When the Massachusetts Supreme Judicial Court upheld a lower court’s decision that two foreclosures were invalid because the banks did not adequately prove that they owned the mortgages in question, it did more than just save those plaintiffs’ houses[1]. The decision likely will set the tone throughout the state and the country for other decisions on foreclosure reversals stemming from poor documentation and other “validity issues” that have arisen for many foreclosed homeowners as a result of the robo-signer fiasco and ensuing “Foreclosure Gate.” The defendants in the case, US Bancorp and Wells Fargo & Company, suffered a 1 percent loss in share value as a result of the decision and spokeswoman Teri Charest for US Bancorp stated that the judgment would have no financial impact on the company as US Bancorp was functioning solely as a trustee for a securitization trust in the case[2]. Wells Fargo had no immediate response or comment.
In this particular decision, the plaintiffs argued that the lenders who foreclosed were not the original lenders and that Wells Fargo and Bancorp, the institutions that ultimately foreclosed on the properties, failed to prove that they were the true owners of the mortgages when they enacted the foreclosure. Given that hundreds of thousands of mortgages are routinely bundled and sold around the world, the ruling has the potential to “void thousands of foreclosures,” reported the Washington Post. A lower court judge, Keith C. Long, believed that the issue revolved around proper transference of the mortgage note from one lender to another. Long stated that he had determined the notes in these cases had “not been properly transferred when the banks auctioned off houses.” The notes were sold in a bundle without the buyer being specifically named, a common practice called “endorsements in blank” that banks used to quickly sell and resell mortgages. However, Long ruled – and the Massachusetts Supreme Court upheld – that “these blank mortgage assignments were never recorded and they were not legally recordable.”
Adam Levitin, a Georgetown University professor, points out that the case “is enough to put a serious cloud on title through the whole system.” With the robo-signer debacle casting a dark cloud over the foreclosure processes of lenders across the country and hopeful homeowners enduring foreclosure gearing up for lawsuits to demand damages and reversals, this decision could have a dramatic impact on every aspect of the lending system as we know it.
Do you think that the court made a good decision? Will the fallout be too much for the mortgage industry?
Thank you for reading! Your comments and questions are welcomed below.
[1] http://www.bloomberg.com/news/2011-01-07/us-bancorp-wells-fargo-lose-pivotal-massachusetts-foreclosure-case.html
[2] http://voices.washingtonpost.com/political-economy/2011/01/ruling_in_massachusetts_forecl.html
This ruling could not only be a huge blow to the mortgage and title industry, but create a huge roadblock to housing and economy recovery. Prospective homeowners will be spooked into being very reluctant to buy homes not knowing if their new homw could be caught up in this legal entanglement. Homeowners and investors wanting to sell their houses may get stuck with white elephants. At the very least this will slow the economy and could trigger another sharp decline in home values!
Cutting corners can never be considered “good business practice”!
For those who were against the AIG “bailout”, surely, you will agree to let the chips “fall where they may” now. If the big players can go after Madoff; surely, the aggrieved homeowners should have their day in court.
Oh, no!! Activist judges are at it again–trying to make sure laws are followed. We can’t have it both ways; especially, when it can be so convenient. Either we are law-abiding or we are not!!!
This is actually awesome. Because the system has been setup to the disadvantage of the homeowner now banks have to pay for being greedy and ultimately treating homeowners in this country like chattel instead of human beings. This is bad karma coming back to bite them on their backsides!
Dotting the I’s and crossing the T’s will cause temporary problems in the mortgage industry. But it should be done. We are dealing with the lives and fortunes of ordinary people, truth and integrity demand that the law be followed. When banks or mortgage companies make loans that they can bundle up and sell, thus avoiding the risk, they are not as careful as they would be as if they took the risk themselves.
Why is all this energy being spent on people avoiding thier obligations? You signed the damn note, now pay the mortgage. Few borrowers were met at the closing table with an armed seller and lender pointing an automatic weapon, demanding signature. OK so the price dropped. MAN UP! Get some integrity. Make good on your bond to pay the bank. I am so sick and tired of the millions of whiney weasels that refuse to make good on their promises. They should be REQUIRED to pay ca$h for thier next home. Home ownership is a privilege, NOT A RIGHT. No one forced them to buy too much house, to live beyond thier means.
There have to be consequences for our decisions. If you signed the loan, pay the man. Pure and simple. You got the money, now give it back. You did not earn the money, you BORROWED it. Get it? It is not your money, it is someone elses. You are merely renting it.
UGH!!!!!!!
What is the step by step reversal entail? Is it like rewind all the way back to the date the loan was taken out? What happens with the houses that the people were kicked out of…do they somehow eventually get their properties back and everyone that purchased them has to have the deeds reversed (regarding auction properties, Short Sales etc.)? Or, the lawsuits, etc just call it even when they are settled? This has really been bugging me how this will play out. I am an investor and go after foreclosure properties and now am reluctant to do anything now… Any advice to still buy them and know if they are going to be legit deals and closings?
Being that the banks are committing Fraud everytime they create a note yes the courts made the right decision.
Well people should pay a loan on property or not bite off more than they can chew!
And everytime I buy a house I have to buy pmi , so this is insurance in case a buyer defaults on a loan so it seems to me that all. The foreclosure should belong to the pmi companies and not the banks. I have never heard once of and pmi companies having foreclosures.
Why not????
Judges are not to brilliant when it comes to mortgage management. When a home owner defaults into foreclosure status, the mortgage can and usually will be sold several times before it goes to any auction. I owned a property and sent the mortgage payment on time, one month I received a late notice and questioned the notice. I was told that my mortgage had been sold to another bank with out notice, and that I sent my mortgage payment to the wrong bank. Well, I quickly sent another payment to the bank I was told had bought the mortgage. Much to my surprise I received another notice from another bank, I was confused to say the least. My mortgage was actually sold five times in one month. I could not keep up with the request of repeating the same payment. Surprisingly the property went through the foreclosure process. It was vacant at the time and not my primary residence, and I could not prevent it from occurring. One year later I received a letter of question in regards to recent building permits. I had just finished remolding the entire property before it all started, and the building permits were paid for an extended year, and the county needed information from the owner. I discovered that the property was sold at an auction for $125K even though there was $430K due on the mortgage, with no late payments. Bundling mortgages will often confuse even the banks, and when the properties are sold it is the entity managing the mortgage at the time that is responsible for the mortgage. I found this out the hard way and was told during the year it happened, from the banks I was questioning, that the property was in foreclosure and with out any hope of preventing it. The foreclosure was removed from my credit two and a half years later, with no recovery of funds. Judges usually don’t understand what is occurring, when the banks should, and often do not. I think you will see a lot more of this in the future, oh well.
This may look like a boon to people in foreclosure but will it make the mortgage industry more expensive as the automated, fast pace of mortgage transfer is impacted by having to go back to more human involvement. It is already a very slow process to get a loan. Maybe this doesn’t impact that step.
What a mess! The answer is to hold people accountable for their actions.
I know that all parties point the finger of blame at others. That is just a smoke screen. Anyone familiar with the lending process knows that the banking rules are created with lots of flexibility, i.e. many ways to circumvent the rule. Even so, there is plenty of rational to sustain a charge of fraud on bank officials at many levels.
Example: Aside from a gift, the requirement is to PROVE the down payment exists and was saved by the applicants. This is the statement that bank officials repeat in congressional hearings as proof that they were careful. Rubbish!
Reality: One time a bank rep told me that sufficient proof of the dp would be to get one hundred dollar bills and provide a copy of the bills. I’m sure you can see how this would allow for fraudulent action and still provide the patina of saying that “proof” had been shown; when in reality, a cover had been provided. The bank made its fees, the mortgage broker (me) got paid, the homeowner got his home, the realtor is happy, the government homeowner statistics are up; and also higher are the foreclosures, putting our entire way of life in jeopardy.
Reality: Providing two months of bank deposits showing the down payment in your bank account is considered proof of the dp. However, there is no scrutiny for how that dp came to be. “That would be too much work and an invasion of privacy.” is what the banker says. If a mortgage applicant does not show sufficient income to establish how the down payment was saved and the banker does not question this, then proper checking does not happen and the mortgage crises results.
Reality: Not a single loan closes without that loans underwriting requirements being approved by some higher lever bank official. Many fewer loans would be approved if the real lending policy was to thoroughly examine if the underwriting requirements had actually been met. Rather, Wall Street wanted to sell loan packages and banks wanted to create loan packages to be sold. Therefore, everyone winked at the rules; underwriting “work-arounds” were created and heartily approved of AT THE HIGHEST LEVELS.
CONCLUSION: If Lee Iococca had been found guilty of conspiracy to murder and sent to jail when it was shown thatin that five cent item that would have protected the Pinto’s gas tank from blowing up in a collision, then all cars today would be very safe – without government regs. The Law of Self Preservation would have required that automobile managers, at all levels, would increase quality, and make sure that they were not going to be held accountable for missteps.
In the same exact way, if ONE big bank CEO and Chairman were jailed for fraud and conspiracy, along with his senior and midlevel management, then banking would be changed forever. If one Board of Directors were to be successfully sued far beyond their insurance limits, and each member of that Board were bankrupted, then BOD’s would no longer just collect fat checks and rubber stamp bad policies.
Tort law, the law of Accountability is the answer. That is how this nation was to be moved forward.
Along with many other sociatil ills, corporate malfeasence is just another negative off shoot of the liberal mindset. Moral relitavisim, e.g. “If it feels good, do it.” does not work. There is right, there is wrong. Proper standards, enforced with some rigor, is the answer.
CONCLUSION: should read as follows:
If Lee Iacocca had been found guilty of conspiracy to murder and sent to jail when it was shown that, to improve profits, he knowingly allowed more people to die when he did NOT approve putting in that five cent item that would have protected the Pinto’s gas tank from blowing up in a collision, then all cars today would be very safe – without government regs.