Legal Commentary

The Shock Of Due Process

By Big Tent Democrat

The Massachusetts Supreme Judicial Court issued an opinion in a much followed foreclosure case. The opinion is fairly straight forward and, frankly, if there is rule of law in this country, should have been completely predictable. But apparently it has sent shock waves. Consider the simplicity and fairness of the result, as described by Felix Salmon:

[H]omeowner[s] being foreclosed upon will as a matter of course challenge the banks to prove that they own the mortgage in question. If the bank can’t do that, then the foreclosure proceeding will be tossed out of court. This is likely to slow down foreclosures enormously, as banks ensure that all their legal ducks are in a row before they try to foreclose.

(Emphasis supplied.) Salmon muses about the SCOTUS maybe getting involved, which would be ironic, in light of the Twombly and Iqbal decisions, which make it very difficult to even get in the courthouse at all. More . . .

Unlike many federal court plaintiffs, the banks will get a second chance to get their "legal ducks in a row." Or, in the words of mortgage industry analysts, "clean up their records and re-foreclose on the properties."

Personally, I have serious doubts that the banks can do this. The main reason is if they could, they would have done it already. We are not here by accident. As the same mortgage analysts note:

"What is surprising about these cases is not the statement of principles articulated by the court … but rather the utter carelessness with which the plaintiff banks documented the title to their assets."

What these same analysts do not get is that the robo-signing scandal that they compare the Massachusetts case to is a direct result of this carelessness -- an attempt to cover up the mess by fraud. Fixing this for the banks is going to be very difficult. As John Carney writes:

One final positive note on the ruling—the court did not say that the lenders could not go back and re-foreclose on these properties. And based on what the lenders have re-documented since the initial actions, the lender should be able to restart and complete the action now, subject to the normal legal delays. But this might be far more difficult than Goodman thinks.

Let’s take the example of the Ibanez mortgage. The case involved a $103,5000 loan on a house in Springfield, Massachusetts made on December 1, 2005. The initial lender, Rose Mortgage, Inc., recorded the mortgage in the county registry of deeds the following day.

[. . . ] What [. . .] give[s] the court pause is what happened next, when the mortgage entered the Wall Street securitization assembly-line. [. . .] US Trust couldn’t show any evidence of [. . .] assignments [of the mortgage.] As soon as Ibanez mortgage entered the securitization assembly line, the assignments stop being duly noted on the mortgage, much less recorded in any property registry offices.

The solution to this seems easy enough. From now on, banks seeking to foreclose should just make sure that whoever is the last recorded assignee grants a new assignment to the foreclosing entity before the bank takes any action. No doubt this is what Goodman has in mind when she says banks will go back and re-document the assignments. It might not be so easy.

[. . .] You didn’t buy the mortgage from [the last record owner of the mortgage. . . .] They aren’t under any contractual obligation to you to execute any documents. [. . .] A great many of the companies involved [in the mortage industry] have entered bankruptcy or changed ownership. When these companies appear in the ownership chain, “re-documenting” the assignments may be all but impossible.

Yep. In other words, if you are buying a foreclosed home, make sure your title insurance company is in good financial shape. You may need it.

Speaking for me only

Full post as published by TalkLeft on January 11, 2011 (boomark / email).