Case Study: A Close-Up Look at the Massachusetts Foreclosure Ruling

Case Study: A Close-Up Look at the Massachusetts Foreclosure Ruling

Posted by Carole VanSickle on Friday, January 14th 2011

Since the Massachusetts Supreme Judicial Court ruled last week that Wells Fargo and US Bancorp unjustly foreclosed on two properties the mortgages to which they did not actually hold verifiable title, the entire real estate investing industry – along with banking and legal eagles – has been in an uproar. The decision which invalidated two foreclosures that had already been sold at auction was unprecedented, and when the leading judge declared that the decision would be retroactive and apply to any foreclosures that had been mishandled in a similar manner, class action lawyers leapt into action and homeowners involved in and recovering from foreclosures over the past few years felt a spark of hope that maybe their foreclosure could be “unwound” or they might be able to claim damages as well. While very few people dispute that if banks cannot show that they have the right to take homes away from people and sell them to other people then probably those banks should do a better job of record keeping, many investors and traditional homeowners who bought homes in good faith at auctions found themselves on the edge of their seats, wondering if they really even owned the properties that they had paid for.

In the wake of the decision, there have been many responses from all sectors of markets related to the industry. Some experts are not worried at all, while others are just waiting for the sky to fall. Lots of people simply say that the “wealthy investors” and “fattened banks” deserve what they get as long as the people who were thrown out of their homes get justice, while others worry that with this new twist, the housing market might literally never recover. In an effort to determine exactly how widespread the records problem is, a reporter for the Boston Globe took a random sample of 30 foreclosure deeds from Chelsea, Massachusetts[1]. Chelsea has been “hit hardest by foreclosures since the beginning of 2006.” What he found indicated that the damage is pretty far reaching: a solid third of the sample had paperwork issues including no mortgage on file at all, no assignment papers for the mortgage to the foreclosing lender, and failures on the part of mortgage lenders to sign off to allow mortgage servicers to service the mortgages or to allow the mortgages to be placed into pools. In short, based on the recent ruling, 10 of the 30 had solid grounds for invalidation. And all 30 of the properties in the sample had been foreclosed and resold.

Although this is a small sample, the ramifications are huge. At least in Massachusetts, this ruling is going to have a dramatic and far-reaching impact on the entire banking industry and the real estate market. How do you think lenders, homeowners and former homeowners should be dealing with and solving this problem?

33 Responses

  1. anonymous and others–the Ibanez decisions “reasoning” is what is important here–and you are right on point on this one. The judges get the drift here believe me–mine did–Look at the Maryland decisions. The point here is they are not doing the assignments in the proper order–basic chain of title issues andlackof agency.

  2. Concerned

    Thanks for your response. Agree with you — you write –“However, the one case that was kicked out of the case they ruled on in Ibanez would most likely be able to raise the issue of the ‘chain’ not being as required by the PSA.” .

    Agree the court does not address specifically — but by their interpretation – which examines the process — the decision implies that assignments must be complete and validly executed and also for valid mortgage title. And, yes, we need decision that will more directly address. MA decision opens up a can of worms.



    Fixing Massachusetts Foreclosures Won’t Be So Easy
    By ABIGAIL FIELD Posted 10:15 AM 01/14/11

    See full article from DailyFinance:

    Why Completed Massachusetts Foreclosures Are a Big Problem

    One problem in the Massachusetts cases is that the foreclosing banks were assigned the mortgages after the foreclosure was completed. An assignment can’t happen after the foreclosure starts, much less after it’s been completed, the court explained, unless the assignment is essentially a redo of an existing assignment. Then the late assignment would just “confirm” the original.

    Since the “typical” securitization involved assignments in blank, I’ll bet very few of the trusts that foreclosed in Massachusetts had the mortgages when they foreclosed. If the banks had been aware of the issue and were dealing with it, it’s hard to understand why they would have told the Massachusetts high court that assignments in blank were legit.

    That would mean any assignment to a securitization trust that happened after the foreclosure started — apparently “typical practice” in Massachusetts, as it is elsewhere in the country — wasn’t “confirming” an existing assignment, despite K&L’s claim to the contrary in its newsletter:

    [I]n the context of securitization, such confirmatory assignments will serve to validly confirm the language of assignment contained in the underlying securitization agreements and can thus properly confirm the earlier assignment of mortgage which itself bestowed the authority to foreclose.

    Unless the original assignments weren’t in blank, the late assignments aren’t “confirming” anything. They’re the first time the trust is being given the mortgages.

    K&L gets one thing right: A foreclosed homeowner probably has to go to court to show that the foreclosure was invalid. That’s because just showing the assignment to the trust occurred after the foreclosure started — an easily determined fact in the land records — isn’t enough. The homeowner has to find out if that late assignment to the trust was the first one or a “confirmatory” one. That is, did any assignment in blank break the chain or not?

    Since such assignments were typical, then most if not all of the foreclosed homeowners should be able to invalidate their foreclosures. Precisely what that means for the foreclosed homeowner, the foreclosing trust, the servicer and the purchaser of a foreclosed Massachusetts home isn’t clear. At a minimum, the new owner doesn’t have good title because the bank that sold it didn’t have it to give.

    Problems Elsewhere?

    K&L also points out that the case hinged on Massachusetts law, which is true — and the firm tries to reassure people that, for that reason alone, its consequences are limited. Well, maybe. Maybe the securitzers ignored only Massachusetts law.

    Speaking of which, how did that happen? The Massachusetts high court emphasized that the illegality of assignments in blank was basic real estate law. How on earth did the big firms advising on securitization deals — and it’s many sophisticated firms, not just K&L — not realize the “typical” deal violated Massachusetts law?

    Boston alone is chock-a-block with big corporate law firm headquarters and branches. Surely, they had partners who knew better. Since the banks’ lawyers blew it in Massachusetts, can we really take their word that they didn’t blow it any place else? I wouldn’t.

    See full article from DailyFinance:


  4. a man–i have to read again but have you looke at either the utah decisions on qt or the ones in Maryland with GMAC–I don’t know whether either of those help–that being said, I think the mass ct was trying to say that they have to follow the rules, and basically they tried to fix the foreclosure after the fact by filing docs after the foreclosure that should havve been filed first–I think that is the central point in those decisions. maybe i’m wrong but I have read the decisions several times. Now I havenot seen that third case–however, again, look to those maryland gmac cases and the utah cases that have been reported on today I believe.

  5. Anonymous,

    I believe they did NOT rule on the issue you are raising. In fact there was a third case that was dropped out of the suit because of the very fact you are raising. They did not step into the issue of assignments that did not follow the ‘rules’ laid out in the very PSAs that they were looking at ‘rules’ for ‘acceptance’ of them as the ‘evidence’ of the mortgages being securitized.

    This was a VERY narrow issue that was examined and addressed in ‘Ibanez’.

    Since I do not know of a SINGLE PSA where the assignments actually occurred as described, I believe there is going to be another case that ends up with the higher courts. It possibly will be a different state than MA, since so many of their cases will hit the fan with the existing ruling.

    However, the one case that was kicked out of the case they ruled on in Ibanez would most likely be able to raise the issue of the ‘chain’ not being as required by the PSA.

    Who knows, we may have that hit the fan soon enough, even in CA. The attorneys in BK cases are seeking the admissions that the PSA was ignored. If this gets contested, look out fraudsters!

  6. Still no answer from anyone here — did the MA decision effectually say that bogus assignments do not matter if the assignment was filed before the foreclosure action??? Do not believe this — I am in dispute with high level experts in prestigious investment firms. Need some backing.

    Anyone??? Ferris Bueller????

  7. Concerned

    MBS investors were paid 100% by government bailout. CDOs are derivatives of the MBS — much less principal investment. What MBS “investors” lost — was not being able to earn say 13 -15% as opposed to market interest rate for mortgage loan MBS investments (much lower).

    Derivative investors invested much less principal — banking on a high return for “risky” investment — on small principal invested. And, most pensions were prohibited from such “risky” investments.

    Your IRA returns crashed because the fraud was exposed and entire mortgage market collapsed because of it – with subsequent domino effect on entire economy and investments.. The only reason IRA and other pension investments have recouped is due to Federal Reserve manipulating of the money supply and it’s affect on redirection of investment from safer vehicles to equities — which includes those wonderful banks.

    Once the manipulating stops (and along with Congressional “stimulus”)– we will rapidly experience escalating interest rates, inflation, and continued devaluation of the dollar. Could be worse crisis than the one that was supposedly averted by the manipulation.

    The only reasonable answer to the financial crisis was to expose the fraud at the time of the onset of the financial crisis. This opportunity was missed —- and, cover-up is now only possible remedy. Will not last — all will come a crashing — as soon as the “tools” fail — and they will.


  9. I agree with James McGuire and the other posters about people buying foreclosed homes have the responsibility to do their own research before they buy the foreclosed home. You have to be living in a bubble not to know what is happening, or they don’t care that there could be a possibility that the house they are buying has a clouded title. I believe that my house was sold with a clouded title and the title company ignored that. My house was put on the market “as is”.

    I have a good friend who has a family member that in a realtor. He tells these people who are interested in foreclosures that the former owner will almost never come back to claim the house and even if they did the former owner would never get the house back. A real professsional.

    My house was sold for $80,000+ more than the original loan we took out. At the time we were foreclosed (according to Zillow) the property value was $336,000 and not 2 months later when the people put in their bid the value was $475,000. Does that seem odd to anyone else? So when the appraisal was done for these people to buy the house it must have been close to or over the $475. Very few houses in my area were on the market for over $400,000. They got a loan for $430,000+ ( checked public records). These people were bragging to my former neighbor about what a good deal they got and then complained that they could not figure out how some of things in the house worked. Had a good laugh about that one.

    We will loose our rights if we don’t fight back!

  10. These courts claim to be SO concerned about the ‘investors’. Well, as a double whammy, I lost a lot of value from the retirement accounts that held interests in diverse investments, including these REMICS. If I look, I’m sure those retirement funds had holdings in the CDOs too.

    I’ve already lost the value in the retirement funds and I do not see any of that money re-appearing via any of the investor suits nor with any of the foreclosure completions. I do not see my funds coming back even with the suits by the ‘big investors’.

    So if your solution can’t restore that retirement fund at the same time that you come up with this ‘fix’ for the mortgage, then just leave me alone with the mortgage being wiped out.

  11. In the Ibanez ruling,or it may be in the amicus curaie brief by Marie McDonnell, it was found that either Wells or USBank (sorry can’t remember specifics) foreclosed the mortgage for $94,000. and sold the property for “$0.00”. I haven’t seen this discussed-anyone have any analysis of this?

  12. ….while others worry that with this new twist, the housing market might literally never recover.

    I, for one, don’t want a housing recovery, if the term recovery means back to the fraudulent practices honed by the banksters and their allies.

    Securitization is a business model that works only for investors and banksters and their exotic deals, they aid no one in real communities in the real world.

    Let it die in courts all over the nation. Let the investors lose, the banks suffer, let securitization fall into a state of disrepair unfixable due to the greed that insured its demise. Screw all of the participants. Maybe they’ll think twice the next time they try and overtake an entire well established system with their fraudulent schemes. They deserve no less.

  13. […] in their home (LaRace).  For a detailed opinion on the results please view the write up on the LivingLies site. Filed under Court Cases and Pleadings The Tide Is Turning! → LikeBe […]

  14. two of my favorite quotes from Thomas Jefferson:

    “Government big enough to supply everything you need is big enough to take everything you have. The course of history shows us that as a government grows, liberty decreases.”
    — Thomas Jefferson

    “I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
    — Thomas Jefferson

  15. In a nutshell, follow the rule of law. That’s what the judicial system is supposed to do, and is finally doing.
    I have lost two properties because the BK judge (a former bank attorney) refused to look under the hood.
    I am making a film on the subject. Please go to my page to learn more and to support the project. Thanks!

  16. Who here has read Adam Levitin’s recent posting that lists several examples of PSAs that would not pass the ‘Ibanez’ ruling standards?

    If you read it, you will recall that he listed an example of a CountryWide “ABS’, designated as ‘CWABS’ 2006. Well, with anything CW is involved in, there are LOTS of problems. Neil has a COMPLETE POST on the “America’s Wholesale Lender” loans (this is a ‘flavor’ of CW loan where CW used a ‘TRADE NAME’ as the name of the ‘lender’ throughout the loan docs. Now add that the CW testimony is present in ‘KEMP’ that the NOTES were never physically transferred. Also add the fact that CW mortgage assignments did NOT comply with the PSA at ALL.

    Also add that the banksters involved, when one of these CW loans is in ‘default’ ALWAYS are filing an assignment YEARS after the required date per the PSA and STILL not in accordance with the PSA’s stipulated ‘chain’ AND it will be filed AFTER foreclosure is commenced AND perhaps even after the sale, AND they also will have typically have ripped people off for modification payments, even on a PERMANENT MODIFICATION, then breach that MODIFICATION.

    MY OPINION: The banksters deserve to loose AND to have to pay the legal bills for the borrowers AND to pay back the illegally collected payments. There are articles now coming out that document the fact that the mortgage modification payments collected are NOT getting to any of the true investors.

    The banksters, servicers and debt collectors are the ones capitalizing on ILL-GOTTEN GAINS, not the original borrowers.

  17. There is only one thing I have to say to the whiners buying foreclosed property;
    “but the buyers and investors bought the foreclosed property in good faith, why should they suffer?”

    They bought it to steal, they knew they were buying junk, they knew they might lose it, there is no title and the greed shines through every lousy excuse.
    There is no more “bonafide purchaser” without due diligence where all the rocks are turned over.

  18. I have not seen the Utah or Maryland decisions that have been referred to. Can anyone post the links to the Pdfs?


  19. To suggest that years after the act you can “fix” the chain of title ignores the law in numerous states–can’t be done. The banks are just “posturing”. They are also putting out “feelers” to see if anyone will “buy into” their current argument that it can befixed. No can do and THAT is the important part of Ibanez folks–yeasrs after the fact the court is saying, NO, you cannot fix this and NO, you did this and will be held responsibile for this. I’m not buying this is about securitization. I o not see that. I think this is a plain and simple title issue–what the courts are raising about securitization is that securizatizing these loan contibutdto the breack of the chain of title and clouding the titles. That is the only importance of securitication in IBANEZ–attempting to put these notes in trusts and “securitizing” them was a part of the problem to begin with–but that is NOT the focus of these decisions in Massachusetts, Marland (against GMAC) and Utah that were also posted over the weekend. In each of these decisions, quieting the title because of breach in the chain of title because of gross neligence (folks these banks are not bright enough to intentionally do this–if they were that bright they WOULD NOT HAVE DONE IT). they were just negligent and stupid and trying to put something on record. If you think otherwise than you forget that in the 70’s when there were all tehse management jobs at P & G and J & J, and Wall Street were beginning to happen, men left the schools or came back from war and went into those companies. If you went to work for a bank, it was because your daddy had money and you could not get a job anywhere else–we have short memories, but god knows I remember that. Of course women could not get jobs even in the banks! Maybe if we had we would not have these problems. No these folks were just grossly negligent and that is what we should be alleging alongside quiet title actions. I just revised my own pleadings with this. Look at jury instructions folks (which is what you do if you are an attorney and pleading) and seewhat is easier case to make “fraud with punitives” or negligence with gross neg. Its neg with gross neg and that is an easy case to make after proving a breach in the title. Write me and I’ll send you this latest draft. Its mine and I don’t redraft as I don’t practice anymore (but hopefully will be by the spring! if I pass the bar next month–omg taking the bar exam again!)

  20. I guess we have at least several million homeowners who were illegally foreclosed on. We need to get that out there. One or two states with good case precedent (Mass.) is not enough. We need many more.

    Right now, California is really terrible. In order to file a Lis Pendens pro se, you have to have it approved by a judge. So, if you are defending yourself with a Quiet Title action, you wil also need to file a Lis Pendens, but you have to run it by a judge first. Seems somewhat unconstitutional to me.

  21. Nicely put Gwen: Follow the rule of law. See Judge Schack for examples.

  22. Neil is very right as to the interpretation of the MA decision. Some are deeply concerned — others say “no problem.”

    The MA case demonstrates that, years later, it is very difficult to get documents in order that were not executed properly at the time of SPV set up.

    MA case originally involved three foreclosures — Ibanez, Larace, and Rosario. Rosario was upheld because assignment was produced prior to foreclosure. For Ibanez and Larace — assignments were produced after foreclosure — and that was the fundamental issue that invalidated those foreclosures.

    But, the appeal demonstrates more than the timing of assignments related to foreclosure action. It demonstrates flaws in the chain of transfer of loans to SPVs and in execution of documents related to the entire chain of transfer process.

    I have heard some experts say that MA is not a problem because “banks” will make sure that assignment is produced before foreclosure is commenced, and other experts say that MA is big problem because “banks” will have great difficulty validating chain of transfer, years later, since execution in chain may not have been valid at time of original transfer. If the latter expert opinion holds, then even Rosario should be able to challenge the foreclosure even though assignment was produced prior to foreclosure action because the original transfer was likely not properly executed and therefore invalid. In combination with Robo-signing for assignment production, there appears to be a far more serious issue demonstrated in MA that involves execution and validity of securization of loans in general.

    Believe this is what Neil is also referring to. MA is one of the first cases to analyze the securitization process. And, for that reason is extremely important.



  24. Wow!!! Alright Sam.

    By the way, everyone like Gwen said, knew what was going on. I interviewed the title companies over a year ago and they reaffirmed exactly what I already knew. That they were calling the servicers and f/c attorneys and getting all of the assignments together, after the f/c sale, recording them and then guaranteeing title. They knew alright, along with a lot of other stuff. I am just afraid however, that most homeowners may lose out if they don’t work out reasonable compromises with the lender if they were the victim. Again, something is a lot more than nothing and the fight to get that will go on and on, maybe.

  25. Is thee anyone really out there who thinks that these decisions both in Massachusetts and now Maryland require thousands of foreclosures to be reversed that we should not reverse them??? I guess your answer to the statement “Might makes right” is in the affirmative–and then you don’t belong on this blog.

  26. I find it difficult to believe that you are soliciting comments on what should be a “no brainer”. What should happen? Simple: follow the rule of law which applies to the “little guy” all the time and just does not seem to ever be applied to that big fat cat. What does that mean? First, the foreclosureshould and is null and void. Second, the real estate agent who sold that house has errors and omissions coverage and should be sued–there is no real estate agent who does not know what is gong on today–if they don’t they are not listening to their offices. I am a Keller Willliams agent and this is a subject in our ffices. Next, the title companies have been on notice for some time there are problems. If they are continuing to allow these sales to go forward despite broken titles which they should be looking at well they have errors and omissions coverage too and go after them. I don’t feel sorry for them. Again, Chicago Title in our office is well aware of these issues. Next the banks–you really want me to feel sorry for them? Next, the person who bought the house–where have you been? Not listening because you want a “dea”–you deserve what you are getting and you have a ton of people out there to sue who let you buy this house. End result? OMG! The law is followed and all those people in the heartland and around the country who are getting ready to exercise their 2nd amd rights becaue the law i not followed, will actually sit back down and smile–the big guys got theirs just like I get mine when I break the law. Is this really so tough? What are you asking us to comment on? Are you really suggesting that just because the decision affects a “lot o foreclosures” we should not do it? If that is your feelling–go become a communist–because they are the one’s who take land without regard to due process.

  27. When 10 of 30 sample foreclosures have issues, that is called a “Pattern of Behaviour.” and could justify punitive damages. The banks and law firms that filed these documents “knew or should have known” that what they were doing was dishonest, and possibly criminal….not negligent, and not a series of innocent mistakes by people that didn’t know any better.

    When is our gov’t going to represent “The People” instead of a handful of criminals with a lot of money? There are thousands of experts out there that know exactly what is going on and are doing nothing about it. You should all be castrated for not doing a damn thing about this!

  28. To James McGuire : do you have any set of procedures to follow. Thanks in advance for your help.

  29. I think at this point, Kickboxer comes up with a very sensible answer when you consider the consequences as they have played out. At best, the foreclosed on homeowners should be able to pick out a new home of comparable value (if that is possible) and the lender finance 1/2 of the purchase price. That way, the lender (not that I care) would be able to minimize his damages while the foreclosed on homeowner gets a home at 1/2 price as his damages.

    It would be at this point that a reasonable compromise is made between the bank and the foreclosed on homeowner, otherwise, no one is going to win. No matter which way they go, the cost to the lender could be insurmountable depending on how many of these deals they screwed up. In doing so, clear title would be given to the new owner that purchased the foreclosure at auction. This is just a thought.

    On the other hand, I believe James McGuire has it correct that the home was purchased as is and if we don’t check it out as any consumer should have done, the consumer is just asking for it and they should have taken the proper precautions when making such an investment.

    It sort of goes full circle though when you consider how the first home owner may have been duped into purchasing a home he could not afford and now the lenders were auctioning off homes they did not legally own.

    What a mess. I know they will come up with something that does nothing more than complicate it far worse than what it is right now, if that is even possible.

  30. The entire industry is based on fraud based debt paper.THis is what is wrong with our country,
    notes, are counterfiet money,and they can be made by any asshole sitting on their ass,in front of a computer.Robo-signing,rocket docket to hurry the fruad out the door.All governments are merely administrators, who have “Power of Attorney.”
    Reverse the whole thing,by creating Power of Attorney contract with yourself, in a process called “redeeming the Strawman.”
    I have cancelled $40,000 in credit debt and lived free for 42 months in a home that is in a lawsuit.THe bank cancelled the judgment to sell the home, and at some point will have to “mediate” with me.

  31. Innocently bought at auction, does the term “As Is” mean anything? It was purchased with all the risks attached and most likely at a reduced price.

    The “so called” innocent purchaser should have searched public records, but they didn’t.

  32. Blame the Victims and Enrich the Perpetrators

    Quote: “It’s outrageous the way subprime borrowers swarmed and solicited unsuspecting lenders and camped out in the offices of investment banks to push them to find ways to finance their insatiable need for capital to purchase homes. It’s a scandal the way they got in bed with appraisers to get the home values stated at three to five times market value. It’s criminal the way they falsified income to push through the mortgage loans. Oh wait… they didn’t.”

  33. I think the foreclosed-on homeowners should be awarded damages of fair market value and in exchange they will transfer the title to the new owners who innocently bought the homes at auction.

    At least, that is what I would want if it were me. I would want to be compensated for my loss so I could just move on and get on with my life.

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