The Massachusetts Supreme Court has thrown a wrench under the wheels of a galloping foreclosure crisis in which banks and mortgage companies who could not even show clear title to a property have often managed to foreclose on it and evict the borrowers.
Last Friday the court upheld a state Land Court ruling against U.S. Bancorp and Wells Fargo that said that the banks could not foreclose without documentation to prove the ownership of the mortgages to the properties in question.
Though it’s not clear that the Court’s decision affects cases outside Massachusetts, the ruling is extremely important because it goes to the root of the process by which mortgages are “securitized.” Specifically, it attacks the practice of selling mortgages without a named recipient and of letting the relationship between the ownership of a mortgage and the ownership of its promissory note become unclear. As Marie Mcdonnell of Orleans, Mass., a mortgage fraud analyst, told Bloomberg News, “This is the first time the securitization paradigm is squarely before a high court.”
The SJC’s decision may open the way for some homeowners to sue their lenders for improper foreclosure, and force banks to buy back mortgages that were transferred improperly into loan pools. State Attorney General Martha Coakley, weighing in with the SJC on behalf of the borrowers, said it was “reasonable” that the building, real estate and loan industries that profited from the boom in mortgage sales before the crash should bear the cost of whatever disruption in the housing market the ruling causes.
A further note on Wells Fargo: Last July, in a different case, Jennifer Ryan-Voltaire, a Boston area resident, received a frantic cell phone call from a cousin telling her that her house was being auctioned. Ryan-Voltaire’s husband had had his hours at work cut back in 2009 and the couple could not afford their mortgage payments, but they had gotten into a government-sponsored loan modification program and continued to pay steadily, though at a lower rate, on their mortgage.
Wells Fargo asked for documents that Ryan-Voltaire supplied, but, she told National Public Radio, the bank often lost them. But just before the auctioneer appeared at her house, she says, a Wells Fargo worker had told her that her documentation was all in order and that there would be no foreclosure.
Now the couple, still in their house, has joined a group of homeowners whose attorney is seeking a class action suit against lenders who foreclose without proper process. Wells Fargo claims the Voltaire loan modification failed for lack of one tax document—a document Ryan-Voltaire insists she filed. Gary Klein, an attorney with the legal team representing the Voltaires and other homeowners, is seeking injunctions to forestall thousands of foreclosures in Massachusetts. In Western Massachusetts, any homeowner who believes he or she is in danger of foreclosure without proper process and due notification is urged to call the Western Massachusetts Foreclosure Hotline at 413-322-7404 for referral to an attorney for a free initial consultation.
