Faulty Foreclosure May Mean Massachusetts Buyer Isn’t Owner

In a previous post, we spoke about the rather important decision that the Massachusetts’ highest court rendered, when they ruled on the Ibanez case.  In that case, they said that the bank had to own the note and mortgage at least by the time the Foreclosure becomes final.  Now they have decided to take up another case, from the same Court and Judge again. 

Now, they are going to address the next step in the process.  They will decide whether or not a homeowner, who buys a foreclosed home at an improper foreclosure sale, has legal title, and may remain in possession. 

This case, like the Ibanez case, arose from the same basic set of facts.  A Mortgage Servicer, conducts a foreclosure sale, and obtains the property at the sale.  At some point after they buy the property at the foreclosure sale, they obtain the mortgage, in an effort to make it all legal.  However, in Ibanez, the Court ruled that that they needed to own the mortgage before the foreclosure sale, not after.  Well, what about all those people who bought homes in Massachusetts before that case.  When this case is decided, it should clear up the situation, at least in Massachusetts.  Here’s the full story…

Faulty Foreclosure May Mean Massachusetts Buyer Isn’t Owner

By Thom Weidlich – Jan 21, 2011 12:01 AM ET

Massachusetts’ highest court will consider whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner.

The state’s Supreme Judicial Court, which agreed last month to take the appeal, already ruled Jan. 7 that banks can’t foreclose on a house if they don’t own the mortgage. The lower- court decision now under review said the buyer of residential property in Haverhill, Massachusetts, never really owned it because U.S. Bancorp foreclosed before it got the mortgage.

“It appears to be the next step in the conversation,” Paul R. Collier III, who represented the borrower in the earlier case, U.S. Bank v. Ibanez, said in a phone interview.

Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new homebuyers who may be hesitant to complete a purchase for fear of uncertain title, and with how such a trend may hobble the broader housing market.

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse. Last year, completed foreclosures in Massachusetts rose 32 percent to 12,233 from 9,269 in 2009, according to Boston-based Warren Group, which tracks local real estate.

Bundled Mortgages

The latest case, Bevilacqua v. Rodriguez, could affect trusts that bundled mortgages and sold securities to investors. Questions about lending practices, including alleged overstatements of borrowers’ income and inflated appraisals, have pitted mortgage-bond investors against banks. Also, loan originators or trust sponsors may be forced to buy back mortgages wrongly transferred into loan pools.

The Ibanez and Bevilacqua cases both originated before Massachusetts Land Court Judge Keith C. Long in Boston.

Francis J. Bevilacqua III went to Long’s court to force the original owner to say whether he had a claim on the property in Haverhill, about 36 miles (58 kilometers) north of Boston. A city assessment website lists four condominiums at the location with a total value of $600,300.

Bevilacqua asked Long whether he could try to find the original owner through newspaper notices, said his lawyer Jeffrey B. Loeb, of Rich May PC in Boston, in a phone interview.

In August, Long ruled that Bevilacqua wasn’t the property’s owner and didn’t have standing to inquire about claims. U.S. Bancorp, which sold Bevilacqua the property in 2006, conducted an invalid foreclosure because it didn’t properly own the mortgage at the time, Long said.

The mortgage transfer to U.S. Bancorp, which oversees the mortgage-backed trust containing the loan, happened after the foreclosure, Long said. All Bevilacqua had was a deed from an invalid foreclosure sale, the judge said.

‘Great Sympathy’

“I have great sympathy for Mr. Bevilacqua’s situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.

The servicer of the mortgage-backed trust the loan was in would have handled the foreclosure and sale, not U.S. Bancorp, Teri Charest, a spokeswoman for the Minneapolis-based bank, said in an e-mail. U.S. Bancorp isn’t a party to the Bevilacqua case.

Bevilacqua’s lawyers never found the original owner, Pablo Rodriguez. The city property-assessment site lists the four condos under different owners. Bevilacqua didn’t return a message seeking comment left with Loeb.

‘Broad Implications’

The Supreme Judicial Court agreed to take the appeal directly, bypassing an intermediate panel. The court may do that when a case has “broad implications,” Kevin Costello, a lawyer at Roddy Klein & Ryan in Boston, said in a phone interview. Costello represents borrowers in a statewide class action accusing banks of conducting faulty foreclosures.

Both Costello and Collier, the lawyer for Ibanez, said Bevilacqua is the first so-called third-party buyer case to come before the high court since the Ibanez decision.

“The third-party buyers obviously have claims against the selling entity, the servicing entity and any title insurer and any attorney that was engaged,” Collier said.

The court has tentatively set oral argument for April, according to Susan Mellen, the court clerk.

“This ruling, in conjunction with Ibanez, may allow a wrongfully foreclosed-upon borrower to retrieve their property,” Glenn F. Russell Jr., a Fall River, Massachusetts- based lawyer for the other borrowers in the Ibanez case, said in an e-mail.

Try-Title Statute

In their appeal brief, Bevilacqua’s lawyers argue that Long confused requirements for the law used to prove one’s title to a property with those for the law their client sued under, the so- called try-title statute, through which one party seeks to force another to assert or waive a potential claim on the property.

“The Land Court made this finding despite the existence of a recorded deed conveying the property to Bevilacqua,” they wrote. The lawyers said that even if the Ibanez ruling means Bevilacqua doesn’t have “legal title,” he has “record title” because of the deed.

“Anyone conducting a title search would be led to believe that Bevilacqua is the record owner of the property,” they wrote. “Bevilacqua recognizes, without conceding, that Rodriguez may have a claim to the property.”

Edward M. Bloom, president of the Real Estate Bar Association for Massachusetts, said the group may file a friend- of-the-court brief in the case. It may be possible under Massachusetts law that Bevilacqua could keep the property by having possession of it for three years, Bloom said.

Legislative Solutions

“Maybe the court will throw up its hands and say the legislature must come up with a solution,” said Bloom, a partner at Sherin & Lodgen LLP in Boston.

The third-party issue has become a major one for title insurers in the state, said Richard D. Vetstein, a real-estate lawyer in Framingham, Massachusetts.

“What’s going to happen to all these people?” Vetstein said. “The people who don’t have title insurance are really in big trouble.”

The court may have left the issue of third-party buyers unaddressed in Ibanez anticipating a ruling in the Bevilacqua case, said Thomas Adams, a partner at New York law firm Paykin Krieg & Adams LLP.

“That’s a big issue to leave outstanding,” said Adams, a former analyst at bond insurer Ambac Financial Group Inc. “If Judge Long’s decision holds, then that’s a big deal.”

The case is Bevilacqua v. Rodriguez, 10880, Supreme Judicial Court of Massachusetts (Boston).

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at tweidlich@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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  • Fla Homeowner

    I paid cash for my house in 2010. The couple I bought the house from bought the house from the bank three months prior to me buying it from them. Now here is where my concerns come in…What if the bank didn’t have the proper documentation and the people that were forclosed on sued and won to get thier house back………..Where does that leave us? We do have title insurance however we have spent considerable money on our property. Do we have any recourse?

    • admin

      If the prior homeowners were able to prove to a Court that they were wrongly foreclosed on, and the Court ordered that they get their house back, and you must leave, here are some of your options. First, File a claim with your Title Insurance Company, since you clearly didn’t have clear title, when they guaranteed that you did. You should get at least all the money back that you paid for the home up to the policy limits of the Title Insurance Policy. Then see a good foreclosure attorney, (there are adds on this page), and investigate a suit against the prior bank, and law firm who conducted the foreclosure for any additional damages you might have.
      Hope this helps

  • Fla Homeowner

    O.K., This doesn’t sound good……… Thank you for your reply which leads me to another question. How long would I have to move out of my home which apparently no longer is my home ? Also having spent all the additional monies on the house, How long is it going to take to sue and how can I get a comprable house without the aditional dollars, it just doesn’t seem fair that I should take the hit! I guess you answered that, I will call one of your attorney’s, Thank you!!