Massachusetts’s highest court
is poised to rule on whether foreclosures in the state should be undone
because securitization-industry practices violate real- estate law
governing how mortgages may be transferred.
The fight between homeowners and banks before the Supreme Judicial Court in Boston
turns on whether a mortgage can be transferred without naming the
recipient, a common securitization practice. Also at issue is whether
the right to a mortgage follows the promissory note it secures when the
note is sold, as the industry argues.
Here’s the issue, as I’ve pointed out. Mortgages and property recordation are a matter of State Law, whether the banks like it or not. They clearly didn’t like it back in the 2000s and the 1990s, so they did what banks always do: they simply ignored the law.
was all fine and well when foreclosures basically never happened,
because if you got in trouble you could sell for more you owed. But
when prices started falling, that became impossible.
The banks had "figured" they could never, ever lose under this paradigm. After all, real estate never goes down in price.
Therefore, the law didn’t matter because they’d never see the inside of
a courtroom. They further reasoned that if push came to shove they
could "lobby" (read: bribe) Congress and The States to
guarantee that whatever they did would be ruled "ok", or at worst,
they’d get a handslap fine. This has been a good strategy thus far –
witness drug money laundering for Mexican gangs, illegal transfers of
money to Iran, bilking state and municipal governments via various
bid-rigging scams and other similar behavior.
Unfortunately, such a strategy requires that all fifty State Court systems be corruptible. If you run into just one that isn’t, you’re screwed.
We may be about to see exactly that happen:
The Massachusetts homeowners argued that
the banks that took their homes didn’t follow their own rules for
transferring mortgages into mortgage-backed trusts that issued bonds. The banks and the mortgage-bundling industry counter that the securitization documents themselves assign the mortgages.
Remember my posting of a handful of PSAs? Those PSAs require that physical delivery and endorsement take place. Not "contractual" delivery, physical delivery and physical endorsement, showing an unbroken chain of endorsements from origination onward.
Land Court Judge Keith C. Long in Boston ordered the banks to prove
they had the right to foreclose in the first place.
2009, he ruled they didn’t. Published notices listed U.S. Bancorp unit
U.S. Bank and Wells Fargo as the foreclosing parties when they weren’t
the actual mortgage holders at the time of the 2007 auction, a violation
of state law, the judge said.
This case, incidentally, turned on the same sort of practice (retroactive transfers) on the back end,
that is, after you defaulted and the foreclosure suit was filed. The
Judge tossed it, saying that’s a violation of State Law.
The banks then came back and tried to argue that this didn’t matter because they had been constructively transferred. Unfortunately it appears that The Judge read the PSA which clearly stated that the Trustee had certified he had physically received the notes and that each one was properly endorsed through an unbroken chain of assignments when the MBS deal closed.
other words, the PSA said that there was no such thing as a
"constructive" transfer (although the UCC does allow it) – the clear
language said that a physical transfer was required and worse, State Law
required actual endorsement to an entity (not "in blank") because State
Law requires that the documents be recordable. Unfortunately for the
banks the record showed that the endorsement was indeed in blank
and thus the alleged "endorsement" transferred nothing because as a matter of State Law such transfers are prohibited. Ergo, sorry, you didn’t own the note and can’t recover from this at this time because the allowed time to cure had expired.
wheels of justice turn slowly, but they do turn. We shall see how the
Massachusetts Supreme Court rules on this one. Incidentally, The State
Attorney General backs the borrowers.