Case Study: A Close-Up Look at the Massachusetts Foreclosure Ruling

Case Study: A Close-Up Look at the Massachusetts Foreclosure Ruling

Since the Massachusetts Supreme Judicial Court ruled last week that Wells Fargo and US Bancorp unjustly foreclosed on two properties the mortgages to which they did not actually hold verifiable title, the entire real estate investing industry – along with banking and legal eagles – has been in an uproar. The decision which invalidated two foreclosures that had already been sold at auction was unprecedented, and when the leading judge declared that the decision would be retroactive and apply to any foreclosures that had been mishandled in a similar manner, class action lawyers leapt into action and homeowners involved in and recovering from foreclosures over the past few years felt a spark of hope that maybe their foreclosure could be “unwound” or they might be able to claim damages as well. While very few people dispute that if banks cannot show that they have the right to take homes away from people and sell them to other people then probably those banks should do a better job of record keeping, many investors and traditional homeowners who bought homes in good faith at auctions found themselves on the edge of their seats, wondering if they really even owned the properties that they had paid for.

In the wake of the decision, there have been many responses from all sectors of markets related to the industry. Some experts are not worried at all, while others are just waiting for the sky to fall. Lots of people simply say that the “wealthy investors” and “fattened banks” deserve what they get as long as the people who were thrown out of their homes get justice, while others worry that with this new twist, the housing market might literally never recover. In an effort to determine exactly how widespread the records problem is, a reporter for the Boston Globe took a random sample of 30 foreclosure deeds from Chelsea, Massachusetts[1]. Chelsea has been “hit hardest by foreclosures since the beginning of 2006.” What he found indicated that the damage is pretty far reaching: a solid third of the sample had paperwork issues including no mortgage on file at all, no assignment papers for the mortgage to the foreclosing lender, and failures on the part of mortgage lenders to sign off to allow mortgage servicers to service the mortgages or to allow the mortgages to be placed into pools. In short, based on the recent ruling, 10 of the 30 had solid grounds for invalidation. And all 30 of the properties in the sample had been foreclosed and resold.

Although this is a small sample, the ramifications are huge. At least in Massachusetts, this ruling is going to have a dramatic and far-reaching impact on the entire banking industry and the real estate market. How do you think lenders, homeowners and former homeowners should be dealing with and solving this problem?

Posted in bubble, Corruption, Eviction, securities fraud |