Econintersect: Last week the Massachusetts Supreme Court held that a judgement in favor of a plaintiff who had held that the bank pursuing foreclosure on his property had no legal standing to do so.This judgement has the potential to be precident for many other future decisions that could hamper banks in executing foreclosures. These problems have arisen because of incomplete documentation of mortgage ownership in the process of securitization of mortgages. In the housing boom, mortgages were packaged into bond-like structures called Mortgage Backed Securities (MBS).
As defaults began to accumulate in the collapse of the housing bubble, problems started to arise because the long standing registration process for deeds, leins and mortgages had not been followed during securitization in the same way as had been the case when a bank wrote the mortgage, serviced the mortgage and eventually retired the mortgage through repayment or foreclosure. Now questions arise within the legal system regarding who actually owns mortgages.
Here is the summary of the decision from the court record:
After foreclosing on two properties and purchasing the properties back at the foreclosuresales, U.S. Bank National Association (U.S.Bank), as trustee for the Structured AssetSecurities Corporation Mortgage Pass-Through Certificates, Series 2006-Z; and WellsFargo Bank, N.A. (Wells Fargo), as trustee for ABFC 2005-OPT 1 Trust, ABFC AssetBacked Certificates, Series 2005-OPT 1 (plaintiffs) filed separate complaints in the LandCourt asking a judge to declare that they held clear title to the properties in fee simple.We agree with the judge that the plaintiffs, who were not the original mortgagees, failedto make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid toconvey title to the subject properties, and their requests for a declaration of clear title were properly denied.
Source: Official transcript of the decision.