Bloomberg, the Washington Post, and others, are reporting an important State Supreme Court case on foreclosures by financial institutions that claim to own interests in pooled mortgages. The Financial Times has a good explanation and backgrounder.
Here is the decision.
It is highly technical, but the Court basically held that the securitization process and its lack of recording, meant that the asserted owner of the mortgage did not have the interest permitting it to seek foreclosure.
After examining the paperwork filed by the banks, a lower court judge, the Massachusetts Land Court’s Keith C. Long, said he had determined that the mortgage “note” that proves who the owner is had not been properly transferred when the banks auctioned off houses.
[The lower court] decision hits on one of the most sensitive issues related to how mortgages were securitized: something called “endorsements in blank.” In the rush to aggregate and sell and then resell mortgages, many of the mortgages documents were transferred without explicitly naming who the note was being sold to.
The financial services industry has argued that this practice is legally valid but Long ruled, “These blank mortgage assignments were never recorded and they were not legally recordable.”
The banks had appealed Long’s decision, arguing that they had clear title to the properties. But on Friday, Massachusetts Supreme Court Justice Ralph D. Gants wrote that the court agreed that the banks “failed to make the required showing that they were the holders of the mortgages at the time of foreclosure.”
The case is “enough to put serious cloud on title through the whole system and that’s a problem,” Adam Levitin, a professor at Georgetown University, said in an interview before the decision was issued.
This has been sufficient to drive down bank stocks, as reported in the above links.
The important point from an access to justice point of view is that many foreclosures, many without, but many with, counsel have gone forward without these issues being raised. The lack of advocacy within the system for those facing foreclosure allowed dubious practices to flourish, resulting in massive long term damage to the economy. The longer defects remain hidden, the greater the damage and disription to all when they are eventually faced.