MSN Money has posted an article that discusses Massachusetts Supreme Judicial Court’s crackdown on Wells Fargo and US Bancorp over two separate foreclosure cases that were being appealed in lower-court. The court decided that the banks cannot foreclose on the homes and has to return them because they can’t prove who owned the homes at the time foreclosure proceedings began.
Neither Wells Fargo nor US Bancorp made the loans for the homes. Instead, they’re considered more of an investor since they purchased the mortgages as part of a securities package. The banks received the deeds to the properties only after instigating foreclosure. The banks argue that was just a technicality, but critics see it as an issue of property-rights.
Apparently the court agreed. Writes Q-Law Blog:
… two of the concurring judges felt it necessary to include their own written opinions. While they agreed with the majority, they added the following: “(W)hat is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosures in Massachusetts, but rather the utter carelessness with which the plaintiff banks document the title to their assets(Q-Law’s italics).”
Everyone is wondering how these two cases will impact banks, homeowners, and investors all across the country. Some think that banks will begin to complete more mortgage modifications or any other method that thwarts foreclosure and leaves a clear paper trail.
As you’d expect, bank critics were crowing. Some predict the implications will be enormous.
“Not only does this decision affect individual foreclosures, but it throws into question the entire mortgage securitization process,” says reader “Riversider” at StreetEasy, a real estate blog.
A Home Equity Theft Reporter headline calls the decision “a train wreck for f’closure industry,” quoting Boston lawyer and foreclosure specialist Gary Klein. The court didn’t put a time limit on the decision — its provisions are effective retroactively. Edward Bloom, president of the Real Estate Bar Association for Massachusetts, told the Reporter that the jurists created a legal traffic jam: “There will be a lot more litigation which could have been avoided.”
Other consequences could include defaulting homeowners demanding that banks show them the paperwork saying they own the mortgage, financially stable homeowners could feel more free to abandon their underwater mortgages if their lender can’t prove they own the mortgage, and foreclosures (once they make it to court) could take a lot longer to process.
Housing Wire interviewed James Frischling, president of NewOak Capital, who summed up the dilemma:
“No doubt the process of documenting the titles of these assets was careless, and that we need a system that prevents banks from unlawfully foreclosing on homes of borrowers,” he said. “What we can’t afford is a system that protects severely delinquent borrowers to remain in their homes for free.”
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