A recent lawsuit was brought by a Massachusetts homeowner who was seeking to void her home foreclosure based on her argument that the loan servicer collecting payments did not have the underlying promissory note in which to legally foreclose on her property. The case has garnered national attention as the decision by the Massachusetts Supreme Judicial Court could have implicated thousands of pending foreclosures in the state based on mortgage and title issues.
Now homeowners in other states may use this precedent in their fight against shoddy foreclosure practices by banks and lending institutions throughout the country. The ruling is really a victory for homeowners moving forward however, foreclosures in the past will stay in past, according to the court’s ruling. The ruling gives reprieve to a flood of potential problems for banks attempting to foreclose on a number of properties in the state.
The unanimous decision stated that lenders must have a borrowers underlying note, or operating on behalf of a bank or entity that does have the note, in the future. The decision overturned a lower court ruling that said a lender must possess both a borrower’s mortgage as well as the note. This latest ruling means that foreclosures could not be ruled as invalid retrospectively. If the ruling had gone the other way lenders could be held liable for having sold thousands of properties it did not legally own.
Lending institutions often split notes from a mortgage when packing these loans into securities, making it difficult to track down the documentation after the fact. With the number of homes being foreclosed on every year, the securitization process has many homeowners questioning the legal right of a bank to foreclose on a property if they do not hold the necessary note.
The ruling is not only a victory for the banks and Massachusetts homeowners, but also the Federal Housing Finance Agency, the group that oversees mortgage giants Freddie Mac and Fannie Mae. The agency argued that making the ruling retroactive could have threatened the orderly operation of the mortgage markets.
It was also a victory for the lone homeowner who brought the initial suit as the court deemed the ruling should apply to her case since she brought the matter to the attention of the courts. She can now renew her efforts to question her lender’s legal right to foreclose on her property.
Source: Chicago Tribune, “Top Massachusetts court limits foreclosure relief,” Jonathan Stempel, June 22, 2012