The Massachusetts Land Court has reaffirmed an opinion finding invalid foreclosures conducted before the assignment of the foreclosed mortgages to the foreclosing creditor were executed. Plaintiffs/foreclosing parties sought a declaratory judgment that they held title to the foreclosed-upon properties. The Court initially denied relief, finding that because the mortgage assignments only occurred after the foreclosure sale, plaintiffs had not been the “present holders” of the mortgages within the meaning of the Massachusetts foreclosure statute at the time of notice and sale. The Court concluded that retroactive assignments of the mortgages could not cure these statutory defects and that plaintiffs therefore had no power to foreclose. On plaintiffs’ motions to vacate, the Court reaffirmed its holding, rejecting plaintiffs’ argument that they were in fact the “present holders” of the mortgages at the time of notice and sale because they possessed the notes, assignments of the mortgages in blank, and agreements under which they were entitled to valid assignments of the mortgages. The Court concluded that because mortgages are conveyances of land under Massachusetts law, valid written assignments are required to transfer them, and neither assignments in blank nor agreements to assign mortgages effect a transfer. Further, the Court observed that the right to obtain an assignment and an actual assignment are not equivalent, and the foreclosure sale statute required an actual assignment.
We do not yet know if the Ibanez decision will be appealed by plaintiffs. Although not formally binding beyond the parties before it, the Ibanez decision will likely be given substantial weight by other state and federal trial-level courts in Massachusetts, as the Land Court is the Massachusetts trial-level court with special expertise in title issues. Based on Judge Long’s earlier March 2009 decision in Ibanez, we believe the relevant event before which a written assignment of the mortgage must occur is the notice of foreclosure sale. On the other hand, the opinion does not require the assignment to be recorded before it is effective – only executed and in possession of the foreclosing party.We expect that this decision will result in a flurry of challenges to recent or pending foreclosures, and may present difficulties in obtaining title insurance for/and or selling REO properties acquired through foreclosure where a written assignment was not procured before a foreclosure notice. Under Ibanez, foreclosures conducted without valid written assignments before notice of sale are likely void. And as a practical matter, owners of REO properties likely cannot convey marketable title or obtain title insurance on these properties without re-foreclosing after a proper assignment. Please feel free to contact Jim McGarry (617.570.1332) or Rich Oetheimer (617.570.1259) for any guidance or assistance in dealing with these issues. Click here for U.S. Bank National Ass’n v. Ibanez, Misc. No. 08-384283/Wells Fargo Bank, N.A. v. Larace, Misc. No. 08-386755 (October 14, 2009). Click here for the March 2009 Ibanez decision.