Late last year it was reported that many of the major banks and mortgage holders- Citibank, Wells Fargo, JP Morgan Chase and Bank of America to name a few- had to halt their foreclosures because of shoddy paperwork, robo-signings, and the inability of those bringing the foreclosure action to prove they owned the mortgages they were attempting to foreclose.
Massachusetts Supreme Court Decision Strikes a Blow to the Banks
Late last week the Massachusetts Supreme Court unanimously decided that the foreclosures in the cases before it were improper because the notice of foreclosure was not recorded and published before the banks bringing the foreclosures actually owned the mortgages by way of legal assignments from the original issuers of the mortgage.
In the Massachusetts cases, foreclosures had already occurred and the homeowners had moved out after the bank bought the property at the foreclosure auction. When the banks initiated the foreclosures, they had no proof of their assignment of lien in the chain of title showing that they now were the mortgage owners. In one of the cases the original mortgage passed to six different institutions including the initial issuer and the foreclosing bank.
After the foreclosures the banks recorded what they alleged was proof of ownership in the local land records. They then filed actions to "quiet title"- an action which requests as its remedy that the court issue an order stating that the banks have clear title to the properties. The court refused to award them clear title, given that the foreclosure was legally deficient. The fact that the banks tried to correct the record after the foreclosures could not retroactively legitimize the foreclosures themselves or the titles to the property taken by the bank as a result. The banks appealed this decision and the Supreme Court affirmed the lower court and also ruled that the title held by the banks in the improperly foreclosed property was not clear title-that is, the banks did not own the property free of any claims by the previous homeowners.
This Decision Can Have Long Lasting Implications to Title.
What this may mean is that an unknown number of homes that have been improperly foreclosed on by the nation's mortgage lenders have title problems that may be difficult or impossible to clear which will impact title transfers to potential buyers. How the courts will respond to the potential claims against title by foreclosed homeowners is an unknown. Court's may find that the subsequent purchaser is a "bone fide" purchaser entitled to protection against any claims to title or conversely could find that the buyer having knowledge of the foreclosure is on notice of potential claims creating a "buyers beware" market. The uncertainty may simply create a generation of transfers by "quit-claim deed" rather than the customary "warranty deed" combined with the creation of a market of title insurers willing to assume the risk of possible title claims by foreclosed homeowners as a stopgap solution. The legislature may also step in by enacting a statute of limitations limiting the time foreclosed homeowners or their heirs have to raise any claims to title; therefore, creating a mechanism to achieving clear title.
Modification Opportunities For Homeowners
Having a case of first impression decided by the highest court of one state makes it , not only possible, but much easier for lawyers in another state to argue for similar results in their cases. It is important to remember that what the Massachusetts case basically has said is a bank can't legally foreclose on a mortgage if it can't prove it owns it, and a bank can't go back in time and undo an illegal foreclosure by obtaining a judicial declaration of clear title. Banks have to get their documents in order or obtain an order establishing ownership prior to commencing a foreclosure. Future foreclosures may be impossible given the state of mortgage-related records caused by the sloppy bank practices. The banks caught in this legal quagmire have one clear shot of minimizing their losses-whether before or after foreclosure – negotiate with the current owners. For Connecticut homeowners involved in foreclosure who wish to modify their loans and remain in their properties, it is imperative that they participate in the Court sponsored Mortgage Mediation Program (go to http://www.jud.ct.gov/foreclosure/ for more information). Remember, if the bank foreclosing is not the bank the homeowner originally signed a promissory note and mortgage with, the homeowner should demand proof that the bank foreclosing on the property actually owns the debt they are attempting to foreclose. A homeowner can also be proactive and search their title in the land records in the town where they live- at the Town Clerk's Office, type in the homeowner's name and the computer program will list all the liens and assignments recorded against the property (see links provided @ Bankruptcyassistu.com/Resources Page for online Land Record Searches) . It is also important to note that even after filing Chapter 7 Bankruptcy and obtaining a discharge- assuming there is no equity in the property and the trustee has abandoned the property-a homeowner can negotiate a modification of the mortgage and keep the property. If the homeowner is still involved in Bankruptcy and not yet secured a discharge, the homeowner may need permission from the court in instances where the modification will result in a re-affirmation of the note as part of the modification.
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