The small victories The cankers and medallions <<<The little nothings>>> They keep me thinking That someday I might beat you But I'll just keep my mouth shut
The decision reached by the Massachusetts Supreme Court will make exciting headlines, but the case is not setting any precedent that will allow delinquent borrowers to keep their homes without repaying the loan. We get a look at the bank's dirty laundry, but no groundbreaking new interpretation of law where people are given free houses by the judiciary. The activists in Massachusetts haven't set aside basic principals of law. IMO, this will provide false hope for a few news cycles, and the wheels of justice will slowly turn.
by CHRISTINE RICCIARDI -- Friday, January 7th, 2011, 1:36 pm
[Update 2: Adds comment form Wells Fargo; adds trade group commentary.]
In a case that could cause many others to be reviewed, the Massachusetts Supreme Court ruled against U.S. Bancorp and Wells Fargo Friday saying the banks were not the mortgage holders when they foreclosed on two separate homes.
The ruling upheld a lower court's ruling after the two banks appealed.
Let's be very clear on what the court did and did not rule. First, the judge found that the banks did not have the mortgage at the time of the foreclosure. That is not to say that they can't file the proper paperwork to become the mortgage holder and foreclose. It merely states that the paperwork was so shoddy that they could not be established as owners in the records to the court's satisfaction. The bank will merely have to restart the foreclosure process and do it over again. No free houses here.
"We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure," Justice Ralph Gants wrote in the court's opinion. "As a result, they 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."
To keep their good names, the banks are quick to point out that it isn't their problem, its MBS investors who are getting wiped out. Of course, this doesn't make their servicing departments look good.
U.S. Bancorp said the judgment has no financial impact on the firm, and that the bank's role in the case is solely as a trustee, since the mortgage is owned by a securitization trust.
"As trustee, U.S. Bancorp has no responsibility for the terms of the underlying mortgage or the procedure by which they were transferred to the trust and has no ownership interest in the underlying mortgages," the bank said.
Wells Fargo said it did not own, organize, service or foreclose upon any of the loans at issue with this case, and that it expects the entities who do services these loans to abide by all applicable state laws.
The case began as two separate events that took place at the same time. U.S. Bank foreclosed on Antonio Ibanez and purchased his home in a foreclosure sale on July 5, 2007. That same day Wells Fargo foreclosed on Mark and Tammy LaRace and sequentially purchased their home at a sale.
In late 2008, both banks filed actions in a lower court to affirm the right, title and interest of the mortgagor in the property were extinguished by the foreclosure — an action "to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto," the slip opinion said.
When neither Ibanez or the LaRaces answered the complaint, both banks filed a default judgment against the former homeowners. On March 26, 2009, judgment was entered against U.S. Bank and Wells Fargo.
"The judge ruled that the foreclosure sales were invalid because … the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages," the lower court ruled.
So the banks have to go back and properly refile paperwork and go through the process all over again. I suppose the former owners are celebrating their extra year or two of squatting.
The judge in the case said the banks acquired the mortgage notes only after the foreclosure sale. That decision was upheld by the Supreme Court ruling.
Later Friday, the American Securitization Forum said it agrees with the Supreme Court ruling, which unlike the lower court allows assignment of mortgages in blank, and "is confident securitization transfers are valid and fully enforceable."
Finding securitization transfers to be invalid would create chaos in the housing market. The court did not do that.
Tom Deutsch, executive director of the ASF, said the group of more than 330 financial firms is pleased the Massachusetts Supreme Court "validated the use of the conveyance language in the securitization documents as being sufficient to prove transfers of the mortgages under the unique aspects" of the state's mortgage laws.
"In this particular case, however, the executed documents with the loan schedules were not introduced in the lower court and so the (Supreme) Court ruled that an otherwise valid confirmatory assignment was not sufficient to prove right to foreclose," Deutsch said.
He also said the ruling would have been substantially different had those documents been introduced in the original case.
The where's-my-note idea will die slowly. The one or two freak cases are the exception not the rule. However, they do serve a valuable purpose. False hope. Loan owners must be given some reason to carry on, and the hope of hitting the lost-note lottery will keep some slogging away at those huge mortgages just a little longer.
Some commentary from Friday's astute observations:
One thing nice about this blog is that people with special expertise often stop by and offer informed commentary. The two gems below were found in Friday's astute observations.
Astute Observation by scottinnj 2011-01-07 11:24 AM
Here is an extract from the Mass ruling. I think words like ‘utter careleness’ ascribed to the bank by a state Supreme Court judge is language that wouldn’t be lightly used. The ruling does make reference to the fact that the title transfers need not have taken place before the foreclosure, but they do need to be done.
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it. As the opinion of the court notes, such strict compliance is necessary because Massachusetts is both a title theory State and allows for extrajudicial foreclosure.
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.
Astute Observation by Honcho 2011-01-07 01:13 PM
I’m slightly amazed but, after quickly reading the decision, it isn’t terrible. Here are my quick thoughts:
Long story short, the bank has to go back and do the foreclosure over. They didn’t submit proper evidence to the initial trial court to establish their standing to foreclose.
In the short term, this may create a few headaches in Massachusetts where similar shoddy evidence was submitted of the loan’s ownership (the court actually does a pretty good job of laying out the evidence that would be sufficient and it conforms with the standard industry practice of assigning and securitizing loans as I understand it). Owners who defaulted and lost their homes after shoddy evidence was submitted may be entitled to be foreclosed on again after having a prior foreclosure set aside (what a waste of resources for all involved). This might be a problem if you now owned one of these homes that you bought after a foreclosure. If this decision is bad for anyone, it is bad for title insurers.
Good luck sorting this one out, Massachusetts.
Good luck indeed.
Where's my loan mod? is more common than where's my note?
I have talked with many people experienced with negotiating cash for keys. These people are the first responders making contact between the new owner and the holdover tenant whether that person be a renter or a former owner. One thing most former owners have in common is one last moment of denial. The final legal protection they were hoping to use as sanctuary and fend off their foreclosure: their loan modification application.
Most former owners when contacted about moving out of the property (or in some cases to stay in the property) have the same reaction: They thought the foreclosure was supposed to be postponed again and again as long as they were trying to work with the bank, which in their mind was a loan modification in process with someone somewhere. As if this is a foreclosure-proof shield, and banks must give you a free house if they foreclose while a loan modification is in process. What are people thinking?
A loan modification in process means nothing. An approved loan modification means nothing if the two departments at the bank don't communicate in time. Once the sale is done, it is done. Although a lawsuit on that technicality may force banks to buy a few houses back. Just because a delinquent borrower has a loan modification in process, even if they are making some reduced payment, if they are not making the full payment and had their debt rescinded, they have no legal protection and no legal recourse against the lender if they foreclose. It is completely at the lender's discretion once the borrower is delinquent.
Those who believe a loan modification in process is any shield against foreclosure are mistaken.
When did they last pay the mortgage?
April 2008?
Foreclosure Record Recording Date: 07/01/2008 Document Type: Notice of Default
Did they make a few payments and attempt a loan modification?
Foreclosure Record Recording Date: 03/09/2010 Document Type: Notice of Sale
Foreclosure Record Recording Date: 01/05/2009 Document Type: Notice of Rescission
Foreclosure Record Recording Date: 12/09/2008 Document Type: Notice of Sale
Foreclosure Record Recording Date: 08/25/2008 Document Type: Notice of Default
Foreclosure Record Recording Date: 07/01/2008 Document Type: Notice of Default
Is this evidence of the amend-extend-pretend dance? Will this loan owner suddenly start making payments and everything will be okay?
The bank is likely being so cooperative because the borrower has equity. These borrowers paid $408,500, and although they have increased their mortgage, they owe less than they paid for the property. There is substantial equity.
These are the borrowers they most want to delay the day of reckoning because each month this borrower falls behind, the bank is going to eat up 1.5% of his equity in missed payments, penalties, junk fees, compound interest, and so on. These loans are cash cows because the bank can recognize income from a non-performing mortgage. As long as their expected recovery is 100%, which it is on loans with substantial equity, then permitting these borrowers to remain delinquent benefits the bank. At least until the loan balance gets within a realtor's commission of fair market value, then lenders will start to proceed in earnest while they still have 100% recovery.
The amend-extend-pretend policy is a moneymaker for banks when the delinquent borrower has equity. The subclass of shadow inventory composed of delinquent borrowers with equity will be the last group to have their loans resolved as the foreclosure mess is mopping up 3 to 5 years from now.
Home Purchase Price … $408,500 Home Purchase Date .... 2/22/2002
Net Gain (Loss) .......... $220,830 Percent Change .......... 54.1% Annual Appreciation … 5.5%
Cost of Ownership ------------------------------------------------- $669,500 .......... Asking Price $133,900 .......... 20% Down Conventional 4.86% ............... Mortgage Interest Rate $535,600 .......... 30-Year Mortgage $136,425 .......... Income Requirement
$2,830 .......... Monthly Mortgage Payment
$580 .......... Property Tax $63 .......... Special Taxes and Levies (Mello Roos) $112 .......... Homeowners Insurance $0 .......... Homeowners Association Fees ============================================ $3,584 .......... Monthly Cash Outlays
-$481 .......... Tax Savings (% of Interest and Property Tax) -$660 .......... Equity Hidden in Payment $250 .......... Lost Income to Down Payment (net of taxes) $84 .......... Maintenance and Replacement Reserves ============================================ $2,776 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $6,695 .......... Furnishing and Move In @1% $6,695 .......... Closing Costs @1% $5,356 ............ Interest Points @1% of Loan $133,900 .......... Down Payment ============================================ $152,646 .......... Total Cash Costs $42,500 ............ Emergency Cash Reserves ============================================ $195,146 .......... Total Savings Needed
Property Details for 14 LACONIA Irvine, CA 92614 ------------------------------------------------------------------------------ Beds: 3 Baths: 3 baths Home size: 1,800 sq ft ($372 / sq ft) Lot Size: 3,083 sq ft Year Built: 1988 Days on Market: 5 Listing Updated: 40546 MLS Number: S642933 Property Type: Single Family, Residential Community: Westpark Tract: Othr ------------------------------------------------------------------------------ According to the listing agent, this listing may be a pre-foreclosure or short sale.
3 BEDROOMAND 3 BATHROOM HOME LOCATED IN SAN CARLO PARK.HARDWOOD FLOORING AND BERBER CARPET.
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