A recent ruling by a judge in Massachusetts Land Court has sent shockwaves reverberating through the conveyancing and title insurance industries, and could erode the legality of tens of thousands of foreclosures.

Judge Keith Long ruled in Hampden County Land Court on March 26 that two foreclosures in Springfield were invalid because the foreclosing institutions could not prove they owned the property at the time of the foreclosure auction.

The two loan servicers involved, Wells Fargo Bank and US Bank, did not officially have proper title for the properties when they published the foreclosure notice, or when they held the foreclosure auction, as the law requires. The servicers had assignments dated 10 and 14 months after the auction, respectively, but had backdated their title claims so the assignments were effective prior to the auction date.

Judicial Action

“I think the decision reflects the disappointment that judges have with the attention to detail when it comes to foreclosure paperwork with attorneys,” said Richard Serkey, a partner at Winokur, Winokur, Serkey & Rosenberg in Plymouth. “I think the land court wanted to make a statement.”

The cases, U.S. Bank v. Ibanez and Wells Fargo v. Larace, were originally in front of Long to determine whether foreclosure notices for properties in Springfield printed in The Boston Globe were valid, with the property owners claiming they should have been printed in the Springfield Republican.

Long ruled the Globe was sufficient, but he also ruled against the banks for not having proper title, which has raised concerns about civil procedure for foreclosure lawyers. The plaintiffs in the case didn’t prepare for a case about proper title, instead focusing on the issue of whether the Globe met the requirements for auction publications in Springfield. The case was also heard with a defaulted defendant; no one showed up to defend the foreclosed properties, a job Long appeared to take on himself.

It’s currently unclear whether previous foreclosure auctions held without proper title will also be considered invalid. Backdating title documents to show title has been common practice for years, and the consequences of such a decision would be enormous.

“If you bought one of these homes, and you got title insurance … what do you do now?” said Serkey. “That was the industry practice. [We don’t know] whether these people have good title, [and] if they don’t, does there have to be a new foreclosure?”

The decision has also affected how title insurers handle foreclosures. Last week, First American Title Insurance changed its policy on insuring titles to comply with Long’s decision, despite questioning its legality. Underwriters were informed by a company-wide memo.

“We believed (and still do) that the assignment of the mortgage takes place once the note holder transfers the note to a third party,” the memo reads. “Since the mortgage is security for the note, it cannot exist outside the note, and the note holder automatically becomes the new mortgagee.

“In today’s commerce, where the notes are assigned and reassigned in packages of several thousand at a time, it would be impractical and costly to execute and record each assignment before the note and the mortgage reached their final destination, be it a discharge or a foreclosure deed.”

Title Woes

Regardless, First American Title will no longer insure any title where the foreclosing entity doesn’t have its assignments in order when the foreclosure notice is published.

On Friday, the court heard a motion for dismissal on the decision. The details of that hearing were not available by press time.

However, Serkey – a member of the Real Estate Bar Association’s (REBA) title standards committee – said the court was within its right to issue such a decision.

“In the land court, there is a tradition of making you earn your judgment,” Serkey said. “It’s a more rigorous court in that respect. Even if you have a default in judgment you have to prove that you’re correct.

“Maybe the party should have been given an opportunity [to respond] before the decision came down,” Serkey conceded. “But I think the court is certainly within its right, even with a defaulted defendant, to make a decision like this.”

Serkey said the land court may have been trying to take a stand to slow down the flood of foreclosures that continues to flow through their doors by being sticklers for proper procedure.

“You’ve got a court that is inundated by filings, and they may feel like they’re being forced to be the enabler of the people that are taking away the homes of all these other people,” Serkey said. “The lion’s share of people who do this work are foreclosure mills. It’s hard to gather sympathy for them. No one wants to go in and defend sloppy foreclosers, especially given the fact that these loans were improvidently granted, and improvidently taken out by borrowers.”