http://www.cnbc.com/id/40969556 Now that the Massachusetts Supreme Court has upheld a lower court's ruling that Wells Fargo [WFC 31.50 -0.65 (-2.02%) ] and U.S. Bancorp [USB 26.09 -0.20 (-0.76%) ] did not have the proper paperwork to foreclose on two homes, the question is what that means for the broader mortgage market and the future of millions of foreclosures in or about to be in process? Not... [more]
http://www.cnbc.com/id/40969556
Now that the Massachusetts Supreme Court has upheld a lower court's ruling that Wells Fargo [WFC 31.50 -0.65 (-2.02%) ] and U.S. Bancorp [USB 26.09 -0.20 (-0.76%) ] did not have the proper paperwork to foreclose on two homes, the question is what that means for the broader mortgage market and the future of millions of foreclosures in or about to be in process? Not only does this decision affect individual foreclosures, but it throws into question the entire mortgage securitization process.
The issue in contest over foreclosures now lies with the "note," or the IOU on the mortgage. The mortgage is the security that says the house is the collateral. Ownership of the note is critical because that note must be transferred when the mortgage is traded around. During securitization a process called "endorsements in blank" are used, so that mortgages can be transferred quickly. But you still need that note when you foreclose.
"This is really about endorsed/assigned in blank," says JT Smith of Aristar Funding. "Judges didn’t understand and transfer taxes were not paid. This is going to get very ugly. The mortgages became like bearer bonds in that whoever had possession of original wet copy was the owner, and if you didn’t have that you could not foreclose. Then if you did why didn’t you pay transfer taxes?"
"The mortgage is still owed, but there's going to be a problem figuring out who actually holds the mortgage, and they would be the ones bringing the foreclosure. You have a trust that has been getting payments from borrowers for years that it has no right to receive. So you might see borrowers suing the trusts saying give me my money back, you're stealing my money. You're going to then have trusts that don't have any assets that have been issuing securities that say they're backed by a whole bunch of assets, and you're going to have investors suing the trustees for failing to inspect the collateral files, which the trustees say they're going to do, and you're going to have trustees suing the securitization sponsors for violating their representations and warrantees about what they were transferring."
The American Securitization Forum, immediately after the ruling, put out a statement saying, "The ASF is pleased the Court validated the use of the conveyance language in securitization documents as being sufficient to prove transfers of mortgages under unique aspects of Massachusetts law.
Importantly, unlike the lower court, tithe Court also said assignments of mortgage can be executed in blank, as long as a complete chain of transfers can be shown through the applicable deal documents." ASF says those documents were not introduced in the lower court and that the lower court would have ruled otherwise if they had.
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The concurring opinion by Justice Cordy helps clarify the situation:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. ...
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court's opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.
These are important points:
• The "assignments do not need to be in recordable form or recorded before the foreclosure". That is a key point.
• This case is really about the "utter carelessness with which the plaintiff banks documented the titles to their assets".
And this means that
• These issues are curable, but will be costly for the banks. As Tanta frequently argued, the upfront "cost savings" would be paid for in arrears!
• This does not appear to be a systemic risk.
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Response by Riversider
over 15 years ago
Posts: 13573
Member since: Apr 2009
US Bancorp said it came to own the mortgage as the servicer of the trust, according to the ruling. However, the bank “did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement,” Justice Ralph Gants wrote in his ruling.
http://www.calculatedriskblog.com/2011/01/massachusetts-court-voids-foreclosures.html
The concurring opinion by Justice Cordy helps clarify the situation:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. ...
The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court's opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.
These are important points:
• The "assignments do not need to be in recordable form or recorded before the foreclosure". That is a key point.
• This case is really about the "utter carelessness with which the plaintiff banks documented the titles to their assets".
And this means that
• These issues are curable, but will be costly for the banks. As Tanta frequently argued, the upfront "cost savings" would be paid for in arrears!
• This does not appear to be a systemic risk.
US Bancorp said it came to own the mortgage as the servicer of the trust, according to the ruling. However, the bank “did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement,” Justice Ralph Gants wrote in his ruling.
http://www.ft.com/cms/s/0/92f0e18e-1a9c-11e0-b100-00144feab49a.html#axzz1ARcZkksL
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