The Massachusetts high court has ruled that Wells Fargo and US Bancorp wrongly foreclosed on two homeowners in a case that could have wide implications for the way homes are repossessed.
The Massachusetts Supreme Judicial Court upheld a lower court ruling that Wells Fargo and US Bancorp did not have the right to claim the homes because they could not prove they owned the mortgages at the time of foreclosure.
Legal experts said the ruling was likely to serve as a barometer for thousands of cases across the US, where homeowners have challenged foreclosures over sloppy or missing paperwork. The attorneys-general of all 50 states are investigating foreclosure practices amid allegations that bank employees rubber-stamped paperwork and in other ways subverted the foreclosure process.
“This screams out for some sort of national correction to impose standards that ensure lenders keep track of who owns these loans,” said William Galvin, secretary of the Commonwealth of Massachusetts.
In a sign of the confusion emerging over foreclosure procedures, a separate ruling this week from the high court in Maine allowed JPMorgan Chase to proceed with a home repossession, even though the bank filed the complaint before it owned the note and the mortgage. The court, however, cautioned that future plaintiffs should adhere strictly to procedures.
Wells Fargo said the Massachusetts ruling did not prevent foreclosures on securitised loans, but rather set a standard legal process that mortgage servicers must follow in that state.
The Massachusetts case involved two home loans that were assigned to multiple owners during a period of several years. In each case, documents were either incomplete or missing, raising questions about which entity owned the mortgage.
In the first case, Rose Mortgage lent Antonio Ibanez $103,500 to buy a property in Springfield on December 1, 2005. Several days later, Rose transferred the mortgage “in blank” – that is, without specifying who the mortgage was being transferred to.
It was not until June 7, 2006 that the blank was filled in with the name Option One Mortgage Corporation.
The mortgage was then assigned in blank to a series of other entities, including Lehman Brothers Bank and Lehman Brothers Holdings, before being transferred into a securitised trust.
US Bancorp said it came to own the mortgage as the servicer of the trust, according to the ruling. However, the bank “did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement,” Justice Ralph Gants wrote in his ruling.
It was not until September 2, 2008, more than a year after the home was sold at a foreclosure auction, that American Home Mortgage Servicing, a successor to Option One, assigned the mortgage to US Bancorp.
The second case, concerning a loan taken out by Mark and Tammy LaRace that Wells Fargo said it owned as the servicer of a securitised trust in which the loan had supposedly been placed, involved a similar lapse of documentation.
Richard Vetstein, a Massachusetts real estate lawyer, said the ruling would further complicate the foreclosure process.
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