After several years and rounds of revisions, a new bill set to pass the Massachusetts legislature could wipe the slate clean for thousands of properties with a toxic foreclosure haunting their title.
“This [bill] would go a long way to restoring people’s trust in the public record,” said Fran Nolan, co-chair of the Real Estate Bar Association’s (REBA) legislative committee.
The problem dates back to the very start of the housing crash. As troubled loans issued in the mid-2000s began to go sour, banks moved quickly to foreclose – so quickly that making sure the mortgage on the property had been properly assigned to the foreclosing bank was often an afterthought.
In a series of cases that bolstered homeowner’s rights, the state’s Supreme Judicial Court (SJC) has affirmed that the mortgages must be properly assigned before a foreclosure can be initiated (2011’s U.S. Bank v. Ibanez), and that the lender (or their servicer) must possess both the note and the mortgage in order to have the right to foreclose (2012’s Eaton v. Fannie Mae).
Since the decisions came down, lenders and servicers have been much more careful about dotting their i’s and crossing their t’s. But though current foreclosures may be compliant with the law, thousands of properties that were foreclosed on, auctioned off and sold to new buyers early on in the housing crash have been left with clouded titles. As the SJC’s decision in another case, 2011’s Bevilacqua v. Rodriguez, ruled, if a bank didn’t have the right to foreclose on a property in the first place, it also didn’t have the right to sell that property.
That meant that thousands of third party buyers who purchased the foreclosed homes in good faith were stuck: If the original owner were to mount a legal challenge to the foreclosure, they might lose their house, or owe thousands in legal bills. And while the chances of the former owner emerging from the woodwork years after a foreclosure are small, they’re enough to scare off title insurers from insuring the property. Without valid title insurance, the homes can’t be sold or refinanced, leaving the owners in limbo.
Up until now, the only way to solve the problem was for the property’s current owners to track down the former owner and get them to sign a deed formally transferring the property, a difficult and costly proposition.
‘You Gotta Do What You Gotta Do’
Richard Vetstein, a Framingham-based real estate attorney who made something of a specialty of clearing such titles, said he’s hunted down former owners as far away as Japan in order to get them to sign off on a deed transferring ownership. “You usually have to pay some ransom money for it,” he said. “I had a guy in Alabama, he wanted a plasma TV to get the deed. You gotta do what you gotta do.”
But Vetstein said some former owners are simply impossible to find. And if a property had junior lienholders, they’d have to sign off, too – which some refuse to do. Such homeowners have little recourse.
The new bill, Massachusetts Senate Bill 1987, would resolve almost all these issues in one stroke, by establishing a de facto statute of limitations for challenging a foreclosure: If a foreclosed homeowner had not initiated a legal action within three years from when the affidavit of foreclosure is recorded in the land records, the foreclosure is presumed to be valid.
The legislation, introduced by Sen. Michael O. Moore (D-Millbury) and backed by Attorney General Martha Coakley, was passed unanimously by the Senate last month and is now under consideration in the House.
Under the bill, a homeowner who wanted to challenge a foreclosure that took place more than three years prior would have a year to do so. Properties where a suit is ongoing would be exempt until the case is resolved. The vast majority of foreclosures are uncontested, and since the bulk of the problematic foreclosures date back to the mid-2000s, the bill’s passage would mean that current homeowners would soon be free to refinance or sell their homes.
“It’s going to help with regular conveyancing and support the recovery of the housing market. Properties that were stagnating, now they can move,” said Vetstein.
Attorneys who defend borrowers facing foreclosure, however, say the bill is stripping away their rights.
“Practically speaking, this bill is like saying that a person that buys a stolen car – and supposedly doesn’t know it was stolen – gets to keep it after a certain period of time even if it’s shown to have been stolen,” wrote Jamie Ranney, a Nantucket attorney who represents foreclosed borrowers, in an email to Banker & Tradesman. “This bill is, I would argue, completely unconstitutional since it unconstitutionally deprives a homeowner of their property without due process of law.”
Ranney questions whether the bill’s language, which calls for a foreclosure affidavit to “immediately become conclusive evidence of the validity of the sale” when the deadline passes, will pass muster with the courts, when evidence of banks across the country using robo-signing and other tactics to file false affidavits was such a huge problem during the housing crash.
Also somewhat unclear is whether a homeowner may still be able to challenge a foreclosure on the basis that the bank didn’t wown the note at the time of the foreclosure. The foreclosure affidavit itself often does not contain information on this issue, the central point of contention in the Eaton case.
REBA, for its part, hopes the new bill will also put such claims to rest. “The purpose of the bill is to ensure when a person looks at the record title, it explains what the lender did to comply with the foreclosure laws, so that they can rely on [the records],” said Nolan.
Email: csullivan@thewarrengroup.com
