Sunday, January 16, 2011

MA Sup Jud Ct Invalidates Foreclosure Sales for Lack of Proof of Mortgage Assignments

The Massachusetts Supreme Judicial Court recently held that two foreclosure plaintiffs"who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure," and that "[a]s a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied."  A copy of the opinion is attached.
The Court emphasized that the asset securitization trustee plaintiffs both "asserted in their respective complaints that they had become the holder of the respective mortgage through an assignment made after the foreclosure sale."  The factual discussion of each case in the opinion specifically states that the servicer of the mortgage loan was the record mortgagee, and that the mortgage was assigned the trustee after the foreclosure sale occurred.
The trial court judge ruled that the foreclosure sales were invalid because, in alleged violation of Mass. G.L. c. 244, § 14, the notices of the foreclosure sales named the asset securitization trust trustees as the mortgage holders where they had not yet been assigned the mortgages. The trial court judge found, based on each plaintiff's assertions in its complaint, that the plaintiffs acquired the mortgages by assignment only after the foreclosure sales, and thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales.
The plaintiffs moved to vacate the trial court's judgments.  In so doing, the plaintiffs submitted hundreds of pages of documents to the trial judge, attempting to establish that the mortgages had been assigned to them before the foreclosures.  Many of these documents related to the creation of the securitized mortgage pools in which the mortgages were included.  Nevertheless, the trial judge denied the plaintiffs' motions, concluding that the newly submitted documents did not alter the conclusion that the plaintiffs were not the holders of the respective mortgages at the time of foreclosure.
Importantly, the Court noted that each plaintiff did not provide the trial judge with any mortgage schedule identifying the subject loans as among the mortgages that were assigned in the purchase and sale and trust agreements.
Moreover, Massachusetts is not a "mortgage follows the note" state.  The Massachusetts Supreme Judicial Court here noted:
In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id.
. . .
In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to "the mortgagee or his executors, administrators, successors or assigns," but not to a party that is the equitable beneficiary of a mortgage held by another. G.L. c. 183, § 21, inserted by St.1912, c. 502, § 6.

In addition, the Court specifically stated as follows:

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr.D.Mass.2009). A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage. See In re Parrish, 326 B.R. 708, 720 (Bankr.N.D.Ohio 2005) ("If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant"). The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale (or the foreclosing entity must be one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14).
. . .
A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. See G.L. c. 183, § 21; MacFarlane v. Thompson, 241 Mass. 486, 489 (1922). Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. See Bon v. Graves, 216 Mass. 440, 444-445 (1914). A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73, 76 (1904) (confirmatory deed "creates no title" but "takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made"). Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm. In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.

However, the Court specifically rejected the plaintiffs' request that its ruling only be prospective in its application. The Court held it did not make significant change in the common law, but rather "[t]he legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs' apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities."

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

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