Ruling could undo thousands of foreclosures

More pressure on our profession, if title insurance is not available on the flood of new foreclosures because of improper paperwork we will all be stopped dead in our tracks and no homes will be sold.

Ruling could undo thousands of foreclosures

A real estate judge is refusing to reverse a landmark ruling that opens the door to voiding tens of thousands of Bay State foreclosures dating as far back as 1989.

“The foreclosure sales (in question are) invalid because they failed to meet the requirements of (Massachusetts law),” Land Court Judge Keith Long wrote yesterday in reaffirming a decision he originally reached in March.

Long denied a request from Wells Fargo and U.S. Bank to reinstate two Springfield foreclosures he invalidated in March because of flawed paperwork.

As the Herald first reported in June, the case centers on documents that banks and big investors must file any time they sell mortgages to each other.

However, some paperwork often gets lost, as mortgages typically change hands over and over again in today’s complex market.

Still, Long ruled that banks can’t foreclose on homes unless they have complete paperwork covering every time a specific loan changed hands.

The judge found that fixing documents after the fact, as Wells Fargo and U.S. Bank did in the Springfield cases, isn’t enough. He ruled that flaws not resolved earlier can depress bids at foreclosure auctions, reducing how much consumers who face home losses get for their places.

“The issues in this case are not merely . . . a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers,” Long wrote yesterday.

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 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 Long’s initial decision. Bank of America and other firms have even pulled some foreclosed homes off of the resale market.

Scofield, who said his clients haven’t decided whether to appeal, believes delays in reselling foreclosures will only prolong the state’s housing slump.

“Judge Long has taken a big sledgehammer and shoved the market a lot deeper into recession,” he said.


The last paragraph of the article:

But Eloise Lawrence of Greater Boston Legal Services, which represented one of the Springfield homeowners, claims lenders are “trying to scare people and win in the court of public opinion what they can’t win in (actual) court. Banks decided what was convenient for them should be the law of the land, but that’s not the way it works.”

I’m sure the banks can clear this up with a little more bailout money. :wink:

I have even read where here in FL (and the nation) they are finding many lending institutes can not often prove they have the title to properties. This happened when they all started selling mortgages off to other entities, particularly when people would refinance at a lower rate making it less profitable for the lenders. The records are so screwed up, the paper trail is often blurred or has gaps.

Follow up:

It appears that things could in fact come to a grinding halt if the homes that were transfered via MERS (Mortgage Electronic Registration Systems, Inc.) have no legal deed to transfer title with.

Op-Ed: 60 Million Mortgages May Have Fatal Flaws

RISMEDIA, October 5, 2009—The latest chapter in the mortgage meltdown is being written in court, as one by one, judges are putting a halt to foreclosures. The latest was a recent Kansas Supreme Court case. In Landmark National Bank v. Kesler, the court held that a nominee company called MERS had no standing to bring a foreclosure action.

Nor was Kansas the first. In August 2008, Federal Judge for the U.S. Bankruptcy Court for the District of Nevada ruled MERS had no standing. ”Indeed, the evidence is to the contrary, the Note has been sold, and the named nominee no longer has any interest in the Note.”

In September of 2008, A California Judge ruling against MERS concluded, “There is no evidence before the court as to who is the present owner of the Note. The holder of the Note must join in the motion.”

On March 19, 2009, the Supreme Court of Arkansas determined that MERS was not the true beneficiary because the Note had been sold. Alabama and Florida have made similar rulings.

In each case, the reason stems from a fundamental misstep in the handling of Notes and Trust Deeds that runs contrary to established court policies which require that the real parties identify themselves to the court. Each of these cases involved MERS and, in each case, the courts’ rationales were almost identical.

First, a little background. Over the last 40 years, mortgage lending has evolved from a bank holding the mortgage to the mortgage being bundled and sold as part of an investment pool, usually in the form of a bond.

As a registered security, the Note is a negotiable instrument, like money or a cashier’s check, and under securities law that Note must be given to the investor. In this case, mortgage backed securities, (MBS) were bundled together in a pool and shipped to…well, we don’t really know.

One of the impediments to an MBS is the need to file assignme
nts for the beneficiaries in each county each time the mortgage is resold. And apparently, no one holds them for very long because most have been passed around several times.

In order to avoid the logistical nightmare of trying to maintain a public chain of title, the biggest lenders joined MERS, Mortgage Electronic Registration Systems, Inc.

MERS was created with the sole intent of evading the recording fees due to the county in which the security is located.

In so doing, in my opinion, they also destroyed the age-old practice of making a public record of information concerning real property in general, and legal interest specifically. The chain of title is a vital record produced to resolve many a dispute.

Now, that’s gone. I believe, erased simply so they themselves, MERS, could siphon off the recording fees for themselves. They sold their business model to lenders as a better way to track mortgages that were being sold and resold all over the world.

But, as there often is with a BIG IDEA, there were also unintended consequences. Only now are they coming to light. Until MERS was challenged in a foreclosure proceeding, no one had taken a look at the law.

The law, according to a Nevada Judge, is that for purposes of foreclosure, both the Note and the Deed of Trust must be assigned. When the Note is split from the Deed of Trust, the Note becomes unsecured. A person holding only a Note lacks the power to foreclose because it lacks the security.

MERS lost track of the Notes. In some cases, according to my research, they deliberately destroyed them.

Every thing was fine until the economy contracted. MERS began foreclosing on delinquent home loans and then one day; someone said “show me the Note.”

In reviewing the judge’s rulings in the above matters, several key points have been determined:
• MERS is not the beneficiary of the Notes and has no skin in the game. It did not lend any money, collect any payments or do anything more than track the sale of the securities.
• Judicial procedure requires that parties identify themselves and prove their standing.
• Splitting the Note and Trust Deed leaves no party with standing to foreclose. The true holder of the Note, the security, paid the lender so the lender is covered. The true holder of the Note was insured by AIG so they are covered. AIG and the banks were bailed out by taxpayers. So, unless the American tax payer can produce a “blue-ink” original Note, no one has standing to foreclose.
• Allowing a foreclosure to proceed without the original Note places the homeowner in double jeopardy. If the original Note were to surface, the holder of the Note would be entitled to payment, but from whom? The borrower is still on the hook.
MERS currently holds 50 to 60 million loans so this is no small matter. And, just because they have lost repeatedly doesn’t mean they will give up. They will keep right on foreclosing in hopes that the homeowner won’t fight back and, in most cases, they won’t be stopped.


I brought this issue up several months ago when my own neighbor stopped paying his mortgage and challenged his bank to try to foreclose on him. He didn’t believe his bank could produce the paper trail demonstrating there was a mortgage at all. He was right. Bank is of yet still unable to show it holds the mortgage on the home.

Many members argued that his actions are unethical. I’m not so sure.

The banks already have an advantage in that they author all the fine print. Now, like dummies and with the help of Ahriman, they got rid of the whole idea of having a local banker and instead sold the loans over and over to the point they aren’t sure who holds the mortgage. I say hold them to their own fine print and if they can’t prove they hold the mortgage, too bad for the bank. The bank certainly would hold the borrow to the fine print if it was in the bank’s favor.

Not paying your obligations is cheating someone and therefor unethical.