Saturday, January 08, 2011

Massachusetts Supreme Ct upholds law, banks quiver

Guambat has been one of the smallest of very many voices discussting the securitization of real estate mortgages.

Banks very merrily and purposefully just disregarded the law of real property, setting up their own rules which they determined were above the law. They're feeling a bit insecure about their security just about now.

Indeed, Fox News would seem to have you believe that the nasty courts were just being unsportsman like to the banks:

Court Deals Blow to Banks in Foreclosure Case
Banks were dealt a big blow on Friday after a Massachusetts top court ruled Wells Fargo didn't have the right to foreclose on a pair of homes because they securitized and repackaged the mortgages.

The ruling could impact the broader financial industry because virtually all banks slice mortgages up and sell them back to investors.

First, understand what's happened. The courts are not saying that peoples' debts are invalid. This is not about the debt. The courts are saying banks cannot just take peoples' properties from them to recover the debt.

This is about property law, not creditor rights. And the banks simply ignored the property law. In a land of laws, that's a risky thing for anyone to do. Of course, banks have had it all so one sided for so long they seem to have overlooked the notion.

A more level-headed Fox scribe at the WSJ put it this way:
In the ruling, the court said, "We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied."

A blog post in the Washington Post has done a very useful service in providing a link to the Massachusetts Court's Decision, and in discussing it:
After examining the paperwork filed by the banks, a lower court judge, the Massachusetts Land Court's Keith C. Long, said he had determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off houses.

Long's decision hits on one of the most sensitive issues related to how mortgages were securitized: something called "endorsements in blank." In the rush to aggregate and sell and then resell mortgages, many of the mortgages documents were transferred without explicitly naming who the note was being sold to.

The financial services industry has argued that this practice is legally valid but Long ruled, "These blank mortgage assignments were never recorded and they were not legally recordable."

The banks had appealed Long's decision, arguing that they had clear title to the properties. But on Friday, Massachusetts Supreme Court Justice Ralph D. Gants wrote that the court agreed that the banks "failed to make the required showing that they were the holders of the mortgages at the time of foreclosure."

The link that was provided is here.

The Decision noted that this was hardly a trifling technical error. It was a massive error committed in a situation where the banks were given powers of significant proportion over other people's property without any judicial oversight. The conflicts of interest are obvious, and in need of obvious integrity, which the banks lack. In the more solemn words of the Court, the Justice said,
"Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that "one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void."

One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose.

Any effort to foreclose by a party lacking "jurisdiction and authority" to carry out a foreclosure under these statutes is void.

For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests.

Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor.

Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such.

Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title.

We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.

the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage.

the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry

To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced because this proposition is contrary to G.L. c. 183, § 21, and G.L. c. 244, § 14.

If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false.

Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer.

A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time.

In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.

Finally, we reject the plaintiffs' request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. We have not done so here.

The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs' apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.

The banks have tried to make the claim that the deficiencies were merely "technical", but they did a very heavy make-over on some very fundamental property law principles when they tried to pull this little caper. These cases were about taking title to land, not about suing on a debt.

The banks are great ones when it comes to making so many technical conditions to entrap others or baffle regulators or sneak through purposefully designed holes in legislation. When they trip up themselves in their own technical contrivances, they should bear the risk they created.

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Blogger marketsurfer said...

this isn't the first time wells fargo has been accused of funny business, remember the overdraft fee timing scandal??

8 January 2011 at 9:20:00 am GMT+10  

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