Listening to NPR this morning and heard a good story about how the sloppy paperwork in many mortgages across the country is slowing down foreclosure actions. Certainly this issue can cut both ways. On one hand, the longer it takes for the backlog of defaults to go through the system, the longer that mess is a drag on the country’s economy. On the other hand, allowing foreclosures to be pushed through where the paperwork is not in order is a significant bit of unfairness to the mortgagors (the people in the houses, not the banks). I find stories like this to be nice examples of “shoe’s on the other foot” for big business/banks. Such entities are certainly known for sticking to the exact terms of the agreements they enter in to, especially when it is big company v. consumer. So the cases like Ibanez, which was highlighted in the NPR piece, are a good brake on big business’ common practices. It seems pretty clear to me that the mortgage securitization boom which played a part in the current real estate crisis we’re experiencing led big companies and banks to play fast and loose with the strict requirements of assignment of interests in the mortgages. In the opinion, the Court went into some detail to show the long line of supposed assignments of the mortgages as they made their way from the original transaction and the holder that was doing the securitizing and, eventual, foreclosing. But as the Court said,
For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests. Here, the plaintiffs were not the original mortgagees to whom the power of sale was granted; rather, they claimed the authority to foreclose as the eventual assignees of the original mortgagees. Under the plain language of G.L. c. 183, § 21, and G.L. c. 244, § 14, the plaintiffs had the authority to exercise the power of sale contained in the Ibanez and LaRace mortgages only if they were the assignees of the mortgages at the time of the notice of sale and the subsequent foreclosure sale.
And as the Court ruled, the companies/banks trying to foreclose on the properties in question simply didn’t have proof of the assignments. I come down on the side of helping the individual, so I applaud the Court’s ruling. I also really liked this passage from the concurring opinion:
I concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets. 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. Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order. Although there was no apparent actual unfairness here to the mortgagors, that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it.