Published on: February 14, 2011
On January 7, 2011, the Massachusetts Supreme Judicial Court affirmed the Land Court’s Judgments in U.S. Bank National Association v. Ibanez (and a consolidated case), SJC-10694, and held that two banks, which were not the original mortgagees but who rather claimed to hold the mortgages by virtue of assignments, and who sought to foreclose, failed to show that they were the holders of the mortgages at the time of the foreclosure. The Court found that the banks did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied.
U.S. Bank and Wells Fargo each foreclosed on mortgaged properties and purchased those properties at the foreclosure sales. Thereafter, they brought separate complaints in the Land Court and sought judgments that the mortgagors’ interests in each property, Antonio Ibanez and Mark and Tammy LaRace, respectively, had been extinguished. U.S. Bank and Wells Fargo each asserted in the complaints that it had become the holder of the mortgages through an assignment made after the foreclosure sale.
The Land Court (Long, J.) entered judgment against each bank, and ruled that the foreclosure sales were invalid because the statutorily required notices of the foreclosure sales named the banks as the mortgage holders, even though they had not yet been assigned the mortgages. The Land Court found that because the banks acquired the mortgages by assignment after the sales, they had no interest in the mortgages being foreclosed at the time of the publication of the notices or at the time of the sale. The banks’ efforts to vacate the judgment were denied. The Supreme Judicial Court considered the case on direct appellate review.
The record showed that the mortgages had allegedly passed through up to six different entities, were pooled with other mortgages in a trust, and ultimately converted into a mortgage-backed security that could be bought or sold by investors. While the record included a significant amount of paperwork demonstrating how the Ibanez and LaRace mortgages purportedly transferred by the originating bank into the trust, neither bank could demonstrate that the documentation met the requirements of a valid assignment of mortgage.
The Court noted that in Massachusetts a mortgage is a transfer of legal title, and that an assignment of mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. Accordingly, the Court found that where mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the mortgages securing the underlying promissory notes are legal title to someone’s home or farm and must be treated that way.
The Court found that where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was a party authorized to foreclose under G. L. c. 183, § 21, and G. L. c. 244, § 14. The Court stated that a plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.
The Court rejected the banks’ arguments, including that they obtained effective assignments by virtue of their securitization agreements, and that they had a sufficient financial interest in the mortgages to allow them to foreclose. The Court also rejected the banks’ attempts to advocate for the use of postsale assignments.
Additionally, the Court rejected the banks’ requests that the Court’s ruling be prospective in its application, and noted that the legal principles and requirements were well established in Massachusetts case law and statutes. The Court rapped, “the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.”
In a concurring opinion, Justice Robert Cordy criticized the banks for the “utter carelessness with which the plaintiff banks documented the titles to their assets.” He emphasized that, “the holder of assigned mortgage needs to take care to ensure that his legal paperwork is in order.” Justice Cordy also touched on an issue which will inevitably be seen with greater frequency in the courts, to wit, the effect of the conduct of banks on a bona fide third-party purchaser who may have relied on the foreclosure title of the bank.
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