In light of a recent state supreme court decision, US Bank v. Ibanez in Massachusetts, the superior court ruled on a subprime mortgage to reverse the foreclosure. Basically, this happened because a chain of evidence was broken that would prove that the banks “owned” the house. You see, when the mortgages were sold to investors on Wall Street, they were packaged with thousands of other mortgages. Banks would have “robo-signers” going through hundreds of documents a day (some underpaid bank manager) where there was responsibility to authenticate the forms. Well, in the Ibáñez case, the assignment of the mortgage was executed blank, and it was not registered until a year later. This in turn allowed Mr. Ibáñez to contest the foreclosure (which has already happened), and the bank lacked evidence of ownership of the mortgage. The letter of the law is what counts here and the evidence cannot be broken!
What happened to the seller of the house?
Ibáñez will recover his home. I think (but I’m not sure from what I read) that he will repay his loan.
What does this mean for your home buyer?
Well, hopefully, when they bought the house from the bank, they purchased title insurance to help protect any assets. Otherwise, without title insurance, the buyer will have no recourse other than not owning a home. Although I think they would also have a chance to sue the bank!
Will this make the foreclosure process more difficult?
very well could! Banks will have to re-accept all foreclosures, past or present.
It could also help in the short sale process, as an owner willing to relinquish the home, all paperwork will be accounted for.
What will happen now?
The Massachusetts Supreme Judicial Court has always been a leader in setting precedents among other courts. With other states like Georgia and half the states in the US having similar foreclosure laws, we could face some national implications. How far and wide, only time will tell. Already the major banks Wells Fargo, JP Morgan Chase, Bank of America, Citigroup have been forced by a coalition of seven major public pension systems to examine mortgage and foreclosure practices. I can understand why these major pension funds are concerned and from what I have read, shares in these banks are down slightly on this news!
So if you are a buyer in this market and you are shopping for foreclosures, you may want to tread carefully, have a good attorney to oversee all the paperwork, and make sure you buy the best and most TITLE INSURANCE that you can.