Sunday, October 23, 2011

FYI: Mass SJC Applies Ibanez to Invalidate Sale of Foreclosed Property to Third Party

The Massachusetts Supreme Judicial Court recently held that a foreclosure
buyer did not acquire good title to foreclosed property, when the
foreclosure was instituted by a party to which the mortgage had not been
assigned prior to the foreclosure and was therefore invalid under Ibanez.
A copy of the opinion is attached.

The defendant borrower granted a mortgage to Mortgage Electronic
Registration Systems ("MERS") as mortgagee. After the defendant
defaulted, U.S. Bank as Trustee initiated foreclosure proceedings. MERS
assigned the mortgage to U.S. Bank as Trustee subsequent to the initiation
of the foreclosure

The plaintiff purchased the property that had been foreclosed upon. He
then brought a try title action against the former owner of the property,
seeking to compel the defendant to bring an action to assert any adverse
claims against the property or to bar him from enforcing those claims in
the future. The lower court dismissed the complaint with prejudice, on
the grounds that the plaintiff did not have standing to bring the action.
The plaintiff appealed.

As you may recall, Massachusetts law provides that in order establish
standing in a try title action, the plaintiff must be a "person in
possession" of the disputed property, and must hold "record title" of the
same. Mass. G.L. c. 240, Sec. 1; Blanchard v. Lowell, 177 Mass. 501, 504
(1901). Further, when a foreclosure sale occurs in the absence of proper
authority, "there is no valid execution of the power [of sale], and the
sale is wholly void." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 646

The plaintiff argued that he had held "record title" due to the fact that
U.S. Bank granted him a quitclaim deed. However, the Court noted that a
"single deed considered without reference to its chain of title" was
insufficient to establish "record title." In examining the chain of
title, the Court noted that in the try title action, the plaintiff "has
alleged.that U.S. Bank was not the assignee of the mortgage at the time
that it purported to foreclose on the property."

Therefore, the Court held that "U.S. Bank's lack of authority to foreclose
at the time it purported to fatal to [plaintiff's] claim to
'own' the property." Consequently, the Court held that the plaintiff's
action was properly dismissed.

The plaintiff also claimed that "could not have known.that [a] title
problem existed," and consequently that he must be allowed to proceed with
his try title claim or be left without an adequate remedy.

The Massachusetts Supreme Judicial Court disagreed, noting that the
registry reflected that the plaintiff must have attempted to purchase the
property when U.S. Bank was either a "complete stranger to title," when it
was "no more than an assignee of the mortgage," or that the record
reflected that U.S. Bank "conducted the foreclosure sale before receiving
an assignment of the mortgage." Because "[i]n none of these circumstances
could we conclude that [plaintiff] was a bona fide purchaser," the Court
held that the plaintiff was not a bona fide purchaser for value.

Thus, the Court ruled that Bevilacqua has no plausible claim to title
where he acquired a deed following an invalid foreclosure.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

NOTICE: We do not send unsolicited emails. If you received this email in
error, or if you wish to be removed from our update distribution list,
please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:

CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.