Opinion

Felix Salmon

The Ibanez case and housing-market catastrophe risk

By Felix Salmon
January 7, 2011

The 16-page decision in the case of US Bank vs Ibanez does not make for easy reading. But it’s a very important case: it’s a solid precedent saying that if a bank doesn’t own a mortgage, then it can’t foreclose on a home. That was the decision of the lower court in Massachusetts, back in March 2009, and it has now been unanimously upheld on appeal to the Massachusetts supreme court.

After speaking to crack Reuters reporter Jonathan Stempel, I’m even more worried about this case than I was before.

The immediate effect of the ruling, which covers two separate cases, is that Mark and Tammy LaRace get to stay in their home, despite being foreclosed on in 2007. And Antonio Ibanez gets title to his home back, which means that the bank will either have to let him retake possession or else pay him for his deed.

Essentially, these homeowners bought their homes, defaulted on their mortgages, and then — after a long legal struggle — get to stay in their homes. It’s unclear whether they still owe money to any lender, and Massachusetts is a recourse state, which means that the bank could try to go after them personally, as it might had it lent them money on an unsecured basis. But in reality, if a bank does not have the ability to foreclose and the borrower is genuinely distressed and in default, there’s no point pursuing them for the balance of the loan.

The legal craziness that this decision sets in motion is going to be huge, I’m sure. Anybody who was foreclosed on in Massachusetts should now be phoning up their lawyer and trying to find out if the foreclosure was illegal. If it was — if there was a break in the chain of title somewhere which meant that the bank didn’t own the mortgage in question — then the borrower should be able to get their deed, and their home, back from the bank. This decision is retroactive, and no one has a clue how many thousands of foreclosures it might cover.

Similarly, if you bought a Massachusetts home out of foreclosure, you should be very worried. You might not have proper title to your home, and you risk losing it to the original owner. It might be worth dusting off your title insurance: you could need it. And if you ever need to sell your home, well, good luck with that.

Going forwards, every homeowner being foreclosed upon will as a matter of course challenge the banks to prove that they own the mortgage in question. If the bank can’t do that, then the foreclosure proceeding will be tossed out of court. This is likely to slow down foreclosures enormously, as banks ensure that all their legal ducks are in a row before they try to foreclose.

This decision won’t be appealed: the state law seems pretty cut-and-dried, every judge who’s looked at it has come to the same decision, and there’s no conceivable grounds for the US Supreme Court to take on the case.

What’s more, courts in the other 49 states are likely to lean heavily on this decision when similar cases come before them. The precedent applies only in Massachusetts for now, but it’s likely to spread, like some kind of bank-eating cancer.

If a similar decision comes down in California, which is a non-recourse state, the resulting chaos could be massive. People who are current on their mortgage and perfectly capable of paying it could simply make the strategic decision to default, if and when they find out or suspect that the chain of title is broken somewhere. They would take a ding to their credit rating, but millions of people will happily accept a lower credit rating if they get a free house as part of the bargain.

The big losers here are the banks — of course — as well as investors in mortgage-backed securities, including of course Fannie and Freddie, a/k/a the US taxpayer. No one knows how it’s all going to play out: there’s certainly going to be a lot of litigation in every US state, and there’s a good chance that the federal government is going to feel the need to get involved as well. Not every jurist and legislator is going to see things the same way as the judges of Massachusetts, and there’s a case to be made that banks should have the ability to go back and cure their mistakes once they’re pointed out, rather than just losing the house altogether, as they did in this case.

But of course the problem is that the banks can’t cure their mistakes: in many cases the original mortgage is lost, at this point, if it ever properly existed in the first place.

The tail risk here is enormous, and there’s no easy solution to the problem. And this is over and above the problem of putbacks, or legal risk associated with the scandal of banks lying to investors in many mortgage-bond deals. And it’s certainly yet another reason not to buy a house right now. You don’t know if you really have title to what you’re buying, you don’t know whether you’ll be able to sell it if you have to, and there’s a good chance that as a result of all these problems shaking out, home prices could fall dramatically.

Maybe we’ll muddle through this somehow — that’s still probably the base-case scenario. But maybe we won’t. And if we don’t, the downside here, to the banking system and to the economy as a whole, could hardly be larger.

Update: Adam Levitin emails with three other points, all important:

  • The ruling should (but surely won’t) led to a ratings downgrade of every securitization trust with MA properties in it.  The documentation sloppiness in Ibanez was hardly unique.
  • Notice how MA rejected the “mortgage follows the note” argument and also the “assignment of mortgage in blank” argument that ASF has argued is beyond reproach.  There are (in my opinion) stronger arguments about the mortgage notes, but that wasn’t raised in this case.
  • The MA Supreme Judicial Court is widely considered the best state court in the country.  No one questions the quality of the jurists on the court (unlike in some other states).  It’s one of the few state supreme courts that can routinely compete with federal appellate courts in recruiting top clerkship candidates and the only state court I know of that has had clerks go on to US Supreme Court clerkships.
Comments
105 comments so far | RSS Comments RSS

So, if the bank doesn’t own it (they can’t produce documentation showing that they own it), and the mortgagor doesn’t own it (he didn’t finish paying for it, and obviously doesn’t have the deed/title for the home).

Why does the court decide that the mortgagor is the owner? It seems like any random third party could come in and claim they own the home and no one can prove that they actually own it.

Posted by donhalljobs | Report as abusive
 

Felix: yes, this could have very serious implications, but what’s the alternative? Overlook the fact that the law wasn’t followed?

The parties to blame here are the banks. Their actions in the housing bubble good and screwed the United States — apparently twice over (once through reckless lending, once through reckless disregard for documentation). The govt erred in not taking over the banking industry in 2008/2009, kicking out the rascals who ran it and recapitalizing them with good assets. The govt tried to do this on the cheap. Before this is over, the govt may be forced to do another recap. The wrong thing to do is to finesse things to pretend nothing bad happened. The right thing is to face the issue and fix it.

@donhalljobs: The mortgage owner owns it. That’s some entity further back in the mortgage transfer chain — as I understand it, the court has said that the mortgage wasn’t effectively sold at some point before going into the securitizations. So the non-effective seller in that non-effective sale is presumably still the mortgage holder.

Presumably someone does still own this thing. Of course, that entity might have gone bankrupt and the original mortgage docs lost. In that case, it will be impossible to prove that the owner does still own it.

Posted by enplaned | Report as abusive
 

Hi Felix:

I generally agree w/your comments, but I’d caution you about this part: “courts in the other 49 states are likely to lean heavily on this decision when similar cases come before them.” Mass. is in the relative minority of states in holding that the mortgage does not automatically follow a validly assigned note (which I knnow only because the decision says as much). So in those states applying a different rule, the particular paperwork failure at issue here (invalid assignments of the mortgages, not the notes) is not so problematic.

Still, for Mass. and those states following similar rules, the implications are potentially huge.

Posted by retr2327 | Report as abusive
 

I agree with everything you say, except . . . was it really too much to ask for the banks to keep their paperwork in order? We’re dealing with relatively large financial transactions, involving a fundamental asset class. This is most banks’ bread and butter.

A random error here and there seems possible, and even forgiveable. It seems like we’ve had wholesale disregard of even adequate practices. I think that’s what has most people up in arms.

Posted by Curmudgeon | Report as abusive
 

donhalljobs,

The question is who is listed in the government land records as the owner of the home. The mortgagor’s name is added when he bus the house.

The bank usually doesn’t take title to the house (they don’t want to have the obligations of a landlord or be liable if the kid next door gets hurt on the property), they just place a lien upon it – meaning the house can’t be sold unless they’re paid.

Posted by AnonymousChef | Report as abusive
 

And if the banks can’t, as you say, cure their mistakes, by most law and common sense they should pay for them. After all, that’s what the rest of us have to do. I recognize that there are a lot of caveats to such a statement, because the banking system is in many respects the backbone of the country. But this may shake up the notion that it’s business as usual in our banks.

Posted by Curmudgeon | Report as abusive
 

Curmudgeon has it right. If you live in a world where the details & the fine print really matter, then yes, failure to adhere to those details is going to hurt you.

Maybe karma isn’t just a concept…

Posted by caustic01 | Report as abusive
 

Score one for rule of law here. Property law goes back hundreds of years. I can’t help think this is the conclusion of lots of sloppy loan origination.

This is not about borrowers who aren’t paying their mortgage, and it’s not about bank profits. It’s about respecting rule of law and saying everyone is subject to it, and it goes a long way toward ensuring that when someone buys a home they won’t have clouded title. It also ensures that due process is followed in a foreclosure.

Posted by Sechel | Report as abusive
 

This is the decision the homeowners have been waiting for. We’ve known the fraud goes so deep that the REMIC Trusts are empty for quite some time. Now, the courts are admitting as such.

I just would have loved to watch Dimon’s face as he got the notice…..or Moynihan’s or Pundit’s. They are all so f***ed.

Hallejulah. This is a champagne evening.

Posted by GeorgeSoros | Report as abusive
 

Sechel has it right. Rule of law is the basis of our society and ought never be challenged.

The Massachusetts Supreme Court also has it right. In the case in question (and in many others), the rules were NOT followed. And thus the deeds are in question.

Unlike hsvkitty, I’m not going to fall over my feet in sympathy with the borrowers-in-default. But neither am I going to lose sleep over the banks taking heavy losses on this one. They deserve each other.

Posted by TFF | Report as abusive
 

Would someone with some legal expertise comment on the following implication?

Could a mortgage payer who is current on their mortgage demand that the Bank or mortgage servicer prove that they own both the mortgage and note, and if they do not, withhold their payments with impunity? After all, if the Banks are not entitled to foreclose if they haven’t done their paperwork, they may not be entitled to continue receiving mortgage payments either.

At the least, I think this will give current mortgage holders much bargaining power in renegotiating or refinancing their mortgage. What do you think?

Posted by MartyNH | Report as abusive
 

MartyNH, I don’t have legal expertise, but then you shouldn’t trust any legal advice you get on a blog site anyways.

I see multiple problems with your scheme. First, it is sleazy. Second, their inability (or unwillingness) to prove ownership of both the mortgage and the note NOW does not necessarily translate to an inability to prove ownership when your foreclosure case comes to trial. They will be highly motivated to repair those deficits. Third, if you don’t pay the loan they can come after you personally for the money (at least in Massachusetts).

Posted by TFF | Report as abusive
 

The law provides a clear mechanism for “going back and fixing mistakes” such as these, ie which 1) result in massive personal financial gains for the perpetrators and 2) are accomplished via perjury, fraud, and other lawbreaking. The remedy is serious jail time for the perps and disgorgement of unearned “bonuses” by those who hatched the schemes and profited from them.

Posted by melior | Report as abusive
 

It’s not clear to me that this isn’t just a timing issue. If the issue is that they didn’t have their ducks lined up until the foreclosure began, then there isn’t a structural problem, there’s just a, as they say, paperwork problem that can be fixed (albeit, as CR notes, w/ some expense)

Posted by jpe12 | Report as abusive
 

Why should this automatically result in a ratings downgrade for securitizations with MA properties?

Doesn’t the securitization get to put the offending mortgage back to the institution that created the securitization (assuming it still exists)? After all, the bank represented in the prospectus that it had the mortgage and was legally transferring it to the securitization.

That now not being the case, why can’t the securitization sue the bank to get its money back? The issuer repped and warranted something that’s not true.

The offending mortgages are then money-good as far as the securitization is concerned (assuming the issuer is still around — obviously somewhat problematic in the case of securitizations issued by, say, Lehman).

Posted by enplaned | Report as abusive
 

This will be messy and slow in Mass. but remember it is only the banks that didn’t follow proper foreclosure procedure, didn’t destroy notes or falsify legal documents, didn’t ensure that the mortgage was properly registered… that have to worry. *cough*

For anyone livid that this is happening, maybe ask why the banks destroyed mortgage notes, falsified legal documents and didn’t follow through with proper foreclosure procedure? Ask why the law firms and judges robo stamped; Ask why the county has no records and even simplistic MERS procedures weren’t followed; Ask why the mortgages were not properly securitized and why they resold so many times no one even knows who held the mortgages last. (it saved time and legal fees and taxes and hid indiscretions…)

It’s doubtful that many will win as big elsewhere as these folks did, but even so it is going to happen. Each state has its own regulations and there is other precedence where banks disregarded the rule of law and covered up their lack of proper legal process and there are judgements on the other issues as well.

I am sure the Government will intervene to get it all moving again, but hopefully the mortgage mills will stop and judges will take greater care to ensure the legalities are followed.

TFF, you obviously weren’t paying much attention, but having read what you just wrote, I forgive you. The saddest thing is that because banks and lawyers were so careless with the law, there will be plenty of scammers and more bad lawyers slowing down the whole system and the economy.

Posted by hsvkitty | Report as abusive
 

Felix, I think I may love you. I’d know I love you if you had actually included something substantial like details. I had just gotten done reading the story on another site and thought, what is the economic impact of this. I wonder if Felix has something… Still not sure.

By the way, I’m voting with the ‘can’t do time, don’t do crime’ crowd. Seems like Chrystia might be early on her book. It might be more about Pluto and Goofy, or what it’s like to visit New York on five dollars a day, as a banker.

Here’s philosophical question: If a bank exec sells a mortgage but no one can tell, does he still get a bonus?

Posted by ARJTurgot2 | Report as abusive
 

Er no. The judgement explicitly deals with most of your claims:

You claim –
“Similarly, if you bought a Massachusetts home out of foreclosure, you should be very worried. You might not have proper title to your home, and you risk losing it to the original owner. It might be worth dusting off your title insurance: you could need it. And if you ever need to sell your home, well, good luck with that.”

The judgement explicitly says:
“What is more complicated, and not addressed in this opinion, because the issue was notbefore us, is the effect of the conduct of banks such as the plaintiffs here, on a bona fidethird-party purchaser who may have relied on the foreclosure title of the bank and theconfirmative assignment and affidavit of foreclosure recorded by the bank subsequent tothat foreclosure but prior to the purchase by the third party, especially where the partywhose property was foreclosed was in fact in violation of the mortgage covenants, hadnotice of the foreclosure, and took no action to contest it.” – ie that this judgement explicitly doesn’t deal with the situation you are talking about.

Also the judgement explicitly doesn’t say that the deals cannot be securitised:

“The type of sophisticated transactions leading up to the accumulation of the notes andmortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law.”

Also the judgement is clear in NOT saying what you seem to be implying which is that the mortgagors are home and dry. It simply means the **particular** bank cannot foreclose, rather it needs to backtrack up the chain until it has someone who can meet the needs of the court. So yes, they get to stay in their homes a little long and pay more lawyer fees but sooner or later someone is going to have an unbroken chain and they will lose their homes unless they can do a deal where it is cheaper for the bank in question to take a writedown than walk the chain.

It also doesn’t mean the loan has become an uncollateralised loan. In fact the whole point was not that the particular banks foreclosing are owed money but can’t claim the house, rather that they cannot prove they are owed anything at all, again it just means someone down the line before any break in the chain now has to foreclose.

Oh for those who no doubt are going to scream about “fraud”, that too is explicitly dealt with:

“Although there was ***no apparent actual unfairness here to the mortgagors***, that is not the point.”

Posted by Danny_Black | Report as abusive
 

Far be it from me to do something sleazy, TFF, and I won’t take your suggestion personally. Felix mentioned something very similar, “in California, which is a non-recourse state, the resulting chaos could be massive. People who are current on their mortgage and perfectly capable of paying it could simply make the strategic decision to default, if and when they find out or suspect that the chain of title is broken somewhere. They would take a ding to their credit rating, but millions of people will happily accept a lower credit rating if they get a free house as part of the bargain.” Sleazy as any corporate lawyer, eh?

I remember closing on my mortgage, and having to sign my name so many times on so many forms, all assuring some legal loophole would not open, that my hand was tired, and I felt very intimidated that every promise and legal requirement for me to get a mortgage loan had been carefully thought out. Surely the big boys at a bank knew how to negotiate a legal contract. And if they were in too much of a hurry to make a profit when they quickly sold my mortgage to another bank that they couldn’t be bothered to punctiliously fulfill every legal detail, well, I see this ruling as going a long way toward leveling the playing field. I think people who are now being told their credit isn’t quite good enough to refinance their mortgage are entitled to some revenge fantasies, don’t you?

Let me quote the economist Dean Baker (10/18/10; http://tinyurl.com/2f9doec) on this: “The highest rates of foreclosure are on the quick and dirty loans made at the peak of the bubble. These loans were issued to be sold. Almost immediately after the ink was dry, the issuers would sell these loans off to Citigroup, Goldman Sachs or other investment banks to turn them into mortgage-backed securities. The investment banks themselves were running short order operations. More rapid securitization meant more profits.

In this process, the paper work often came as an afterthought. As a result, necessary documents weren’t signed, title transfers weren’t properly registered, the notes tying loans to specific properties may not have been properly filed and other paperwork errors went uncorrected.

If the law were being followed, these issues would create serious problems for servicers trying to foreclose on homes where the owner has defaulted. Banks would have to spend the necessary time, paying high-cost lawyers for their work, to reconstruct the paper trail needed to establish clear title to the house and the documentation that would allow them to foreclose on a delinquent borrower.

f the Wall Street banks were like the rest of us, the policy response would be simple: Follow the frigging law. If banks want to foreclose then they should have to present the court with the proper documents, end of story. Anyone who has ever bought a house or refinanced a mortgage knows the headaches involved. Everything must be in order, a process that can cost thousands of dollars in fees, as a long sheaf of documents is signed in the presence of a lawyer. This process can easily take two hours.

The banks don’t think that they should have to endure the same expensive tedium as the rest of us. For them, these processes are simply formalities that can be circumvented.”

Posted by MartyNH | Report as abusive
 

enplaned, basically lets say the trust has one one year mortgage for 100,000 with a annual payment of interest of 12% and is promising to pay 5% annually on bond backed by that mortgage. The mortgage is shown to be non-compliant after a month. Then the trust puts back the mortgage, gets accrued interest for a month so it has 101,000USD in the trust but at the end of the year needs to pay 105,000USD. It has defaulted.

NB in most CMO cases the above will not happen because they only promise to pass-through the cash-flows rather than a fixed coupon and principal repayment.

Posted by Danny_Black | Report as abusive
 

MartyNH, that is exactly what happened here. The judges are not disputing the mortgagors owe money, they are not disputing they defaulted, they are not disputing they should be kicked out of their homes they are simply punishing “the utter carelessness with which the plaintiff banks documented the titles to their assets”. They explicitly have stated there is no new case law here and the issue is whether the specific bank trying to foreclose can foreclose.

Posted by Danny_Black | Report as abusive
 

Just to be clear:

“There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure.”

Posted by Danny_Black | Report as abusive
 

ARJTurgot2, the economic impact is that the paperwork will have to be done again properly.

Posted by Danny_Black | Report as abusive
 

Felix: A useful follow-up post from you would be to find out just why these banks were unable to find the necessary documentation. You have to have some sources willing to talk about record-keeping, even if they do it anonymously. Or are there any lawsuits by investors against trusts / originators that have proceeded to discovery?

Posted by FrancisL | Report as abusive
 

jpe12, again the judgement says it is explicitly a timing issue – “failed to make the required showing that they were the holders of the mortgages at the time of foreclosure”.

Not sure this claim by Mr Levintin is correct:

“Notice how MA rejected the “mortgage follows the note” argument and also the “assignment of mortgage in blank” argument that ASF has argued is beyond reproach.” – for instance the whole isssue is there is no record of either loan being assigned at all to either trust at the time of foreclosure and the assignments which did occur – which the court doesn’t appear to have disputed – occured well AFTER the foreclosure sale, for instance in Ibanez the sale was July 5,2007 and the written assignment was Sept 11 2008. Maybe Mr Levintin can clarify where that note was assigned prior to July 5, 2007 or where the court disputed assignment of mortgage in blank.

Posted by Danny_Black | Report as abusive
 

Ok this was the bit he was talking about:

“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.”

So in MA: “the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity” so it suggests that American Home Mortgage Servicing, Inc would do the foreclosure and then convey it to the trust.

Where are the lawyers when you need them….

Posted by Danny_Black | Report as abusive
 

FrancisL, not sure but don’t think you are allowed to bring new evidence to an appellate court. So they should have brought a new case.

Posted by Danny_Black | Report as abusive
 

Danny_Black, the economic impact may be in that the court upheld a decision for a state that didn’t require court action.

Also, although you dismiss felix, the Court sounds as though it is inviting those cases to be heard, being the issue wasn’t before them, because they understand the complexities that will bring.

“What is more complicated, and not addressed in this opinion, because the issue was not before us…

And just to be clear, in spite of the mortgagors having been in default, the negligence by the bank meant ruling in the mortgagors favour.

No one says there is any ‘new case law’, it was flagrant disregard for existing property law. And in this case, it is a very big deal and a precedent. I wouldn’t be trying to call it a tempest in a teapot anymore, Danny.

And Felix’s other points and other blogs, about the mortgage pools that banksters like yourself sold, might now be seen as they were … rather devoid of what what promised to investors.

I will leave you with this as you like to read my URLS, Have fun!

http://www.scribd.com/doc/46484089/New-G randma-in-California-Does-Sleuthing-and- Discovers-Major-Robo-Notary-Operation

Posted by hsvkitty | Report as abusive
 

Danny_Black, I’m with Felix in thinking it won’t stop there. I particularly pessimistic about the possibility that the paperwork even can be fixed. I think it’s possible that all the legal documents are lost or destroyed, and even if not, I don’t think they can actually put it back together correctly. I think the level of collapse in these organizations is pretty much total. They’ve been laying-off heavily for years, and it seems to have been the people that actually do things for their paycheck.

If no title/note means no bank ownership then there is NOTHING of value in those bonds, not even foreclose-able collateral. So, worst case, what is the total value of the securitized bonds that may go into default if they have nada for value and prospect for revenue.

Posted by ARJTurgot2 | Report as abusive
 

FrancisL, this site has a lot of that information, especially in the last few months.

http://www.nakedcapitalism.com/2011/01/u s-trustee-sides-with-borrowers-in-forecl osures-with-questionable-assignments-mer s.htm

Posted by hsvkitty | Report as abusive
 

FrancisL, this site has a lot of that information, especially in the last few months.

http://www.nakedcapitalism.com/2011/01/u s-trustee-sides-with-borrowers-in-forecl osures-with-questionable-assignments-mer s.htm

Posted by hsvkitty | Report as abusive
 

Not sure that the original documentation was lost or destroyed rather in the original case the plaintiffs didn’t bother to dig it up – expensive remember… – probably because it was uncontested in at least one of the cases and as I mentioned above, relatively sure you can’t enter in new evidence in appellate you can just argue there was an error in the judgement based on the evidence there.

Posted by Danny_Black | Report as abusive
 

ARJTurgot2, it doesn’t say there is no bank ownership. It says the particular banks trying to foreclose didn’t own it at the time of foreclosure. Not even close to the same thing. In fact they make a point of saying who WAS the recorded owner at time of foreclosure and that the mortgage WAS reassigned later, which presumably means if the trust goes back and forecloses again that it can wave this piece of judgement as proof it now does own the mortgage.

Posted by Danny_Black | Report as abusive
 

ARJTurgot2, also again I think you misunderstand what the trusts are and what the investors are buying. The investors are not buying mortgages. They are buying the cashflows from the mortgages. In theory they don’t care if the originator owns the mortgage and is simply paying what flows from the mortgage into the trust into the bonds. There are two reasons they care in practice – the most important is tax and the other one is that if the originator still owns the mortgage and goes bankrupt there is some uncertainty about the asset, as the trust is then a creditor and under reorganisation is liable to have the terms changed. The bank cares in practice because for regulatory reasons that mortgage is on its books and it needs to set aside capital.

The trusts are simply a bankruptcy remote, tax efficient pass-through vehicle for holding mortgages. They have explicitly no value, because they have no tangible assets and strictly pass through any cash they make. You are confusing them with the bonds they issue.

Posted by Danny_Black | Report as abusive
 

ARJTurgot2 and hsvkitty and Mr Salmon, why don’t we put our money where our mouth is. I will happily pay 2 dollars each for all the worthless mortgages based securities the three of you own, either directly through a fund or indirectly through you mortgages. If they are truely “worth nothing”, then you basically get a free cheeseburger!

Posted by Danny_Black | Report as abusive
 

Obviously, this case is one of those where the Federal Government should have jurisdiction. After all the Banks which violated all these petty state laws are involved in interstate commerce and therefore, the Republican Party and enough Democrats should pass a law legalizing foreclosure based on a good faith statement by a bank that they are doing the right thing.

I mean Federalism should not impact the profitability of major financial institutions.

Posted by msobel | Report as abusive
 

While the issue of “endorsement in blank” came up, the judges made clear that this is fixable. This is basically going to slow down the process and cost the bank money who now has to prove the chain of transfers, something they should have already done, so being sloppy never saves money. The assignments did not need to be recordable but evident from the deal documents.

Posted by Sechel | Report as abusive
 

The more I read of “journalism”, I think the UK and US should consider something like this:

http://news.xinhuanet.com/english2010/ch ina/2011-01/07/c_13680937.htm

Posted by Danny_Black | Report as abusive
 

“it’s a solid precedent saying that if a bank doesn’t own a mortgage, then it can’t foreclose on a home.”

Well, duh!

Ordinary folks — Main Street — are expected to follow the rules, Felix. Where is it written that banks are immune from complying with property law?

As other posters note, it may well be that foreclosure is still possible in individual cases IF the correct documentation can be produced. Fair enough. But, if any bank can’t bring the normal, accepted, well-known/understood documentation to the court, it should lose out, the borrower’s default notwithstanding.

It’s amusing that some posters think that people who default on mortgage payments automatically lose their Constitutional rights to due process. The MA court clearly disagrees!

Other posters seem to believe that this decision means nothing for MBS and that the documentation deficiencies can be cured. Yves Smith has written extensively about this point on her blog; the fact is that most MBS trusts are New York residents and, under New York law, it is impossible to correct the docs now.

This drama is taking too long to play out across the country, but the MA decision is a step in the right direction.

The biggest worry is that the federal government will try to intervene to bail out the banks, yet again.

Posted by dbsmith1 | Report as abusive
 

hsvkitty, I’ve been aware of this case for at least half a year now. Which is part of why I’ve been a little more complacent, a little less concerned about “Why isn’t anybody addressing these problems?”

I don’t know the result, nor does Felix. Only time will tell. I suspect that the banks can dig these papers out of some vault somewhere, but it won’t be easy for them. First they’ll have to dig through all those “lost” loan modification packets that are lying on top of the heap. I suppose they could take the opposite approach — pull a random paper off the stack and attempt to foreclose on that property whether or not it is in default? Would be typical, but even less effective.

Am definitely glad that the banks will be forces to follow the law. I *was* a little worried that “rule of law” would be overturned in favor of expediency.

The eventual upshot is that mortgages will be more expensive, more carefully processed, and perhaps handled by fewer entities. That is a good thing. Once upon a time you went to banks for your mortgages. Simpler that way.

Posted by TFF | Report as abusive
 

This ruling may not have an impact as severe as some are suggesting. I read the ruling and was shocked by the sloppiness of the banks involved. For example as evidence of ownership they invoked Pooling and Servicing agreements and Private placement memorandums that either were not specific enough as to the instruments involved or were merely promises to convey in the future.

The justices are only requiring sufficient documentation to establish ownership of the mortgage; The paragraph I show at the end indicates an endorsed copy of the mortgage is not even needed and an explicit PSA document could suffice (if the signers have clear title).

The banks can always cleanup the document and then foreclose. People who purchased foreclosed property are going to have to demand proof of clear title; this will be the real problem.

From the Slip opinion (Ibanez vs Us Bank, Jan 7, 2010)

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.

Posted by Jon7 | Report as abusive
 

dbsmith1, er where did anyone think that banks don’t need to follow the law? Where does it say the docs don’t exist?

Here is what it means for the MBS in question – it has zero to do with any others – for these two mortgages they either do have the docs in which case the foreclosure goes through or they don’t and the mortgage gets put back and the originating bank forecloses. Big whoop.

Posted by Danny_Black | Report as abusive
 

Jon7, apparently one of the banks gave an unsigned assignment agreement as “proof”…

Posted by Danny_Black | Report as abusive
 

hsvkitty you make very valid points.

Anyone who wants to learn more of this MERS can go to this page
http://stopforeclosurefraud.com/mers-101  /

Take a look at these NY Cases involving all these same parties and question what is happening to AMERICA!
http://stopforeclosurefraud.com/2010/10/ 20/new-york-state-court-foreclosure-frau d-cases/

It’s just all wrong!

Posted by Susan007 | Report as abusive
 

Danny_Black

Actually, I don’t know whether or not these two, specific, mortgages are included in a securitization — do you? If they ARE in a securitized transaction then the potential ramifications are greater than a failed foreclosure. But that’s not really my point.

The significance of the court case on MBS is not so much this decision but the fact that courts are starting to study the problem (of systemic procedural failures by the banks) and come down on the side of ‘rule of law’.

If the MBS problem is no ‘big whoop’ then why did BAC’s shares advance strongly on the news that BAC settled a part of its MBS put-back liability with the GSE’s?

It is virtually certain that there will be a significant number of MBS/documentation fraud cases this year and, unlike the fed-controlled GSEs, investors in private label MBS may not be so keen to settle for 2¢ on the dollar.

As I wrote, I still think the danger/likelihood is that the federal government will find a way to subvert state insistence on due process and bail out the banks yet again.

Nevertheless, the problem is a very “big whoop”.

Posted by dbsmith1 | Report as abusive
 

dbsmith1, yes i do know, it is in the court judgement if you actually bother to read the document. Wells Fargo and US Bank are the trust banks.

BAC shares advanced? Lots of reasons, noise? That people saw a potential 100bn liability become a couple of billion? Uncertainty becomes certainty?

You know how big the MBS market is? You know how many mortgages are even under dispute? You don’t need to answer it is a rhetorical question.

Posted by Danny_Black | Report as abusive
 

Susan007, this case has sweet FA to do with MERS.

Posted by Danny_Black | Report as abusive
 

and dbsmith1 will open the offer to you, 2 dollars for all your “worthless” MBS.

Posted by Danny_Black | Report as abusive
 

I think that there is an overlooked aspect to the case which is fundamental to the arguments about de-regulation.

The ruling makes a very distinct point that foreclosure in Massachusetts does not require judicial action. They then point out that this means that there is little oversight of the process and therefore the actors within the process must make sure that they are dotting all of the i’s and crossing the t’s. One of the reasons that they dumped the banks into the drink was because they were appalled by the “utter carelessness” with which the banks conducted this important business.

In theory, MA should actually be an ideal place for the the banks to do their thing with securitization and subsequent foreclosures. There are well-defined procedures in place that they can simply internally execute on a routine basis, and then foreclose under the rules without ever having court delays etc. I presume that this is nearly nirvana for people who don’t want to have regulators and jusges questioning their every move.

The banks reaction to this lack of oversight was to simply dump the procedures in order to save a few pennies to improve their margins. They viewed the lack of oversight as an opportunity to tear up the rule book. They are now acting shocked that the courts are really pissed off at them for thumbing their noses at MA state law.

This decade has proved over and over again the financial sector is incapable of regulating itself and following basic principles. This case is just another example of their flaunting basic requirements and then demanding that these provision be over-ridden because they would cost the banks money. In most other social scenarios, this would be termed fraud and extortion. In the financial sector, it is just called normal business practice.

Posted by ErnieD | Report as abusive
 

The sky is not falling. The Mass. Supreme Judicial Court gave the banks a lot of leeway concerning their paperwork, and they’ll simply re-foreclose. If you can show a valid assignment (with accurate description of property & mortgage), including by a contract with accurate schedules of mortgages and actually signed and dated (!), you can go back and get a recordable assignment (for the land records). You just have to show that you’ve got some legit piece of paper showing you own the mortgage at the time the foreclosure commences (publication of legal notices, etc.)
They can buy off the homeowners who have defaulted (whose monetary arrearage has now increased – and who are exposed to an even larger deficiency judgment) with a few grand (wouldn’t you take cash plus getting out of a deficiency judgment of tens of thousands of dollars) and convey confirmatory title to the purchasers after the defective foreclosures. Even cleaning up the records, this probably isn’t more than a few percentage points of the mortgage loan amount. Title insurance companies will probably want some “assurances” and protection to write policies on these properties, until the records are clean. But think about it, you don’t have money to pay a mortgage. How are you going to pay an attorney to challenge the foreclosure? (This case got into court in an unusual fashion.)

As far as the MBS- seems like there is enough blame to go around between seller and purchaser so they’ll sort it out, leaving only the suits against the issuers? I predict boom times for big NY law firms and documentation servicers in India.

Posted by MA_Attorney | Report as abusive
 

Danny_Black

I concede that several articles referred to these two mortgages being securitized; my mistake. But that misstatement doesn’t change my argument about the relevance of this court case to the broader MBS market.

As for your offer to purchase MBS at a discount: I didn’t say, nor did I imply, that faulty MBS units are worthless.

Indeed, investors have a number of claims and rights — not just over cash flows but also the right to put back faulty and/or fraudulent securities to the originator bank.

So, thanks for the offer but I think I’ll hold my position for a while…

Posted by dbsmith1 | Report as abusive
 

Jon7, you missed the last part of the quote…

he executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder,”

Gants wrote. *However, there must be proof that the assignment was made by a party that itself held the mortgage.*

Posted by hsvkitty | Report as abusive
 

Danny Black, I ensured some time ago that none of my self directed pension funds are attached to High risk Wallstreet instruments and anything to do with Goldman Sachs. I am too close to retirement to be a gambler.

No one said that there was NO worth, but they are being further downgraded and another mortgage crisis is going to affect everyone’s homes, not just those who are unemployed.

Wallstreet doesn’t give a whit, but they will care that investers putback… something we might see much of soon.

Posted by hsvkitty | Report as abusive
 

Marty,

I’m a corporate bankruptcy lawyer. I’ve never done a home foreclosure, but I’m familiar with the process.

I agree with the earlier commenter that it would be a sleazy scheme. In any event, it wouldn’t work. The note is enforceable. The note holder could still foreclose on your house after they get a judgment. All the loss of the mortgage means is that they don’t have a lien on the house – so someone else can get to it first.

Posted by AnonymousChef | Report as abusive
 

The problem is for quite some time the American public has operated under the belief that all the legal actions taken were true and proper. With the debt collect processes and abuses incurred over the past 10 years this points to the larger problem of who really owns the collateral after a loan is securitized, sold, or serviced, etc. If the chain of title is broken or if it cannot be perfected then by all accounts the legal action to foreclose is fraught with legal suspicion and the courts should demand that the plaintiff in recourse states of which they are all the ones east of the Mississippi perfect that chain prior to using up the courts time thus possibly delaying the process out over a year. In the non recourse states all heck will break loose because how in good consciousness can the states demand that the non judicial process be underwritten by the enforcement of eviction, and title sold by public officials on the steps of government property. This all makes them unwilling coconspirators in all of this. It is a bad day at black rock a coming pardners.

Posted by mjfang1 | Report as abusive
 

dbsmith1, yeah we all make mistakes.. Luckily for posterity, a extremely and undeservedly rude post i made to you got deleted so that when i inevitably make one in the future you won’t be able to point to that one and crow….

MA_Attorney, I have to say I was amazed they tried to appeal this rather than just re-foreclosing. According to judgement there is no dispute the banks own the mortgage now, it is just at the time of the foreclosure they didn’t, a defect which in at least one case they didn’t cure for over a year AFTER foreclosing. I would love to have a true investigative journalist dig into why they thought having an **unsigned** contract constituted proof of a deal.

Posted by Danny_Black | Report as abusive
 

hsvkitty, so you all in cash? How is that working out for you?

Posted by Danny_Black | Report as abusive
 

hsvkitty, the issue wasn’t with the assignment or ownership it is that they couldn’t show the loan got assigned at all. There are unsigned agreements, lists of loans in the trust that don’t include the mortgage in question and the mortgage transfer only formally got recorded long after the foreclosure.

Posted by Danny_Black | Report as abusive
 

ErnieD, actually what this proves is that there is rather a large amount of regulation, contrary to the belief that somehow the financial world got deregulated. I cannot believe that anyone seriously believes that claim. You think you sign millions of pieces of paper whenever you interact with your bank because they hate trees?

The point is that the regulations just lead to lots and lots of boilerplate that no one reads and lots of steps that are just done pro-forma – such as telling the person just before he invests in a fund that prices may go down as well as up after days of telling him how great this fund is. It also incentivises the creation of products that have no real economic value – they are reg arb or tax arb products – and a “get out of jail free” card for people who don’t bother to actually do the due diligence.

Posted by Danny_Black | Report as abusive
 

Danny Black – There are fundamentally three aspects to regulation:

1) Rules
2) Following the rules
3) Oversight and enforcement

I agree with you that there are lots of rules. The judges themselves point out what the well-defined and established rules are for this case.

The judges then point out that there is no immediate oversight that the rules are being followed which raises the bar for the diligence that the banks need to use in ensuring the rules and procedures are followed.

They then express various degrees of lack of amusement that the banks elected not to follow the well-defined rules and procedures due to “utter carelessness.”

Personally, I think the US has far too many rules, too few principles, and too little actual oversight and enforcement despite a plethora of purported regulators. It shouldn’t be this difficult and expensive to achieve so little protection against incompetence, negligence, and fraud.

However, what this case shows is that the banks appear to be executing basic well-defined requirements that are essential to their own financial health only when forced to by oversight. That is unacceptable for institutions that are critical to the financial and economic well-being of this country, particularly institutions that are receiving massive bail-outs from the government.

Posted by ErnieD | Report as abusive
 

Danny_Black, it proves that banker cannot control their immoral urges and greed… Ernie was explaining that while we were dotting our I’s and crossing the T’s, and spending a lot of money to get everything in a buyers process to get the mortgage legally bound.

The banks were sloughing off and robo signing and using fake documents and bribing and coercing those along the way. And not even keeping track of the bank notes, or in some cases DESTROYING THEM. You are so full of it! The statutes of property go a long way back and the judgement cites them because they are the back bone of property law and were disregarded.

And what your last “point” says is typical of bankster (former in your case, but obviously still an unethical bank apologist) You said…”It also incentivises the creation of products that have no real economic value.”

Is that not another way to say we couldn’t help our immoral greedy guts selves to find ways around regulations and rules to do our risky financial crack as regulators gave us no choice?

The banks reaction to this lack of oversight was to simply dump the procedures in order to save a few pennies to improve their margins. They viewed the lack of oversight as an opportunity to tear up the rule book. They are now acting shocked that the courts are really pissed off at them for thumbing their noses at MA state law.

What ErnieD said is RIGHT ON and so I will quote him:

“This decade has proved over and over again the financial sector is incapable of regulating itself and following basic principles. This case is just another example of their flaunting basic requirements and then demanding that these provision be over-ridden because they would cost the banks money. In most other social scenarios, this would be termed fraud and extortion. In the financial sector, it is just called normal business practice.”

There are many other foreclosures which were done illegally and have different nuances that will make precedent each time they are won. The banks are going to run out of excuses, but as “sophisticated” entities themselves, they knew exactly what they were doing, didn’t they?

Posted by hsvkitty | Report as abusive
 

Danny_Black, it proves that banker cannot control their immoral urges and greed… Ernie was explaining that while we were dotting our I’s and crossing the T’s, and spending a lot of money to get everything in a buyers process to get the mortgage legally bound.

The banks were sloughing off and robo signing and using fake documents and bribing and coercing those along the way. And not even keeping track of the bank notes, or in some cases DESTROYING THEM. You are so full of it! The statutes of property go a long way back and the judgement cites them because they are the back bone of property law and were disregarded.

And what your last “point” says is typical of bankster (former in your case, but obviously still an unethical bank apologist) You said…”It also incentivises the creation of products that have no real economic value.”

Is that not another way to say we couldn’t help our immoral greedy guts selves to find ways around regulations and rules to do our risky financial crack as regulators gave us no choice?

The banks reaction to this lack of oversight was to simply dump the procedures in order to save a few pennies to improve their margins. They viewed the lack of oversight as an opportunity to tear up the rule book. They are now acting shocked that the courts are really pissed off at them for thumbing their noses at MA state law.

What ErnieD said is RIGHT ON and so I will quote him:

“This decade has proved over and over again the financial sector is incapable of regulating itself and following basic principles. This case is just another example of their flaunting basic requirements and then demanding that these provision be over-ridden because they would cost the banks money. In most other social scenarios, this would be termed fraud and extortion. In the financial sector, it is just called normal business practice.”

There are many other foreclosures which were done illegally and have different nuances that will make precedent each time they are won. The banks are going to run out of excuses, but as “sophisticated” entities themselves, they knew exactly what they were doing, didn’t they?

Posted by hsvkitty | Report as abusive
 

(grr I only pressed once!!)

Posted by hsvkitty | Report as abusive
 

Am a bit late to this thread. Yves Smith at Naked Capitalism has numerous great posts explaining how New York state trust law, where most of the securitization trusts reside, does not allow “cures” after precise time lags, with six months from closing generally being the longest. So in most likely all cases, the cure period is passed. IRS Remic regs also play a key part here. The Trust can’t “do things” to cure paperwork problems, or anything else, or the pass-through, tax-free status can be threatened.

What we have, as either Adam Levitin or Chris Whalen has said, are “non-mortgage backed securities”. The income from the mortgage notes goes into the trust and out to investors, but in a still unknown percentage of cases, the trust’s servicer will not be able to foreclose. The trust should put these loans back to the depositor, who then could work his way back up the ownership chain, get the documents in order, and then, if appropriate, foreclose.

But where is the pressure going to come from to do this? The trustee certifies at closing, and then periodically thereafter, that all documents for all loans are in order. They aren’t going to do it on their own initiative. The servicers and their foreclosure mill lawyers, have been trying to do everything, including making documents up, and ramming cases though the courts, to push through foreclosures, and they don’t want to admit they don’t have the right papers. Treasury has been peculiarly reluctant to put pressure on servicers, or their bank owners. Investors could do it, but as Yves Smith shows, it is difficult to get an investor suit properly organized, and they still have to fight it out loan by loan. The State AGs could, and still might, but the rumors seem to be pointing to settlement.

Suspect that the pressure will come, at least for a while, from individual homeowners/mortgagors and the anti-foreclosure bar. When more state supreme courts issue rulings like Ibanez, foreclosures, and sales out of foreclosure will back up in the market, and the Feds or Congress will have to act.

What will they do? Many of the commenters worry, as part of me still does as well, that the banks will be bailed out again. After some agonizing, am concluding that they won’t do this, because this time they would be bailing out the banks not just for stupidity and greed, but for breaking the law. Don’t think the politics will let them do that. So I predict that one or more banks will be in receivership or under resolution authority by the 2012 elections.

Posted by jstuart902 | Report as abusive
 

Well put, hsvkitty.

The banks are sufficiently sophisticated to be held wholly responsible for their lapses. They will be highly motivated to repair what they can. Anything they can’t repair they will ultimately pay for.

We may ultimately need to bail them out (nationalize?) some of the major banks again, but this isn’t a terrible outcome. The Treasury ultimately profited from the last bailout of the banks, and there is once again hundreds of billions of dollars of shareholders equity standing in the front line of losses.

What puzzles me is why people would so eagerly invest in the banks while all of this is going down. They MIGHT emerge unscathed, but how certain can anybody be?

Posted by TFF | Report as abusive
 

jstuart, the “bailout” of Citigroup ended up with the Treasury owning much of the business. I would expect further “bailouts” along those lines.

If this ends up costing the banks as much as you suggest, they will be literally insolvent — not merely short on liquidity.

Posted by TFF | Report as abusive
 

The shoes are dropping and en masse, it’s gonna’ hurt. I am not gleeful at the prospect, because everyone will have to suffer a bit, but it is time some people were sent to jail and a lot of suits lose their jobs for having turned their back on their clients and investors.

Hopefully the SEC is also still looking at the liar loans to “prime” mortgages as well and the insider trading done by those who placed them ever so thoughtfully into CDOs.

There is so much more, so hopefully the press will keep it fresh until some culprits are in jail. It’s time.

Class action suits may take years to be heard but meanwhile the banks will have to clean up or sink. (Some big banks think cleanup means Enron style shredding, which is probably pretty rampant right now if there is anything even left…)

A few ‘reminders’ from NYC pensions comptroller, in a state that has much to worry about … given the number of wrongful foreclosures and practices.

http://comptroller.nyc.gov/press/2011_re leases/pdf/PR11-01-003.pdf

Posted by hsvkitty | Report as abusive
 

ErnieD, I suspect we are arguing the same thing. Basically, financial services has a culture of adherring to the word of the law, whilst aiming to subvert the spirit. This is mainly because they get financially rewarded for it – this is from shareholders and customers to banks and so from banks to employees. It is hard to talk “long-term”, when your owners – the shareholders – are focused quarter to quarter and there is a bubble for over five years or 20 quarters. You say this is a bubble once, twice, three times but it only took a couple of years for Morgan Stanley to ditch its CEO who was pulling them out of prop trading and especially the mortgage business, meaning it got back into those busineses in a major way in 2006….

As for the excitement about this ruling, I think even a flick through shows the judges went out of their way to circumscribe its impact. Presumably because they predicted the orgy of journalistic misrepresentation they explicitly:

1) stated the house could and should be foreclosed on
2) they explicitly stated that the issue about mortgage following the note is limited to MA
3) they explicitly did not state that all foreclosed homes now revert back to their former owners
4) they also stated that the transfer in general of the mortgage for securitisation was valid and could be done and that you didn’t even have to formally record it but there had to be some proof that it was done AT THE TIME, such as bothering to sign the assignment documents.
5) They also explicitly state that this was properly done AFTER the foreclosure.

The cure for this case is relatively simple. Just go back and foreclose again. I would love to know why they didn’t simply do this rather than keep appealing but I would bet the answer is laziness.

Posted by Danny_Black | Report as abusive
 

jstuart902, again this is not a big deal. Maybe one day a case will come that truly does say all the things people are claiming for this case but it hasn’t happened yet.

The issue about redos for trusts is only an issue if they are a REMIC. To cure it would be pretty simple, start a new trust. Sell bonds based on that trust buying the mortgages of the old trust. It buys the old mortgages and voila done over. Expensive and presumably investors will try and get the dodgy mortgages kicked to touch but they will presumably prefer that to suddenly paying a load of tax. If this does actually start happening in a big way – and there is zero evidence it will have to – then I’d buy IB stock because of all the fees they’ll reap.

Just to reiterate I see nothing in this case that threatens in anyway securitisation or a banks ability to foreclose – again the judges went out of their way to say if the banks had bothered to show standing at the time of foreclosure they would have been able to. They didn’t bother to do it in the ***original*** claim and just kept appealing it, rather than put together a proper claim which the judges explicitly points out they would have had but AFTER the foreclosure.

Posted by Danny_Black | Report as abusive
 

TFF, firstly the banks have set aside billions for additional legal costs and putbacks. I think most of the bad news is priced in, especially if this case represents the worst of what is coming.

Secondly, maybe someone can point out how this case actually hurts the investors of MBS or how it really hurts the banks. Seeing lots of hypotheticals but not terribly much meat and certainly nothing based on this case.

Seems to me the logic is If all these homes are foreclosed on and if all in all the cases, not only does the bank not show standing but CANNOT show standing and if all of those cases there is a timeout clause on trust and if the MBSes are trading at a price that implied a significant recovery which now won’t happen then there will be a meltdown.

There is only one possible group of people who I could see getting killed by this sort of thing – the GSEs – because they credit wrap their MBSes. If I invest in their trusts bonds then I don’t really care about what happens if the guy defaults, gets foreclosed on, can’t get foreclosed on etc. In the end the GSE makes me good or in other words the US taxpayer.

Posted by Danny_Black | Report as abusive
 

the judges also explicitly stated – contrary to Felix’s claim – that the home can be foreclosed on and that the loan is not magically uncollateralised.

Posted by Danny_Black | Report as abusive
 

hsvkitty, it is weird. If you were a stickler for the spirit of the law you’d be here every day demanding that people who defaulted on their mortgages should be out of their homes yesterday. You would be ranting this judgement is so unfair because despite the fact the mortgagors clearly defaulted and they clearly have a mortgage and because MA is a title state they should not be able to stay in their homes just because of some technicality.

Of course as an “immoral banker” I think the technicalities are important and that the banks have rightfully been taken round the back of the woodshed for this one but that is just me.

Posted by Danny_Black | Report as abusive
 

“The cure for this case is relatively simple. Just go back and foreclose again. I would love to know why they didn’t simply do this rather than keep appealing but I would bet the answer is laziness.”

To me, that suggests that the “fix” is rather less than simple and that the errors are commonplace. They didn’t want a process for fixing their errors, they wanted a rubber stamp of the faulty procedures. My guess is at the very least it will end up costing them tens of thousands per loan on foreclosures already processed.

I don’t pretend certainty as to the outcome, but this is a nasty can of worms and it hasn’t been capped YET. I’d rather invest in oil speculation on the Bakken Shale than in the banks right now.

Posted by TFF | Report as abusive
 

TFF, in both cases in this judgement the trust does have right to close as is acknowledged in the judgement. The issue was they didn’t produce clear cut documentation that they had it at the time of the foreclosure at the time of the original judgement.

Ibanez:

“On September 2, 2008, more than one year after the sale, and more than five months after recording of the sale, American Home Mortgage Servicing, Inc., “as successor-in-interest” to Option One, which was until then the record holder of the Ibanez mortgage, executed a written assignment of that mortgage to U.S. Bank, as trustee for the securitization trust. [FN14] This assignment was recorded on September 11, 2008.” – so as of 11 Sept 2008, the trust owned the mortgage.

LaRace:

“Wells Fargo did not execute a statutory foreclosure affidavit or foreclosure deed until May 7, 2008. That same day, Option One, which was still the record holder of the LaRace mortgage, executed an assignment of the mortgage to Wells Fargo as trustee; the assignment was recorded on May 12, 2008.”

Posted by Danny_Black | Report as abusive
 

TFF, I’d rather invest in legal firms. Looks like Ferraris all round for both defenders and plaintiffs. Not sure the homeowners are going to be doing so well out of it…

Posted by Danny_Black | Report as abusive
 

Danny, if I were a property lawyer, I would be taking on cases pro bono so I could stick it back to the banks. I would as always carefully select those cases that didn’t follow rule of law and broke the proper chain of property law,including those where the lawyers and the judges rubber stamped in collusion.

Lawyers don’t value when they have so much work to do to process individual cases or there would be thousands just like this being heard. That there are so many cases, each with it’s own nuances of illegalities, is why there are no class action suits… yet.

The forensic lawyer that took this on did it pro bono not to ensure people stayed in their homes illegally, but to ensure people were not and are not thrown out illegally. It was the right thing to do … But you will never get that…

Posted by hsvkitty | Report as abusive
 

Danny Black – I agree with your comment that you would prefer to invest in the law firms, although I don’t think I would want to be investing in the robo-signing ones right now.

I think that the key point that this case makes is that the banks had fairly well-defined procedures (at least in the jusges eyes) to follow. They didn’t.

The key concern that I have is that it appears in state after state that the banking procedures related to document ownership and standing of notes and liens fall far short of well-defined requirements wherever judges look at it in any detail. It appears that they have fallen short on nearly every documentation aspect, from securitization to foreclosure.

A few of these cases would not be a big deal. However, it appears clear that the banking system set up a complex Rube Goldberg machine of securitization, asked for a few legal opinions to justify minimal procedures, and then went on their merry way inserting their products into every real estate transaction in the country so they have a case of systemic dry rot throughout their mortgage structure.

I am a professional civil engineer. One of the big differences between my profession and the financial sector is that we usually don’t multiply “innovations” into almost every household in the US within a couple of years. As a result, the normal process of innovation with some trial-and-error failures plays out over a period of time so that we don’t don’t have an epidemic of collapsing structures and we can learn from our mistakes. Engineers are also typically somewhat pessimistic in some of our basdic assumptions, so we tend to build in various factors of safety (sometimes called factors of ignorance) in order to reduce the potential for failure until we better understand how the new system works.

In the financial sector, as soon as an innovation hits the street, all the companies want to do it within weeeks. As a result, an embedded problem can go undetected for a handful of years and then suddenly explode like a mushroom cloud once critical mass is achieved. At that point, it has usually multiplied like a plague, so it is everywhere and we get financial crises (S&L, LTCM, dot.com, subprime, etc.).

The MA Supreme Court went out of their way to show the banks various avenues to equitably execute the foreclosures. However, I think the banks have blown up their mortgage documentation procedures and it is going to take a lot of king’s soldiers to put their Humpty Dumpty back together again. They are going to need to spend much of the next year or two rebuilding their back-room staffs (internally or subcontractors) to reconstruct their paper trails to the point that the courts will be willing to accept them. It is unclear if they will ever be able to reconstruct some of their securitization trust paperwork trails given the strict time limits that many of the trusts have to have assets put into them – that is potentially a massive ticking time bomb.

This has nothing to do with dead-beat borrowers being let off the hook. There are very few of the cases where a deadbeat will not lose their house eventually. Instead, it has everything to do with the rule of law and legal procedure to take away assets that are equal to several times family incomes. However, I think that the increased costs that the banks will have documenting the assignments, as well as the securitization issues, will encourage the banks to do more mods where they make sense. That would be good for the housing market and the economy.

The only entities that the banks have to blame are themselves and their subcontractors. This is likely one of the biggest business management failures in history and heads should roll.

Posted by ErnieD | Report as abusive
 

“I’d rather invest in legal firms. Looks like Ferraris all round for both defenders and plaintiffs. Not sure the homeowners are going to be doing so well out of it…”

Agreed. Always more costly to clean up messes than to avoid them in the first place.

And yes, these cases have nothing about homeowners being “defrauded”. The court agrees that they were clearly in default and ought to be foreclosed on. Foreclosed on PROPERLY, following PROCEDURES.

Posted by TFF | Report as abusive
 

There is so much more, so hopefully the press will keep it fresh until some culprits are in jail. It’s time to change!

Posted by ilaclama | Report as abusive
 

hsvkitty, I believe the guy who first noticed robo-signer in chief was an ex-mortgage banker working pro bono but I will happily bet most of these lawyers are not doing it out of the kindess of their hearts.

ErnieD, actually it takes years in finance too for “innovations” to spread and the docs for most of these trusts are in vaults somewhere, as I said before I suspect strongly that the plaintiffs simply didn’t bother to get them. When you are earning a fixed fee, then getting someone to go into fort knox, extract the actual original document and bring it to court andreturn it is going to bit into that fee. Hence the banks are probably going to move away from asking for a fixed fee from lawyers. Again, the trusts timing issue is a tax issue. If there is one things IBs like is tax issues. Apart from that pretty much agree with what you have to say.

Posted by Danny_Black | Report as abusive
 

Mr Salmon, given some of the mistakes you seem to have made in the claims about this case you sure you didn’t mishear when Jonathan Stempel was described as a ***crack*** reporter?

Posted by Danny_Black | Report as abusive
 

ErnieD, the fees I have seen quoted are between 1,200 to 1,500 per case. I can tell you know that getting an original document out of a trust banks vault into court and safely back is going to cost a significant portion of that. What I have difficulty understanding is why these guys don’t have some sort of work flow system that can bring up a scan of the document.

Posted by Danny_Black | Report as abusive
 

AT&T was bailed out for knowingly breaking the law in the FISA coverup so why not bail out the Banks for knowingly breaking the law in the Great Mortgage Fleece-Out too? Don’t they deserve it as much as the phone company?

Posted by Woltmann | Report as abusive
 

Actually Danny Black, almost all of the people involved are doing the work pro bono, including the mortgage fraud forensic analyst that complied the original brief.

(for anyone who found this is a search, there are many scammers claiming to be forensic mortgage analysts since this case cropped up, so beware and do your homework for HUD approved legitimate companies)

Posted by hsvkitty | Report as abusive
 

Why don’t all the banks merge into a mega-bank and buy back all the mortgage bonds from their investors. Then there’s no question that they can foreclose on whomever they like as the must own the mortgage.

Obviously the above is ridiculous, so if I were a home owner in MA I’d put my home on the market now, today, at a bargain price. If houses are now free, then the price will reflect that over time. In addition no bank will ever issue a mortgage in MA, so there’ll be no future buyers.

How much capital gain is there in getting a free house? I presume those people who now own a house they didn’t pay for will need go broke if they ever try to sell…

Posted by nicfulton | Report as abusive
 

Actually, the housing market in MA is comparatively healthy. A relatively small proportion of distressed properties, firm pricing at around the levels seen in 2002, continuing market activity albeit at a slow pace.

The delinquency rate remains under 3% and the local economy is recovering. Could be much better, but this isn’t California, Arizona, or Florida.

Posted by TFF | Report as abusive
 

I just wanted to add some info about Florida’s foreclosure fraud. In the article is a presentation showing pages and pages of typical fraud and forgery. (there was more then what is on those 96 pages) Being they are being prosecuted civilly, there will be no jail time. So the person who coined that the best way to rob a bank is to own one… was not joking… Bank robbers (fraudsters and forgers) see jail time… these guys are being told to cease and desist? Holy crap!

http://www.huffingtonpost.com/2011/01/07  /foreclosure-fraud-report-_n_805963.htm l

Posted by hsvkitty | Report as abusive
 

What is clear about this ruling is that it will increase loss severities for private label MBS investors unless they mobilize and begin enforcing their legal rights. Will the Ibanez decision finally force these investors out of the shadows and into the courtrooms to ensure that they’re not left holding the bag for the banks’ sloppiness?

http://subprimeshakeout.blogspot.com/201 1/01/massachusetts-supreme-court-hands-d own.html

Posted by igradman | Report as abusive
 

As you said Felix:

“And it’s certainly yet another reason not to buy a house right now. You don’t know if you really have title to what you’re buying, you don’t know whether you’ll be able to sell it if you have to, and there’s a good chance that as a result of all these problems shaking out, home prices could fall dramatically.”

http://www.bloomberg.com/news/2011-01-21  /faulty-foreclosure-case-in-massachuset ts-high-court-may-hurt-home-buyers.html

Posted by hsvkitty | Report as abusive
 

The Virginia banks have figured it out. Make new legislations that favours the banks. THAT outta fix all the foreclosure/lack of process woes, right? Nothing like unethical practices being rewarded to stop more unethical practice in the future.

http://www.nakedcapitalism.com/2011/01/b ank-board-member-proposes-legislation-in -virginia-to-change-ucc-to-help-banks-es cape-foreclosure-woes.html

Posted by hsvkitty | Report as abusive
 

Banks in Florida drop as many as 50 cases in a row because they were not winnable. Does that now tell the skeptics how wide spread the fraud was?

http://www.news-press.com/article/201101 19/RE/101190387/1076/Banks-drop-foreclos ures-in-Southwest-Florida

Posted by hsvkitty | Report as abusive
 

Not totally on topic as this pertains to the robosigners. Just this one robo signer of admitted 10k cases and so far 250 caes were dismissed.

http://www.bloomberg.com/news/2011-01-19  /ally-s-gmac-dismisses-250-maryland-for eclosures-update2-.html

The University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit, filed the class action lawsuit, arguing that any case using Jeffrey Stephan as a signer was illegitimate and must be dismissed. In court Friday, GMAC agreed to dismiss every case in Maryland relying on a Stephan affidavit.

They can refile foreclosure actions on the homes, but only at their own expense, and subject to new Maryland regulations which require mandatory mediation between borrower and lender before moving to foreclosure. Civil Justice and the Consumer Protection Clinic also want any cases with affidavits from Xee Moua of Wells Fargo, who has also admitted to robo-signing, thrown out, but that case has not yet been settled.

Posted by hsvkitty | Report as abusive
 

Hawaii chimin in…This case i being heard in the Supreme court.

http://livinglies.wordpress.com/2011/01/ 23/hawaiian-attorney-is-first-to-take-no n-judicial-to-us-supreme-court/

Now that MERS is next to take thwe spotlight, it seems its CEO is leaving the company. Wait…what company? And to whom does he hand his resignation? Which of the pseudo vice-Presidents will take his place?

http://online.wsj.com/article/SB10001424 052748704115404576096462866136394.html#a rticleTabs%3Dcomments

Posted by hsvkitty | Report as abusive
 

This isn’t about foreclosure, but about the Robo signing “forclosure king’ and the irony as he receives some well deserved Karma.

http://www.bloomberg.com/news/2011-02-06  /the-rise-and-fall-of-a-foreclosure-kin g.html

Posted by hsvkitty | Report as abusive
 

The banks are going to have to get it right or this may happen more and more. When people push back:

Court ordered seizure on a bank, for court and lawyers fees
http://www.newstalk980.com/story/2011021 5/47100

A homeowner incorrectly made to insure his property for 4 times its present value. (insurance fraud is also rampant. You subtract the property value when insuring for replacement value)
http://4closurefraud.org/2011/02/15/phil adelphia-homeowner-forecloses-on-wells-f argo/

Posted by hsvkitty | Report as abusive
 

This cocky lawyer is likely the reason Government is still trying to modify mortgages. Ibanez has emboldened and enriched a few lawyers already!

Modifying mortgages and refinancing means they can now have all the paperwork in their hot little hands, whereas the notes and paperwork were previously been non existant. Killing 2 birds! (or 3 or 4 if other documents were missing and forged) and they can still foreclose on those whose notes they do have.

It surely is one way to ensure hounds like this lawyer aren’t calling out for your blood and winning. It may further destabilize the market as those who need the mods might not necessarily be the ones who are going to get them, but at least the banks/servicers will have done their share to right their wrongs… um right? Pretty typical restitution.

http://tinyurl.com/66uwonr

Posted by hsvkitty | Report as abusive
 

In Clinton-like fashion, HSBC’s says “we don’t robosign” means they think they can divorce themselves from the actions of their servicers.

http://www.dailyfinance.com/story/credit  /hsbc-foreclosure-moratorium-robo-signi ng-claims/19867343/?icid=sphere_copyrigh t

Posted by hsvkitty | Report as abusive
 

Modifications being offered are not for the sake of the homeowner. It is another stall tactic designed so banks and servicers who do not hold the note or have the proper paperwork to get the paperwork in order. (or possibly make up new strategies to rip off homeowners)

Refinancing and modifications may hide the previous illegalities and misdeeds, but the unethical behaviour will continue unabated. What incentive is there to change or follow the law?

Here is another example of the system gone absolutely whacko being this is a fix for the David Stern robosigners …

http://www2.tbo.com/content/2011/mar/24/ bogus-letter-tells-man-with-refinanced-m ortgage-to/news-breaking/

Posted by hsvkitty | Report as abusive
 

This case of an overturned foreclosure should have a few banks shaking in their boots…

http://livinglies.wordpress.com/2011/03/ 25/wisconsin-appeals-ct-aurora-is-not-ow ner-of-note-trial-court-reversed/

Posted by hsvkitty | Report as abusive
 

This URL is another court case where a judge , who cannot be bought to make a rocket docket sham of the court system and accept robo signed fake documents, makes a decision in favour of the note and makes it clear that MERS did not have the right to foreclose.

Maybe it’s time to go to the old fashioned law abiding chain of ownership where someone actually registers who owns the note.

http://www.nakedcapitalism.com/2011/04/a labama-judge-accepts-new-york-trust-theo ry-dismisses-foreclosure-act

This URL provides a little more info about MERS and why the AG’s are backing away from looking at what the banks, servicers, MERS,complicit judges and lawyers have done in the past…

http://www.businessinsider.com/new-yorks -us-bankruptcy-court-rules-merss-busines s-model-is-illegal-2011-2

Posted by hsvkitty | Report as abusive
 
 

I am sad you are no longer writing about this, Felix, and that you also removed the top posts, because in actuality there are 3 blogs on forclosuregate that had more comments then those in this area of supposed top posts.

Here is the pushback from a new source… the state treasurers who were ripped off by the mortgage/MERS fraud.

http://www.bizjournals.com/boston/news/2 011/04/04/mass-official-yank-deposits-fr om.html

more info on that….

http://www.shamethebanks.org/richard/joh n-o-brien-says-move-that-money-away-from -bank-of-america?utm_so

Posted by hsvkitty | Report as abusive
 

One step forward, 2 steps back…

http://market-ticker.org/akcs-www?post=1 81652

Posted by hsvkitty | Report as abusive
 

Mayor of village steeped in foreclosure mess fights back…

http://dealbook.nytimes.com/2011/04/05/h empstead-in-protest-is-severing-ties-wit h-chase/

Chase, in its reply to the media that they are now meeting homeowners face to face…so what more would anyone ask of them…

“This past weekend, we met face-to-face with 2,200 borrowers in Brooklyn to help them stay in their homes.”

Posted by hsvkitty | Report as abusive
 

It is easy to keep your home… simply learn how to be a lawyer, cite the Ibanez case and ensure you get the same judge.

http://homeequitytheft.blogspot.com/2011  /04/ibanez-issue-compels-bay-state.html

Posted by hsvkitty | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •