Mass Court Affirms Notice requirements, Holder in Due Course and raises New Issues on Auction Bids

Massachusetts is a power of sale state (non-judicial, but there is plenty of securitized meat in here for everyone). Good stuff to quote from — with Banks making the arguments that we are promoting on this Blog. The issues include (a) notice (b) unmarketable title and unable to get title title insurance (c) void certificate of title involving improper notice (d) non-competitive bidding resulting from cloud on title (e) redemption rights of borrower (f) securitization of loans (g) ownership of the mortgage (h) authority to pursue foreclosure (standing in non-judicial context) and most importantly identification of the actual holder in due course.

See Massachusetts Land Court Department Ruling by J Long

Some quotes from the Opinion from the Bench:

COMMONWEALTH OF MASSACHUSETTS
THE TRIAL COURT
LAND COURT DEPARTMENT

U.S. BANK NATIONAL ASSOCIATION, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z

First Issue: whether the published notices, which named the plaintiffs as the foreclosing parties even though they had no record interest in the property at the time of either publication or foreclosure [were sufficient]

According to the plaintiffs, despite their successful bids and their subsequent recording of all the relevant documents, they cannot obtain title insurance for the properties — making them effectively unsaleable — unless and until these issues are resolved in their favor. They have thus brought these actions seeking such relief. In each of these cases, the defendants (the mortgagors/equity holders of the properties at issue) have been served, failed to respond, and have been defaulted. The plaintiffs have moved for entry of default judgment. The issues were clearly identified before those motions were heard and the parties were given full opportunity to submit whatever affidavits or other admissible materials they believed necessary for adjudication of those issues

I find and rule, however, that the other two foreclosures (U.S. Bank’s in Ibanez and Wells Fargo Bank’s in Larace) are invalid because the notices that named those entities failed to name the mortgage holder as of the date of the sale as required by G.L. c. 244, § 14. Neither U.S. Bank nor Wells Fargo Bank had been assigned the mortgages at the time notice was published and sale took place. Neither an intention to do so in the future nor the backdating of a future assignment meets the statute’s strict requirement that the holder of the mortgage at the time notice is published and auction takes place be named in the notice.

Roche v. Farnsworth, 106 Mass. 509, 513 (1871) (“There is the more reason for this [requiring strict adherence to the statute’s notice provisions], where the power [of sale] is made to a mortgagee, who is interested merely for himself, and has opportunities for collusion and for taking unfair advantage of the mortgagor.”)

One of those requirements is that the notice identify “the holder of the mortgage.” Id. at 483. Failure to do so renders the “sale void as a matter of law.” Id. at 484. The purpose of this requirement and the need for “strict compliance” is readily discerned. As even a cursory glance at the current caseload of this court reveals, titles arising from mortgage foreclosures can have many problems. These include the most fundamental: Did the party conducting the foreclosure have the authority to do so and, if challenged, can it prove that it had such authority? In short, will a purchaser at the foreclosure sale get good title and will get it in prompt fashion? These are increasingly important questions in the current deteriorating real estate market and are not small concerns. It is increasingly rare for a mortgage to remain with its originating lender. Often, as here, mortgages are assigned to other entities, and then assigned yet again into large securitized pools.( ) Often, as here, the paperwork lags far behind. Sometimes mistakes are made.( ) Mistakes can only be corrected, if at all, through confirmatory documents (which the borrower may not so easily agree to) or litigation. With so many foreclosed properties available for purchase, why bid on a property with even the possibility for such trouble? Why bid on a property when the foreclosing party cannot produce all the documents (including proper mortgage assignments in recordable form) that would give good title? Why take the risk that the foreclosing party will be able to produce the documents promptly after the auction takes place, that those documents will be complete and in proper form, or even (in this era of failed and failing institutions) that the foreclosing party will still be in existence, with intact files and knowledgeable employees able to find those files so that the proper paperwork can be completed? Since these concerns affect the ability to obtain clear, marketable title, why bid a
reasonable market value instead of a discount price to account for that risk?
None of this is the fault of the mortgagor, yet the mortgagor suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents at any time it chooses. And who can say that problems won’t be encountered during this process? It is interesting that it took the plaintiff (the foreclosing party and successful bidder) almost fourteen months after the auction to obtain its assignment in Ibanez and ten months after the auction in Larace.( ) Would any reasonable third-party bidder have been willing to wait that long, trusting that no other issues would arise?( ) Only in Rosario was the assignment (showing that the foreclosing party held the mortgage and could convey title as a result of the sale) in hand and ready for recording at the time of the auction sale.

Bottomly v. Kabachnick, which states that the notice in that case “was defective because it failed to identify the holder of the mortgage, thereby rendering the first foreclosure sale void as a matter of law.” 13 Mass. App. Ct. at 483-84 (citing Roche v. Farnsworth, 106 Mass. 509 (1871)) (emphasis added).( ),( )  Second, it ignores the “fundamental precept[]” that “[c]ourts must ascertain the intent of a statute from all its parts and from the subject matter to which it relates . . . .” DeGiacomo v. Metropolitan Property & Casualty Ins. Co., 66 Mass. App. Ct. 343, 346 (2006) (emphasis added). The form of foreclosure notice included in G.L. c. 244, § 14 is a part of that statute, indicative of its intent, and clearly contemplates (as Bottomly holds) that the present holder of the mortgage be identified in the notice. There is nothing to indicate that this aspect of the notice could be “altered.

the language in the body of the statute clearly contemplates that the “holder of the mortgage” is the entity to give notice, as indicated by its reference to notices to be mailed “to the last address of the owner or owners of the equity of redemption appearing on the records of the holder of the mortgage . . . .”

This contention (which places the burden and expense of a lawsuit on the mortgagor and allows a statutory violation with potentially severe adverse consequences to proceed unchecked if a lawsuit is not brought) is contrary to the “consumer protection” nature of the statute. The defaulting mortgagor is often a layperson, unfamiliar with law and legal proceedings, and often financially distressed and thus without resources to hire counsel.( ) Second, the plaintiffs’ argument that the mortgagor already knows the identity of the assignee of his mortgage from his RESPA notices( ) and thus cannot credibly complain, Id., completely misses the point of the publication requirement. As noted above, its purpose is to notify potential bidders who do not have that information and whose bids may be chilled by concerns over the foreclosing party’s inability to show, in recordable form, an assigned interest in the mortgage it purports to foreclose. Based upon the facts of these cases, such chilling is not speculative. In each of the two cases for which market value information was provided (Ibanez and Larace), the plaintiff purchased the property at the foreclosure auction for significantly less than that value (15% and 17%, respectively). See discussion, supra at 3-4.

Bottomly is the most recent case construing the notice provisions of the statute and is the starting point for the proper interpretation of the earlier cases and proper title practice. As noted above, Bottomly unequivocally holds that a notice that fails to identify the holder of the mortgage is defective, thereby rendering the “foreclosure sale void as a matter of law.”

Montague v. Dawes, 12 Allen (94 Mass.) 397 (1866). Montague predates the publication provisions: title derived from a foreclosure sale by an assignee of a mortgage in possession of that assignment at the time of the auction is not defeated by the fact that the assignment was not recorded until after the foreclosure took place, so long as the mortgagor is aware of the assignment and it is “unaccompanied with the suggestion that it was not recorded from improper motives, or that in some way the circumstance actually affected the sale by misleading purchasers or otherwise . . . .”( ) Id. at 400

LaSalle Bank’s foreclosure in Rosario was not rendered invalid by its failure to record the assignment reflecting its status as holder of the mortgage prior to the foreclosure since it was, in fact, the holder by assignment at the time of the foreclosure, it truthfully claimed that status in the notice, and it could have produced proof of that status (the unrecorded assignment) if asked. The other two foreclosures (U.S. Bank’s in Ibanez and Wells Fargo Bank’s in Larace) are invalid because the notices (which named those entities) failed to name the mortgage holder as required by G.L. c. 244, § 14. Judgment shall enter accordingly.
Footnotes:
None of these banks hold the mortgages in question for themselves. Instead, they are the servicing trustees of the securitized mortgage pools identified in the case captions, which are the actual beneficial owners of the mortgages. Neither the details of the pools nor the particulars of the trust agreements are relevant for purposes of this Memorandum and Order, which assumes that the pools were duly and properly formed and compliant with all applicable laws, that the mortgages in question were properly included in those pools, and that the banks, as trustees, had full authority to act as they did.

One can become the “holder of the mortgage” (an interest in land) only by a writing satisfying the statute of frauds, G.L. c. 259, § 1, in recordable form. Thus, the plaintiffs’ contention at oral argument that G.L. c. 244, § 14’s requirement of “holder” status was satisfied by the assignment of the promissory notes secured by the mortgages to the securitized pools (apparently done by contract documents referencing them generally, along with hundreds or thousands of other such notes) fails. In any event, no such documents were included in the record, so any arguments based upon them are unsupported and waived. Moreover, there is nothing in the record to indicate when the promissory notes were assigned and the record is unambiguously clear that the mortgages were assigned on the dates referenced herein.

One Response

  1. how about original lender foreclosing by advertisement against developer and developer’s grantee by deed on two of 15 lots which developer warranted was free and clear of all debts and mortgages which the mortgage holder was aware of but which it failed to ever file the formal discharge. two years later,,, a foreclosure includes the two warranted deed lots claiming it never dischraged the mortgage referred to in the deeds it knew about?

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