A recent opinion by the Massachusetts Supreme Judicial Court, although seemly very fact-driven, raises great uncertainty as to other foreclosures in that Commonwealth and, perhaps, elsewhere in the country.
On January 7, 2011, the Court, in U.S. Bank, N.A. v. Ibanez, No. SJC-10694, 2011 WL 38071, rejected efforts by two mortgage-backed security (MBS) trustees to clear title to residential property on which they had foreclosed pursuant to powers of sale. The decision cited a lack of proof that the trustees owned legal title to the mortgages at the time of the sales. The Court ruled in favor of the mortgagors despite the following:
- The mortgagors did not dispute their mortgage debt or default.
- The trustees showed ownership of the original mortgage notes throughout the proceedings.
- The trustees showed ownership of the mortgages after the mortgage proceedings.
Thus, the Court has made clear that in Massachusetts strict proof of ownership of a mortgage will be required to properly effectuate sale and clear title.
In U.S. Bank, trustees for two different MBS issuances foreclosed on defaulted mortgage loans through non-judicial powers of sale and then acquired the properties through the sales. The trustees subsequently filed a judicial action to quiet title, that is, to confirm that the mortgagors no longer had any interest in the properties, that the notices of sale were proper, and that the trustees were now the owners of the properties they had acquired.
In refusing to quiet title, the Court concluded that the trustees failed to adequately demonstrate that they owned the mortgages at the time of the foreclosure notices because the various documents they submitted either failed to explicitly assign the mortgages in question or were incomplete or unexecuted. Thus, the Court affirmed the lower court’s refusal to grant a declaration clearing title. The Court also cautioned that the assignment of a mortgage in blank is inadequate to convey any interest in the mortgage: “We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment.”
It is unclear whether this aspect of the holding will invalidate many assignments or be relevant outside of Massachusetts. Because of the fact-dependent nature of the opinion, it is also unclear whether it will affect other completed or in-process foreclosures in Massachusetts conducted by trustees of securitization trusts. Any defects in an assignment, which ultimately go to the standing of the trustee to foreclose, should be capable of correction.
The U.S. Bank decision is similar to the decisions of many courts holding that in order to proceed with a judicial foreclosure or exercise a power of sale, the foreclosing entity must be able to demonstrate that the mortgage in question had actually been assigned to it. Otherwise, it will be found to lack standing.