In two separate, but similar, cases that both took place on July 5, 2007, U.S. Bank and Wells Fargo both foreclosed on the homes of borrowers who had defaulted on their home loans. Both properties were auctioned at foreclosure sale and, when there were no takers, the two banks purchased the respective properties themselves, according to court filings.
The fact patterns of the two properties’ mortgages were similar. In both cases, the banks that originated the mortgages sold and assigned the loans to another bank, after which both loans were sold and assigned several times.
Some of these sequential assignments were "in blank," meaning the seller of the mortgage actually executed an assignment form leaving the assignee’s name blank, filling in the assignee’s name later.
Eventually, these loans were securitized, meaning they were bought and sold in a package with hundreds of other mortgages. These packages, containing the two mortgages at issue, were eventually purchased by U.S. Bank and Wells Fargo.
Notably, though, while both banks produced to the courts the memoranda documenting the assignment/sale of a portfolio of securitized mortgages to them, Wells Fargo was unable to produce the schedules referenced in those assignment documents that were supposed to list the specific mortgage accounts included in the securitized packages.
In the case of U.S. Bank, the assignment to these banks was conducted "in blank"; the bank’s name was filled in on the portfolio assignment documents only after the actual foreclosure sales had taken place — although the assignment documents stated that the assignments were in effect before the foreclosure sales.
After the foreclosures, both banks filed suit in the Massachusetts Land Court, asking the lower court to declare that the foreclosures were valid to transfer title in the homes to the banks, that there were no clouds on title, and that the banks owned clear title to the properties.
Even though neither homeowner disputed the foreclosures, the land court denied the banks’ requests, finding that the foreclosure sales were invalid because the mortgages at issue had not been assigned to the banks at the time the foreclosure notices were issued, nor by the time the foreclosure sales were conducted by the banks.
Because the banks had no interest in the properties or the mortgages at the time of the foreclosures, the foreclosure sales were held to be invalid.
On a motion to vacate these judgments, the banks produced documentation of the creation of the pools of securitized mortgages but were still unable to produce any documents confirming that these individual mortgages were contained in these pools, except to point to the mortgage accounts and the payment histories to U.S. Bank and Wells Fargo by the properties’ homeowners.
On appeal to the highest court of the state, the banks’ arguments were again rejected and the lower court’s ruling upheld. The Massachusetts Supreme Court pointed out the well-settled rule of Massachusetts law that, since a judge’s approval is not required for a lender to foreclose on a home, foreclosing lenders are held to the letter of the law when they foreclose on a home through a nonjudicial foreclosure sale; the court went so far as to quote a 1905 Massachusetts opinion: "One who sells under a power (of sale) must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void."
One "term" of a lender’s power to sell a Massachusetts home is the identification of who can foreclose. In Massachusetts, " ‘statutory power of sale’ can (only) be exercised by ‘the mortgagee or his executors, administrators, successors or (assignees).’ "
As purported assignees, the banks were required, by the plain language of the relevant statutes, to show that they had been assigned the mortgagees’ interest in the mortgages and properties at the time that (a) the foreclosure notices were issued and published, and (b) the homes were foreclosed on.
The trust agreement under which U.S. Bank purported to have been assigned the mortgage at issue was never produced to the court, and was described by the bank as a document that would be executed in the future, so it failed under the requirements of Massachusetts law.
The Wells Fargo assignment agreement met the timing requirement, but did not state with specificity that the particular foreclosed mortgage was part of the securitized package, the court found.
In rejecting the banks’ requests for clear title and invalidating the foreclosure sales, the court clarified that a securitized mortgage could be validly foreclosed with "the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned."
Additionally, though, the court fielding the request for a declaration of clear title might also require proof that the assignment was made by a party that actually held the mortgage.
Either the assignor or the assignee should be the holder of the mortgage recorded in the public records, the court explained, and the assignment must be in place at the time of both the foreclosure notice and the foreclosure sale itself.
The court also ruled that assignments "in blank" are not valid until the date on which they are completely filled in with the name of the assignee. Neither did the post-sale assignment agreements do anything to empower U.S. Bank to foreclose; transfers of interests in real property are valid only on the date they are made, the high court opined.
Accordingly, the Massachusetts Supreme Court ruled that the land court had not erred in rejecting the banks’ requests for declarations of clear title in these matters, nor had it erred in declaring the foreclosure sales invalid.