The Massachusetts Supreme Judicial Court [official website] issued a decision [text, PDF] on Friday ruling against banks in two foreclosure cases that could have important implications on similar cases both inside and outside of the state. In the consolidated decision Justice Ralph Gants [official profile] ruled that neither US Bank National Association nor Wells Fargo, which were not the original mortgagees, failed to prove they were the holders of the mortgages at the time of foreclosure. "As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied," he said. In both cases, the mortgages were transferred to two mortgage-backed trusts [Bloomberg report] without the recipients being named. As a result, Gants held:
Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void.Wells Fargo released a statement [text] in response to the judgment:
As trustee of a securitized pool of loans, Wells Fargo expects the entities who service these loans to abide by all applicable state laws, including those laws that govern foreclosure sales. Wells Fargo believes the court's ruling does not prevent foreclosures on loans in securitizations. The court simply set forth a standard legal process that mortgage servicers must follow in Massachusetts.Bank stocks fell significantly [NYT report] after the Massachusetts court issued its ruling, due to concerns that based on this ruling numerous foreclosures carried out over the past several years could be deemed invalid.
Foreclosure practices have come under close scrutiny is recent months. In mid-December Arizona Attorney General Terry Goddard [official profile] filed a lawsuit [press release] against Bank of America (BOA) [corporate website] for misleading customers [JURIST report] in mortgage modification and foreclosure practices. In November Chief Justice Charles Canady [official profile] of the Florida Supreme Court [official website] issued a memorandum [text, PDF] to the chief judges of Florida's 20 judicial circuits directing them to ensure that all foreclosure proceedings in the state are open to the public [JURIST report]. In October, New York Chief Judge Jonathan Lippman [official profile] announced [statement, PDF] a new court rule [JURIST report] that requires lawyers to file a separate affirmation [form, PDF] confirming the accuracy of paperwork used in residential foreclosure cases. Lippman explained that the new rule was an effort to provide better protection [press release] to people facing the possibility of losing their home, particularly in response to the recent discoveries of errors in foreclosure documents nationwide. Also in October, attorneys general from all 50 states and the District of Columbia announced [joint statement, PDF; JURIST report] that they have formed a bipartisan group called the Mortgage Foreclosure Multistate Group (MFMG), which will investigate allegations of procedural defects committed by mortgage loan companies during foreclosure processes.