Now that Judge Keith Long has reaffirmed his decision in the Massachusetts Land Court to invalidate two Springfield foreclosures because of improper mortgage assignments, industry players must apply the decision to day-to-day commerce in the commonwealth.

But nobody is sure just how things will shake out.

With the courts unlikely to kick new homeowners out of their seemingly legitimate REO purchases, industry professionals say the best chance for a smooth response to Long’s decision is if title insurers and lenders can come to a consensus over how properties that have been bought and sold after an invalid foreclosure will be treated.

“The work to be done now is for title insurers and lenders to work out [whether] foreclosures in their back title with after-recorded assignments will be insured to the satisfaction of lenders, enabling purchases and sales to go forward,” said Stephen Edwards, president of the Real Estate Bar Association.

But the cost of moving business forward for title insurers may be opening the door for a rash of lawsuits from foreclosed homeowners, according Glenn Russell Jr., a foreclosure defense attorney who in June started representing a defendant in the case Long decided.

“They’re guaranteeing the title, saying something isn’t wrong with the title when there clearly was,” said Russell. “They’ve wrongfully sold off a home that wasn’t theirs to sell.”

Long ruled in Hampden County Land Court on March 26 that two foreclosure cases in Springfield – U.S. Bank v. Ibanez and Wells Fargo v. LaRace – were invalid because the foreclosing institutions could not prove they owned the property at the time of the foreclosure auction.

Ablitt Law Offices, the lawyers for U.S. Bank and Wells Fargo, filed memos in June to have Long vacate his decision.

On Oct. 14, Long denied the motion to vacate, stating the issues “are not merely problems with paperwork or a matter of dotting i’s and crossing t’s,” instead saying “they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts Legislature.”

Title Insurance

It is unclear just how far Long’s decision will reach, and whether or not the last two decades of foreclosures and subsequent REO sales will be called into question. James Jurgens, legal counsel for CATIC, said the title insurer will continue to back the titles it previously believed clean, no matter how the new decision may affect them.

“With the decision now, we’ll continue to move forward as we have,” Jurgens said. “If a claim comes up, and there is a cloud on title, we’re indemnifying that owner to say, ‘We’ll protect you, so you won’t be divested in title.’”

Lawrence Scofield, senior real estate attorney at Ablitt Law Offices, said that may not be enough to calm the chaos in the wake of Long’s decision.

“The fact that they will continue to insure does not mean that the title is a good record, and a marketable title,” Scofield said. “Given the litigious nature of our society, there will probably be lawyers searching around to try a class action suit, to piggyback on what Judge Long has ruled, and to see if they can make some mischief.”

One day after Long’s decision, Scofield said his clients had not yet instructed him to file an appeal. He acknowledged it would be less expensive for his clients to simply reforeclose on the properties they had been holding in limbo while they awaited the decision, but that would fail to answer several questions raised in Long’s 27-page denial.

“It certainly would be cheaper in respect to these properties,” he said. “There is no question that is the case. Unfortunately, in the course of the decision, Judge Long has made a number of comments that may have vast consequences on previously foreclosed properties. We don’t know the exact number, but there are certainly hundreds and hundreds, and maybe thousands and thousands.”

Scofield said Long, by downplaying the importance of the promissory note and simply having the last assignment may not be sufficient, has called into question industry standards that have stood for decades.

“There is whole host of people who are sitting in their homes today who, according to Judge Long, don’t really own them, and that’s a pretty dire consequence. Only the appellate court has the power [to say] that this decision will have prospective application only, or a retroactive application.”

Russell and other attorneys have said Long significantly tightened his position in the most recent decision, making it harder to overturn, but the case was such a landmark that it will almost have to be appealed.

In the meantime, Russell and other lawyers will start to test the court system by filing lawsuits against title insurers or lenders themselves to uncover the full consequences of Long’s decision.

“Nothing is definite, but you look at the facts and the circumstances that are being presented, I think there is a very good opportunity for a lawsuit there,” Russell said. “We’re in uncharted territory.” n