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. 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. 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?
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