Wednesday, January 19, 2011

US Bancorp and Wells Fargo & Co. lost a foreclosure case in Massachusetts' highest court last week

IN MASSACHUSETTS HIGH COURT US Bancorp and Wells Fargo & Co.
lost a foreclosure case
in Massachusetts' highest court last week that will likely make
foreclosures more difficult in Massachusetts, and could also
influence other courts in the clash between bank foreclosure practices
and state real estate law.

The state Supreme Judicial Court upheld a judge's decision

holding that two foreclosures were invalid because the banks
did not prove they owned the mortgages. In both cases,
the mortgage was pooled with other mortgages into a
trust and converted into mortgage-backed securities
that can be bought and sold by investors. US Bank was
the trustee of one of the trusts, and Wells Fargo was the
trustee of the other trust. In both cases, the back-up
documentation provided to the court did not clearly
demonstrate that the mortgage had been transferred
to the trust. In fact, in both cases a written assignment
of the mortgage to the trust was executed and recorded
months after the completion of the foreclosure. The assignment
to Wells Fargo as trustee declared an effective date
that preceded the publication of the notice of sale
(one of the conditions for a foreclosure in Massachusetts)
 and the foreclosure sale. In upholding the lower court's decision,
the court stated that "the judge did not err in concluding that
the securitization documents submitted by [US Bank and
Wells Fargo] failed to demonstrate that they were the holders
of the time of the publication of the
notices [of sale] and the sales. The judge, therefore, did not err
 in rendering judgments against [US Bank and Wells Fargo]."
A judge in a concurring opinion added that he was surprised by
 "the utter carelessness with which [US Bank and Wells Fargo]
 documented the titles to their assets." One of the arguments
made by US Bank and Wells Fargo was that, because they held
 the mortgage note, they had a sufficient financial interest in
the mortgage to allow them to foreclose. The law of many states
 provides that the mortgage follows the note, so that if a party
has possession of the note, it is presumed to have good title
to the mortgage. Massachusetts, however, is not one of those states.
In Massachusetts, where a note has been assigned but there
is no written assignment of the mortgage underlying the note,
the assignment of the note does not carry with it the assignment
of the mortgage. Rather, the holder of the mortgage holds the
mortgage in trust for the purchaser of the note, who has an
equitable right to obtain an assignment of the mortgage,
which may be accomplished by filing an action in court and
obtaining an equitable order of assignment. In the absence
of a valid written assignment of a mortgage or a court order
of assignment (neither of which were provided by either
US Bank or Wells Fargo), the mortgage holder remains unchanged.
While it remains to be seen whether banks will be permitted
to get away with shoddy documentation in states where the law
is that the mortgage follows the note, this decision serves as a warning 
to other banks and lenders to have their record keeping in place 
before starting a foreclosure.

Authored by: Sherwin F. Root

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