Sherlock Holmes once solved a mystery by listening to the dog that didn’t bark. In the ongoing enigma that is the foreclosure crisis, it may be the documents that didn’t appear that turn out to be the key to the puzzle.
In the landmark Ibanez case, the Supreme Judicial Court (SJC) decided that a lender or servicer couldn’t foreclose if it didn’t have the mortgage. But it also said that the assignment of the mortgage didn’t have to be publicly recorded to count.
If a lender could provide documentation – a contract between Lender A and Lender B, for example, where Lender A said it was giving over the mortgage along with the debt – that would suffice to show that the mortgage had been assigned. It would then be okay for lenders to record a “confirmatory assignment” at the registry of deeds at a later date.
The documents presented by lenders in the Ibanez case itself weren’t sufficient to do that.
But there’s nothing saying other banks in the same pickle can’t clear up potentially clouded titles by demonstrating, through signed contracts and securitization documents, that they had been given the mortgages.
Except nobody has done so – likely either because they don’t possess those documents in the first place, or because the documents they do have remain insufficient.
Alternative Means
The lack of alternative documentation cases has left even Massachusetts Land Court Judge Keith Long – at the center of the ongoing legal foreclosure debate since handing down the original Ibanez decision in 2008 – scratching his head.
“I expected a whole slew of cases in which people would come to me with the securitization papers, or the pre-foreclosure option papers, and show me that they actually had good title even though it wasn’t in recordable form at that time,” Long said at a recent symposium on foreclosure law at Suffolk University. “I have not seen a single one. I don’t know why this is so. Maybe the papers don’t exist. I suspect more likely is that banks may simply be getting an assignment from the last record holder of the mortgage, and in most cases that’s [Mortgage Electronic Registration System (MERS)].”
Long said he did not find that problematic.
“Does MERS have authority to foreclose on its own, or does it have to prove it’s acting on authority for the nominee?” Long said. “I have held yes, it can do it on its own. MERS is the title holder of record, and we’re a title state,” he said, citing several other state and federal courts in Massachusetts upholding that proposition.
Long said he believed it was acceptable for MERS to reassign a mortgage to another entity even when the original nominee it was acting for no longer exists because of bankruptcy or closure.
Lawyers who work for lenders and title companies said Long’s right: They often do get assignments from MERS, and one of the biggest reasons is because it’s often easier and cheaper to establish clear title that way than by using loan documents.
“Bringing an action in Land Court or Superior Court to quiet title in reliance on securitization documents is time-consuming and expensive, and since there’s a scarcity of case law on point, there’s a good possibility of an appeal, which means even more time and money,” said a lawyer who represents lenders in foreclosure cases, who would only speak on background for fear that his public statements may affect future cases.
There are also other options to consider. Title can be cleared by tracking down the original owner and getting them to sign a quitclaim deed resigning their rights to the foreclosed property. Still another method, re-foreclosure, was given an implied stamp of approval in the Bevilacqua case.
“If the bank still has the property and hasn’t sold it to a third party, they may feel it’s just easier to re-foreclose than to go back to court,” said Ed Bloom, president of the Real Estate Bar Association.
Win Some, Lose Some
Many legal experts say they suspect another critical reason banks haven’t relied on loan documents to clear title is that in many cases sloppiness and ill-conceived securitization procedures may have left them with documents that still don’t meet the court’s standards.
Long said there are “hundreds of cases” in his court where the bank has moved to foreclose, only to discover problems with the mortgage documents themselves. These include names on the deed not matching names on the mortgage, incorrect property descriptions and mortgages that were never recorded.
The law is clear, Long said, that such problems are fixable as long as one can provide evidence that the mistakes were unintentional. But sloppy mortgage documentation has resulted in difficulties even with this relatively simple matter.
“Often, these cases are brought by the assignees of the mortgage. They don’t have any personal knowledge of what happened, they simply picked up the file and want to get reformation. I tend to look at those pretty hard,” said Long. “Oftentimes, lawyers may have only had very limited involvement with [the mortgage]. I often find out who the lawyer is by looking at who notarized it. I ask the bank lawyer to go back and get an affidavit from the closing attorney [to verify that a mistake was unintentional]. Often the closing attorneys don’t know, because they didn’t prepare the papers, they simply processed what the mortgage company sent them. Sometimes the banks win, sometimes they don’t.”
Those kinds of problematic documents could turn out to be a time bomb for banks. In another important foreclosure case pending before the SJC, justices are deciding whether lenders and servicers will have to show they possess the note in order to properly foreclose.
If they rule that they do, banks will have to dig back through files – and if they come up empty, their ability to foreclose at all may be in jeopardy.
“It would be very beneficial to establish exactly what documentation a foreclosing mortgagee must have and when, so we can get rid of these spurious arguments that simply seek to confuse, hinder and delay,” said a lawyer involved in such cases, who also requested anonymity.
