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Mass. Court Must record mortgage before foreclosure
BOSTON (1/11/11)--The Massachusetts Supreme Judicial Court Friday upheld a lower court's ruling that US Bancorp and Wells Fargo foreclosures were invalid because the mortgages contested weren't legally recorded first as being owned by the foreclosing banks. The ruling could have implications for all mortgage lenders, including credit unions, in the state. The court unanimously upheld the March 2009 decision by Land Court Judge Keith C. Long, which rejected claims made by the two banks that, as securitization trustees, they did not have to prove their authority to foreclose on two separate homes. However, the court found their assignment of mortgage notes invalid because they left blank the part of the notes designating who the properties were transferred to and therefore failed to meet the state's requirement for the assignment notes as negotiable instruments. Also, the mortgage transfers were not recorded with the state's recording agency as required by state law. If the lender has no valid assignment note, it is not the mortgage holder; if not the mortgage holder, it can't foreclose on the mortgage, the court said. The ruling repudiates the industry’s fallback defense on botched securitization procedures. The American Securitization Forum and several securitization attorneys working for the banking industry have argued that evidence of intended transfers of a mortgage are enough to demonstrate legal standing. The Massachusetts high court rejected that argument. In Massachusetts, the ownership of a mortgage can be divided and transferred multiple times by the lenders into mortgage-backed securities existing along with the mortgaged property. The transfer document often lags in months or even years of the property's sale. That, coupled with the trend of passing along assignment paper without the mortgagor's name, makes it difficult to determine who owns what in the "chain of title" from lender to lender of the trusts. Many states have adopted nonjudicial foreclosures to alleviate unnecessary paperwork and speed up time in court. But the court maintained that "there must be proof that the assignment was made by a party that itself held the mortgage. "The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice (of foreclosure) 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…," the court wrote. "The theoretical purpose of mortgage recording is to put other lenders and third parties on notice that the property is encumbered with a mortgage on the property, but recordation is an important part of states' mortgage regulatory schemes and is typically a prerequisite for foreclosure," said Michael Edwards, counsel for special projects at the Credit Union National Association (CUNA). He told News Now the case could have implications for credit unions and other lenders in Massachusetts. Credit unions "should check with their lawyer to make sure that they are in full compliance with all state and federal laws, including making sure that mortgages are assigned in compliance with the state's Uniform Commercial Code and are recorded with the state." He noted the case could be an issue for title insurers and people who have purchased foreclosed homes in Massachusetts. "If there is a cloud on a title, it would involve a separate court case to settle the title. Hopefully credit unions have kept better records than the banks in this case."


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