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Banks Lose Important Ruling on Foreclosures

(information derived from Reuters.com)

usbancNEW YORK – On Friday, the Supreme Judicial Court of Massachusetts came to a  unanimous decision to uphold a lower court ruling voiding the taking of two homes by US Bancorp and Wells Fargo & Co after the indicated banks could not show they were the holders of the mortgages at the time the properties foreclosed.

This case is one of the first to look at the validity of foreclosures conducted without proper documentation.

Marty Mosby, a Guggenheim Securities analyst in Memphis said, “A ruling like this will slow down the foreclosure process.” Lenders, he said, will need to be very precise in their documentation and make sure everything is in order.

Correspondingly, bank shares then fell due to the fear that the decision may threaten a lender’s ability to work through the volume of foreclosures on their books.

The issue of documentation, as well as the use of “robo-signers” that approve documents without actually reviewing them, created a backlash last year that caused a number of lenders to stop taking homes temporarily.

Justice Ralph Gants indicated, “Wells Fargo and U.S. Bancorp lacked authority to foreclose after having failed to make the required showing that they were the holders of the mortgages at the time of foreclosure.” Justice Robert Cordy concurred, lambasting the carelessness of the banking houses in the proper documentation procedures with regard to their right to the properties.

Other state courts are in the process of considering cases similar to this one. And the attorney generals of all affected states are taking a close look at the question of lenders improperly evicting people from their residences.

The decision made in Massachusetts is specific to Massachusetts, and other states may not follow the ruling. Nevertheless, Robert Nislick, a Brookline, MA real estate attorney said the ruling will be cited by people who find themselves in similar situations while trying to keep the bank from taking their home.

The Cost of Leaving the Paperwork Behind

A partner at Green Miles Lipton & Fitz-Gibbon specializing in real estate said that the banks were “peddling” the mortgages and leaving their paperwork behind. That could imply that another outcome of the ruling may be that loans that were not documented properly may need to be purchased back. This, because the Massachusetts court did not approve the banks’ request to only apply the ruling to the current and future cases and not to home owners that have already been foreclosed upon. Gants chastened banks for ignoring the rules in order to rush the sale of mortgage-backed securities.

Steve Dale, a US Bancorp spokesman said the ruling has no real financial impact on the  bank and claimed the bank had no responsibility for the means or terms of the transfer of mortgages used in trusts it oversees.

Massachusetts attorney general Martha Coakley was in favor of the court’s decision, saying the banks should be responsible for the remedy.

Subsequently, shares for Wells Fargo closed down 65 cents–2% lower–at $31.50 and US Bancorp shares fell .8% or 20 cents at $26.09.

Also, stock for Bank of America fell 1.3%. JPMorgan fell 1.9 % and the bank index fell .9%. Broader share indexes also fell about .2% overall. Some of the losses were recovered when the highest court in Maine allowed JP Morgan to go ahead with a foreclosure without initially possessing the underlying mortgage.

Not Immune

Wells Fargo and US Bancorp claimed they controlled the mortgages of an individual and a married couple through different trusts in the Massachusetts case. The banks bought the homes and then sought a court order for each of the properties to confirm title. The lower court ruled against them.

Says Paul Collier, one of the defendant’s attorneys, “It is the first time the supreme court of a state has looked straight at securitization practices and told the industry, ‘you are not immune from state statutes and homeowner protections.'”

The couple’s attorney was “ecstatic” that the decision was retroactive, meaning thousands of foreclosed homeowners are able to seek recovery of their homes.

His clients, in fact, moved back into their residence after the 2009 ruling. The other defendant was seeking remuneration.

Gants did make a suggestion as to how banks might transfer mortgages properly through securitization trusts.

“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,” he indicated. “However, there must be proof that the assignment was made by a party that itself held the mortgage.”

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For than 30 years, the Law Offices of Leslie Richards, P.C. has been providing individuals and small-to-medium size business owners with experienced legal counsel.

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