The state’s Supreme Judicial Court upheld a lower court ruling in the Ibanez case today, suggesting common securitization industry practices are invalid under Massachusetts law, a huge loss for the mortgage industry.
The ruling invalidates a common practice in the mortgage securitization industry, repudiating the idea that an assignment of a note in blank means that the noteholder also has the right to foreclose on the loan (in other words, that they have a right to the mortgage).
Historically, in order for a lender to have the right to foreclose the change in ownership of the mortgage must be recorded in the state’s registry of deeds. During the securitization boom of the last two decades, however, this procedure was often not followed, with assignments often being recorded only after the foreclosure had been carried out. Today’s ruling clarifies that recording is still necessary, potentially clouding the title of thousands of properties.
"The judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales," the SJC ruling reads. "The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs’ motions to vacate the judgments."
The case involved a two foreclosure actions which had been carried out against two homeowners in Springfield. The original loans on the properties had been issued by Rose Mortgage and Option One Mortgage in 2005, but the foreclosure auctions in 2007 had been carried out in the name of Wells Fargo and US Bancorp, as the notes had been transferred into trusts for which they were servicers. However, the mortgages had not been assigned to Wells and US Bancorp. When Wells and US Bancorp attempted to have the assignments recorded following the foreclosure, Judge Keith C. Long of the Land Court ruled that they could not and the foreclosure was invalid, as they had not proved they owned the notes and had the right to foreclose at the time of the foreclosure auction.
Lawyers for Wells and US Bancorp had argued that the securitization documents alone were sufficient to prove that the banks had the right to foreclose, despite the lack of a recorded assignment. The SJC rejected that reasoning.
The case could impact foreclosure law nationwide, as securitization practices were widespread and the subject of similar disputes in many jurisdictions, and the majority of states have laws similar to Massachusetts’s regarding the assignment of mortgages. Other courts across the country will likely be influenced by today’s ruling.
