Key Foreclosure Ruling by Mass Supreme Court Delivers Major Blow to Banks

Homeowner advocate and friend, Richard Zombeck, published another great article over at the Huffington Post highlighting Friday's Massachusetts Supreme Judicial Court ruling that upheld the March 2009 decision of the lower court saying: a bank can't foreclose on a home if it doesn't own the mortgage.

As Zombeck puts it: Judge Long and the six jurists of the Massachusetts Supreme Court sent a very clear message to the banks on Friday: This is the law... And the law matters. 

A few excerpts:

In short, the Supreme Court upheld the March 2009 decision of the lower court that a bank can't foreclose on a home if it doesn't own the mortgage.

This simple statement would seem like a no-brainer, but as a result of fast and loose securitized mortgage lending practices, the ownership of a mortgage could potentially be divided and transferred multiple times by the lenders. As I pointed out in a post back in November, in one week alone there were 808 mortgage transfers in just one county in Massachusetts.

The documentation for these transfers (i.e., the assignments at the Registry of Deeds) on the other hand often lags far behind - in many cases months, or even years after the foreclosure has taken place. This makes it difficult and sometimes impossible to determine who owned what and when.

Add to an already confusing chain of events, and consider that many notes were signed "in blank", shuffled around from one lender to the next and put into trusts well past the legal limit allowed and you've got a mess of epic proportions.

In the past, a bank representative or attorney for the bank would walk into court, point out that the "deadbeat homeowners" weren't paying their mortgage and the family would get kicked out. Many states adopted non-judicial foreclosure policies to alleviate unnecessary paperwork and court time. The premise being that a bank would never foreclose on a property on which the payments were being made and were certain that they owned. That worked fine and made sense when you knew who owned your loan and you owed the money to a local bank or credit union. The bank had your mortgage and your note and the Registry of Deeds has a solid record of it. If there was a transfer - something that might happen once or twice in the life of a loan, if at all, the banks would go down to the Registry of Deeds, file the assignment, pay the fee, and go on with their day. You, the borrower, would start sending your monthly checks to another bank.

...Then the art of securitization came along and mortgages started being traded like baseball cards at recess, sliced up into pieces, and loaded into pools, trusts, and whatever new intricate financial instrument Wall Street dreamed up. Servicers started handling loans instead of your neighborhood bank and MERS (Mortgage Electronic Registration System) was invented to further allow banks to bypass millions of dollars in fees to county registries. Of course with all of these transactions flying around in the hands of people who quite possibly didn't understand what they represented and as we've seen in the recently exposed robo-signing fiasco didn't know what they were signing, there was a lot of room for mistakes ... a lot of mistakes.

Be sure to read the Huffington Post piece in its entirety here:

Here's the decision:
Ibanez Decision