process in the Soldiers & Sailors Act proceeding. Following its prior landmark rulings in Ibanez and Eaton, the Court held that HSBC Bank lacked standing under the Act because it merely claimed to have the contractual option to become the holder of the mortgage. The SJC said that wasn’t good enough, and going forward a foreclosing lender must provide actual evidence to the Land Court that it is the actual holder of the mortgage or a duly authorized agent on behalf of the mortgagee.

When this decision is read together with the Court’s opinion in Eaton, which held that foreclosing lenders must hold both the promissory note and the mortgage, and in the context of securitized mortgages, the Matt ruling starts looking like a very BIG decision. Because of the extremely complex manner in which securitized mortgage trusts were organized by Wall Street (outside the scope of this post), there is an inherent problem in ascertaining which entity within the trust framework actually holds the mortgage and the underlying indebtedness, and therefore, the power to foreclose. As a result of this ruling, foreclosing lenders and mortgage services may have a much more difficult time in foreclosing.

What type and the quality of evidence that lenders need to submit will be left to the Land Court justices, as gate-keepers, to decide in future cases. That is a huge unknown question. The Land Court is presently overwhelmed with pending foreclosure petitions, quiet title actions and other matters given recent court budget cuts. Rest assured, this may play a factor in how they handle foreclosures post-Matt.

I will continue to monitor this ever-changing area of the law.

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Impact: Foreclosure Will Be Harder to Challenge

The Massachusetts Supreme Judicial Court’s (SJC) ruling in Federal National Mortgage Ass’n v. Hendricks just came down, and it’s good news for the foreclosure industry and bad news for distressed homeowners.

This case had the potential to change Massachusetts foreclosure practice, but the SJC rejected the challenge. The borrower, Oliver Hendricks, challenged the validity of the long-standing Massachusetts statutory form foreclosure affidavit which provided that the foreclosing lender has complied with the foreclosure laws. Rejecting the borrower’s claim that the affidavit was essentially robo-signed, the Court upheld the statutory form affidavit.

The case arose when Fannie Mae was attempting to evict Hendricks after the foreclosure. The court’s ruling provides that foreclosing lenders need only submit a valid foreclosure deed and statutory form affidavit during an eviction proceeding; the burden of proof then shifts to the borrower to come up with evidence of foreclosure irregularities. This has proven very difficult for distressed homeowners and their attorneys.

After this decision (and a recent Appeals Court ruling taking away a common eviction defense for post-eviction squatters), foreclosures and post-foreclosure evictions will be much harder to challenge. Also, we’ll likely see an acceleration of the pace of foreclosures, evictions of holdover borrowers, and a shrinking inventory of foreclosed and REO properties. Although distressed homeowners may be worse off, the overall real estate market stands to improve due to this ruling.

I’ll have more analysis later. The decision is embedded below. Also below is a video of the defendant, Olive Hendricks, speaking about his predicament produced by CityLife.

FNMA v. Hendricks

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More Help On The Way For Struggling Homeowners

Additional foreclosure relief is one step closer to becoming law as the Massachusetts House of Representatives recently passed House Bill 4087, “An Act to Prevent Unlawful and Unnecessary Foreclosures.” The bill, sponsored by AG Martha Coakley, mandates that banks and foreclosing lenders enter into mandatory loan modification discussions with borrowers before they can start foreclosure proceedings on residential homeowners.

Lenders May Have To Consider Loan Modifications

The key provision of the bill is the requirement that lenders give borrowers a fair shot at a loan modification. Among the factors that banks must consider before foreclosing is the “borrower’s ability to pay,” a provision that will likely be addressed in future drafts of the legislation, or through regulations developed by the Massachusetts Division of Banks. Under the proposed law, if a modified loan is worth more than the amount the bank expects to recover through foreclosure, the lender must offer that modified loan to the borrower. If it doesn’t, then the lender can continue the foreclosure process.

This bill builds on previous legislation, “An Act Relative to Mortgage Foreclosures,” signed into law in August 2010, which made sweeping changes to Massachusetts foreclosure law. That Act extended the 90-day right-to -cure on foreclosures to 150 days, created new requirements for lenders offering reverse mortgages, established mortgage fraud as a crime, and provided additional protections for tenants living in foreclosed properties.

The bill now moves to the Senate, where it is expected that it will be finalized by the completion of the formal legislative session on July 31, 2012. As always, we’ll keep tabs on these developments.

 

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In yet another move evidencing the Supreme Judicial Court’s ongoing concern over the impact of the foreclosure crisis in Massachusetts, the SJC is soliciting friend-of-the-court briefs in the next important foreclosure case, HSBC Bank v. Jodi Matt.

As we wrote about in our prior post here, the SJC is considering 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 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. The lower court Land Court opinion can be read here.

The text of the Court’s announcement is as follows:

February 17, 2012 – ANNOUNCEMENT: The Justices are soliciting amicus briefs. Whether the Land Court judge correctly concluded that a bank had standing to commence an action to determine whether the defendant (alleged to be in breach of her mortgage obligations) was entitled to the benefits of the Servicemembers Civil Relief Act, on the ground that the bank had a contractual right to become the holder of the note and mortgage. The case is tentatively scheduled for argument in May.

For more information about how to submit a friend of the court brief, go to the SJC Website.

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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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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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