The Massachusetts Supreme Court ruled yesterday that if a bank can't prove they own the mortgage, they can't foreclose on a homeowner. A simple ruling that's going to make life a lot more complicated for some of our nation's biggest lenders.
The Massachusetts Supreme Court ruled yesterday that if a bank can’t prove they own a mortgage, they can’t foreclose on a homeowner. Result? Two homeowners now essentially own their homes debt-free.
The case revolves around the failure of two banks – U.S. Bank and Wells Fargo – to provide paperwork adequate to prove that they had legal standing to foreclose on two unrelated homeowners. It’s significant because there are potentially thousands of other similar cases nationwide, and the precedent set in this case could be used against other banks in tons of other foreclosure cases.
The problem for the banks in this and other cases boils down to shoddy paperwork.
After a mortgage is originated, it’s often sold – in most cases, several times. And just as when you sell a house or car, when a bank sells a mortgage to another bank, proper paperwork has to be executed: If it isn’t, the title isn’t legally transferred. At the height of the real estate boom, some banks were apparently transferring mortgages by the tens of thousands to one another with improperly executed assignments. Now that many homeowners are in foreclosure, the attorneys they’re hiring to defend them are asking the banks to prove they actually own the mortgage they’re foreclosing on. Many can’t, either because it is lost, was fraudulently executed by robo-signers, or just wasn’t done right.
Even if you’re not in foreclosure, this ruling is more than academic for any homeowner, especially those in markets hit hard by foreclosures. Because until the logjam of foreclosures is cleared, house prices can’t begin to recover.
We’ve been following the foreclosure fiasco since it began to unfold last year. This latest blow to the banks will not only adversely affect their bottom lines, it will lengthen the time it takes for our nation’s housing market to return to any sense of normalcy.
For a more detailed article explaining what happened in this case and the repercussions it could have going forward, see this story from CNNMoney.com. And to see some of the extensive coverage we’ve done on the foreclosure fiasco, check out Foreclosure Mess – More Shoes to Drop?