TOXIC TITLE: Cloud in Massachusetts: Getting Back Your Home AFTER Foreclosure Sale

Kathleen Engel, professor of law at Suffolk University, said the federal government should step in to help states deal with “toxic titles’’ that are clogging up the system from California to Florida. She said until recently few people were scrutinizing paperwork of foreclosing lenders, whose actions are causing problems for borrowers, investors, and municipalities. No matter how Long rules, she said, the problem isn’t going away.

Foreclosure sales in limbo over title issue

Expected ruling may complicate transactions

By Jenifer B. McKim, Globe Staff  |  October 9, 2009

A court decision expected as soon as today could negate the validity of sales of thousands of foreclosed homes in Massachusetts, causing havoc for buyers and sellers and further stalling the housing market’s recovery in hard-hit areas.

At issue is proof of ownership at the time of a foreclosure sale. During the housing boom, millions of mortgages were bundled into bonds and sold to investors, a process that resulted in lengthy and twisted paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held the mortgage.

That changed in March when Justice Keith C. Long of Massachusetts Land Court found that two foreclosures in Springfield were invalid because ownership of the mortgages was not clear at the time of the foreclosures.

Long’s ruling, which came as a shock to many who deal with distressed properties, called into question the ownership of hundreds if not thousands of foreclosed homes in Massachusetts, prompting some lenders to delay sales out of fear they could later be voided, title companies to balk at insuring them, and nonprofits to steer away from certain foreclosed homes altogether.

“There are thousands and thousands of titles that have gone through foreclosures with these late filed’’ ownership records, said Lawrence Scofield, an attorney with Ablitt Law Offices in Woburn, who represented plaintiffs in three consolidated Springfield cases ruled on by Long. “Judge Long is saying you don’t really own it. That is the real, overwhelming, economic effect.’’

Two of the plaintiffs asked Long to reconsider the ruling, and a decision is imminent.

Among those watching the case are Boston city officials, who say they hope Long will clarify title issues for homes that have already gone into foreclosure. In the meantime, the judge’s actions have stymied the city’s effort to buy as many as 20 bank-owned properties, hurting much-needed redevelopment efforts in neighborhoods plagued by foreclosure, officials said.

“It has put some properties in the state of limbo,’’ said Evelyn Friedman, director of Boston’s Department of Neighborhood Development.

While title issues can affect any home sale, Long’s ruling addressed procedures required under foreclosure law and therefore only affects properties foreclosed on by a lender. His decision builds on a growing national movement among housing advocates, courts, and some lawmakers to push lenders dealing with foreclosed properties to produce accurate documentation before deals are consummated.

Kathleen Engel, professor of law at Suffolk University, said the federal government should step in to help states deal with “toxic titles’’ that are clogging up the system from California to Florida. She said until recently few people were scrutinizing paperwork of foreclosing lenders, whose actions are causing problems for borrowers, investors, and municipalities. No matter how Long rules, she said, the problem isn’t going away.

“The fundamental problem is the paperwork was really shoddy,’’ said Engel. “The mess was created by Wall Street.’’

Locally, the Massachusetts decision has pitted advocates trying to revive neighborhoods against others trying to help homeowners stave off foreclosures.

Gary Klein, a consumer law attorney who filed a friend of the court brief in the case, said the real estate system placed “expedience and convenience’’ before the law. Providing home buyers with a “full set of procedural protections,’’ he said, is more important than comforting lenders who ignored the law. He said the lending community created the mess and it needs to fix it.

Klein said there is a benefit to the ruling for homeowners in trouble: It is slowing the foreclosure process, allowing them more time to try to save their homes. Indeed, since March, the number of foreclosure deeds has slowed, according to Warren Group, a Boston company that provides real estate data.

“There are probably at least a thousand families who are getting at least some period of temporary delay while lenders go back and get a proper paper trail,’’ said Klein, an attorney with the Boston-based law firm Roddy, Klein and Ryan. “Slowing foreclosures down allows people to get loan modifications and other relief.’’

The Springfield lawsuit was filed not by homeowners seeking to regain their houses, but by the foreclosing lenders who were trying to remove a “cloud from the title’’ of properties created because of where the lenders chose to publish foreclosure auction notices. A secondary issue was whether the notices – which did not officially name the mortgage holders – complied with the law, and that is what Long is concerned about.

The Real Estate Bar Association for Massachusetts, a statewide group with 3,000 members, joined the plaintiff’s attorney to ask the court to reconsider its ruling. Attorney Christopher Pitt, chair of the group’s Title Standards Committee, said many banks already have changed their procedures as a result of the March decision and are now coming to foreclosure-sale closings with completed paperwork.

But that doesn’t help people who already bought a foreclosed property from a bank.

“If a property has one of those arguably defective foreclosures in its back title, right now you may not be able to refinance or sell it,’’ said Pitt, who works for the law firm Robinson & Cole, which has an office in Boston.

In Springfield, the ruling scuttled purchases of two foreclosed properties in depressed areas, said Rudy Perkins, a staff lawyer with HAPHousing, a nonprofit that promotes affordable housing. As a result, Perkins said, the agency now steers clear of properties with similar title questions.

“There is a danger that if this can’t be resolved, those properties will stay boarded up,’’ said Perkins. “It killed the deals and, unfortunately, it is going to kill deals on other properties.’’

In North Andover, real estate agent Linda Kody said some banks have moved to redo a foreclosure rather than wait for Long’s decision. Others are not moving forward with foreclosures. Twelve pending sales in her office have collapsed recently, Kody said, and another 25 bank-owned property listings are on hold as lenders wait for a ruling.

“It is very upsetting,’’ said Kody, president of the real estate firm Kody & Co. Inc.

Biju Kachappilly, a father of two, is one of the many hopeful buyers awaiting the decision. Kachappilly said his pending purchase of a four-bedroom, $400,000 Colonial in Tyngsborough in April fell through over questions about the title. He still hopes to buy the home, but in the meantime is paying higher rent on a month-to-month apartment in Billerica after notifying the landlord of his plans to move.

“We are trying to buy a house and move our family there; it is good for the neighborhood and it is good for the town,’’ said Kachappilly. “Many families and houses are in limbo because of this decision.’’

Jenifer McKim can be reached at jmckim@globe.com.

13 Responses

  1. I’ve been browsing on-line greater than three hours lately, yet I by no means discovered any interesting article like yours. It is lovely worth enough for me. Personally, if all website owners and bloggers made excellent content as you did, the internet will be a lot more useful than ever before.

  2. foreclosure problems in texas with ocwen.
    any information on ocwen.
    Trying to get home back.
    I was told they were reviewing my case; foreclosed following tuesday.

  3. TW,

    I went to the web site you linked.
    CLUELESS. These folks are
    about to be in a PLANE CRASH
    and unaware the plane is
    NOSEDIVING as they speak.

    If I can some how get my seat belt
    on and say a prayer before the CRASH;
    I’ll try to inform them of their impending
    DOOM.

    They need to read the Boston Globe!
    If the Ibanez decision is appealed and affirmed,
    I believe it will be another Landmark Case.

    I will fight for my rights way past midnight,
    count on that. If I lose now in Court, and I
    can recover later I WILL.

  4. *Deontos – begins with an f and ends in uck (and not firetruck)?

    I am thinking many in the real estate profession who are on the front lines trying their best to assist people in moving on with their lives actually do not know the pitfalls that well, how could they?

    This is like crash course in brain surgery… only a lot more interesting. At least in brain surgery you have a scalpel, drill, hammer and a couple dollars worth of stitches.

    These (financial) scams only require a few bucks worth of paper and ink & sometimes… if you’re lucky – a few bucks to the clerk of court for transfer tax & recordation fees, but don’t hold your breath on the last one!

    Many in the RE profession have been led to believe that their clients are doing the right thing by short selling to avoid a deficiency judgment – for some its a rude awakening!

    I found Broker Agent Social and other online sites for real estate professionals to be very interesting forums. The realtors haven’t even heard the alarm clock go off… much less starting to wake up!

    http://www.brokeragentsocial.com/home.php

  5. Somebody help me out here!
    I was looking in Merriam-Webster
    for a WORD and I can’t find it there.
    Spells like cluster erh ahh hmmmm………………………

    Thursday, October 15, 2009

    Could Recent Land Court Ruling Impact Title To Any Massachusetts Home Foreclosed Upon In Last 20 Years?

    IN BOSTON, MASSACHUSETTS, THE BOSTON HERALD REPORTS ON THE RECENT MASSACHUSETTS LAND COURT RULING THAT THREATENS TO UNDO THOUSANDS OF FORECLOSURES IN THE STATE:

    * Experts say the ruling paves the way for thousands of people who’ve lost houses to foreclosure to challenge their homes’ seizures. “The judge has thrown into question every foreclosure performed in the Commonwealth over the last 20 years,” said lawyer Lawrence Scofield, who represents Wells Fargo and U.S. Bank. Scofield said only foreclosures before 1989 are beyond review, as [Massachusetts] state law gives people two decades to dispute land ownership.

    * Market watchers add that the judge’s ruling affects far more than just foreclosed homeowners. For instance, any consumer who owns a house foreclosed on in the past two decades must now worry that a former owner will sue to reclaim the property. Such homeowners could also find it impossible to sell or refinance because of “clouded” titles.

    * In fact, some consumers who’ve tried to buy foreclosed homes in recent months haven’t been able to get mortgages or title insurance because of [Judge Keith] Long’s initial decision. Bank of America and other firms have even pulled some foreclosed homes off of the resale market.

  6. When property is frozen in place.

    When land ownership transfer is paralyzed.

    When there are no known owners.

    When there are buyers knocking at an unaswered door.

    When there is no way to sell property that’s been purchased.

    Then.

    Then.

    The legislature will make some moves.

    For the time being, it’s us. We in the courts. Educating the judiciary from the bottom (county civil courts) up.

    How we ended up here, G-D only knows.

    Lisa E (Pro Se, Florida)
    Lisa Bep @ gmail . com (remove spaces to email)

  7. Among my biggest fears in this whole “lending/mortgage/foreclosure/banking/economic” crisis is that the Federal gevernment WILL step and do something, and that something will be to rewrite existing law, or to enact new legislation, that in essence gives the nefarious parties involved a retro-active pass on their bad deeds and utterly eliminates any protections for the abused.

    I envision just this kind of nightmare solution being applied specifically with the “title” issues. “OK, they are too big to fail, there are too many fatal title defects and it will cripple everything and everyone to undo all the wrong stuff, so let’s just write laws that completely subvert the previous laws and instead match the present reality that is required to protect the guilty. Individual citizens that have been victimized, abused and had their cookies stolen? Pfft, who cares about them.”

  8. smalz
    a while ago
    some posted here..they had a friend with major$$ who wanted to buy @ the auctions the foreclosed homes and give them back to the homeowners they were stolen from…
    i know i know – dont ask why,,,just cuz they could & wanted too. Not the point ,the point is they could not buy the home.. never landed 1 house.. always the wrong bid..which was mentioned that this person was biding OVER the asking price and still no go….THIS SMELLS BAD!

  9. I would like to point out that this “professor of law” who suggest that the “federal government needs to step in” needs to be reminded that property is the jurisdiction of THE STATE, because IT is the sovereign. What needs to happen is a few of these STATE LEGISLATORS, who are LEGISLATING within the COLLECTION OF FINANCIALLY BANKRUPT STATES we call a country, it is THEY who need to STEP IN. Her suggestion, besides being stupid, merely kicks the can down the road and into the board room of wall street, I mean congress.

  10. Blood anyone?? the evil machine will succumb to the American people’s power!!!, thanks NEIL for this awesome blog, it gives us the power to express our opinions and also to vent out our frustrations towards the scum bags that are trying to steal our homes!.
    Can you believe that now even the stupid real estate agents are complaining to the judge’s decision? bastards all they want is their commission without even thinking about the rest of people that have had their homes stolen by the unamerican bastards that set up all this mess.

    Agreed with JISemidey: California is without a doubt the most corrupt state in the union, from the underpaid employee all the way up the ladder, all they do is steal from us over and over. What?? California is going broke?! no problem let raise taxes again, it’s an exercise they repeat way too often.
    But i must add that they can only pull this crap on us for so long, not matter how much they get pay, not matter how much they try to hide it, it will come to a grinding halt and when it does all hell will break loose. The scam is WAY too big to be hidden any longer, the light of justice is beginning to shine on the outer shell of the evil machine, the inside will follow! to victory America!!!!

  11. Are people really looking at these documetns being used to substantiate foreclosure?

    Has anyone looked into the “authenticity” of the courthouse foreclossure auctions?

    Has anyone noticed something strange about courthouse auctions without “buyers” or “sellers” like we see in normal auctions?

    Can someone “buy” or “sell” at an auction to which they did not attend?

  12. the fact that this decision is NOT taking place in Cal the “real-estate state” should give you some idea how much of this state & the rest of the country has been bought & paid for log ago by the fukin bank… i can tell by the judge & trustee in my bk case .. dont upset the status quo . .what spineless fukin chumps.
    Ca state gov is a complete joke its the 2nd biggest waste of $ on the planet, following closely behind THE U.S. GOV. THE WASTE MACHINE.

  13. I just hope the judge does not fall pray to the pressures, I can only imagine he may be dealing with.

    The law is clear, I do not see how the judge may reconsider his own ruling. If he does he would probably be violating state law, federal law and the US Constitution all at once.

    These people are talking about deals, the commissions they would have to repay, etc. But they never directed a single comment toward the poor people whose homes were stolen from them.

    As You all who visit this website regularly have realized, if you do not fight head on and keep up at all costs, these crooks will steam roll over you.

    I pray for the Judge to do the right thing, which for the financiers, real estate agents, title insurance agencies, etc. might not be what they wish. But for millions of Americans it is the way to settle the score once and for all.

    It is time our country and its institutions remember that “We The People” matter.

    Mortgage Analysis and Consulting, LLC
    8300 Old Court House Rd
    Suite 230A
    Vienna, VA 22182

    703-946-5851

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