When the Massachusetts Supreme Judicial Court ruled that Wells Fargo and US Bancorp did not adequately show ownership of two properties that they repossessed and then sold over two years ago, real estate analysts, experts and investors knew the fallout would be huge. After all, pointed out one Georgetown professor, the ruling literally throws a “cloud” on every foreclosure title out there. Over the weekend, some of the effects of the decision became more apparent as the dust cleared:
1. The attorney general plans to use the ruling to stall or stop foreclosures.
“There are thousands of people in our state who have lost their homes,” said AG Marsha Coakley in a statement, adding that the ruling affirmed her already-established belief that “the onus should be on the banks and other holders of notes to follow proper procedure before initiating foreclosure on any Massachusetts homeowner. While this is an entirely reasonable perspective on the surface, because the ruling changes “proper procedure” and renders many of the mortgages and notes that lenders purchased in bundles from other lenders essentially ownerless. This will likely render the foreclosure process on properties with ownerless notes difficult or even impossible. At the least, experts are predicting that the foreclosure process in Massachusetts, which already lasts about 11 months, will slow down much further.
2. People in Massachusetts – and elsewhere – are questioning their evictions.
“Certainly there are going to be people questioning whether the foreclosure they’re involved in now or the foreclosure that took a home from them months or years ago…was legitimately done,” said Tim Warren, CEO of New England real estate data firm The Warren Group. It is likely that a large volume of litigation will result from this decision.
3. Past foreclosure purchases could be up for grabs.
Many investors and analysts, including Edward Bloom, president of the Real Estate Bar Association for Massachusetts, hoped that the court would apply the ruling only to future mortgages since many foreclosed homes in the state have been bought in good faith at foreclosure auctions in the past. However, the Supreme Judicial Court opted to apply the ruling to past mortgages as well. This means, said Bloom, that the ruling will actually “have the largest effect on homeowners that purchased an already foreclosed home at auction.” Former owners of those homes may opt to sue the banks and even try to reverse the foreclosures.
One of the biggest issues up for debate now seems to be just what to do with people who are not making payments on their homes but who feel that they do not deserve foreclosure. Many advocacy groups are viewing this ruling as a huge victory because it will “hold lenders more accountable and encourage them to negotiate more fair and sustainable mortgages with families,” explained Lisa Vinikoor, director of a local program that helps fight foreclosures and evictions. However, lenders argue that if payments are not being made on the terms that were set and signed and the initiation of a mortgage, they should not be compelled to accept lower payments, fewer payments or take a loss on the loan if they believe that foreclosure is a better option.
In an interview with the Eagle Tribune, Warren compared the ruling to “a person committing a crime but not going to jail because of police not following proper procedures like reading Miranda rights.” Even in cases where there is no question that a foreclosure was appropriate because payments had not been made on the property, foreclosure may no longer be an option if the note has not progressed through the system correctly. “If you don’t follow the procedures, you end up putting the whole thing in jeopardy,” said Warren. However, unfortunately for lenders, standard procedure has been retroactively revoked. Do you think this was a good decision?
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