January 8, 2011

Massachusetts to Banks: Foreclose This!

After reading about the truly depressing tale of the Foreclosure Express Courtroom (the Rocket Docket) in Florida, here’s some good news provided you aren’t a bank or a bank shareholder.  Thanks to Burbed guest editor DreamT for passing this news item along.

Two Banks Lose in Foreclosure Cases

By ROBBIE WHELAN, ALAN ZIBEL and VICTORIA MCGRANE, The Wall Street Journal

housingThe highest court in Massachusetts ruled against Wells Fargo & Co. and U.S. Bancorp in two foreclosure cases that cast doubt over whether some home loans were properly handled when packaged into securitizations.

Justices in the state’s Supreme Judicial Court upheld a lower court’s decision to void foreclosure sales of two homes in Springfield, because owners of the loans couldn’t prove that the mortgages had been assigned to them. Both loans were assembled into mortgage-backed securities sold to investors.

Photo, above right: A Wells Fargo branch in San Francisco. Shares of the bank fell 2% on the ruling, and other banks saw share-price losses as well.  — Getty Images

Bank stocks fell on worries that Friday’s ruling could make it harder for financial firms to foreclose on mortgages that wound up in securities. The defeat also might provide ammunition to mortgage-bond investors who have accused and even sued servicers for what the investors claim is systematically shoddy loan documentation.

….

The Massachusetts case is a closely watched example of what some mortgage experts describe as “show-me-the-paper” cases over widely used procedures for transferring loans after they are made. Individual loans often are sold to an investor, with the new owner’s name left blank in loan documents to minimize paperwork hassles as the loan subsequently changes hands before being combined with other loans into mortgage-backed securities.

These cases only apply to Massachusetts, though.  Banks in California and nonrelevant parts of the country can continue to foreclose on homeowners without proving they actually own the mortgages in question.

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Comments (17) -- Posted by: madhaus @ 5:12 am

17 Responses to “Massachusetts to Banks: Foreclose This!”

  1. nomadic Says:
    January 8th, 2011 at 12:37 pm

    What I’d like to know is what happens to the mortgages in these cases now? These people still owe money. Are they off the hook until the “real” owner comes forward and proves their case? Does it become a forgiven loan?

    (BTW, the last comment on the other thread had no preview for me, but now it’s working.)

  2. DreamT Says:
    January 8th, 2011 at 1:09 pm

    “Thanks to Burbed guest editor DreamT”
    Translation: that chimp was too lazy to post it himself.
    Dont Acte. Can’t refudiate that.

  3. madhaus Says:
    January 8th, 2011 at 1:28 pm

    Testing… testing…

    whoa, preview is working again. On my phone. This is so cool. I’m running the whole site from my Palm Pilot.

    :)

    That’s a joke, everyone. Of course I’m not using a Palm Pilot. I am on a Bell 212A modem.

  4. nomadic Says:
    January 8th, 2011 at 1:48 pm

    Works on the Apple Newton too.

  5. burbed Says:
    January 8th, 2011 at 1:57 pm

    Historical note, I went to the Apple Newton launch in Newton, MA.

  6. madhaus Says:
    January 8th, 2011 at 1:58 pm

    Yeah but I input my post using an ASR 33 paper tape reader. Foreclose THAT!

  7. burbed Says:
    January 8th, 2011 at 2:01 pm

    On a more serious note, Felix Salmon’s take on the MA situation is spot on:

    http://blogs.reuters.com/felix-salmon/2011/01/07/the-ibanez-case-and-housing-market-catastrophe-risk/

    He’s a great investigative writer.

  8. madhaus Says:
    January 8th, 2011 at 2:01 pm

    The Palm Pilot reference.

  9. madhaus Says:
    January 8th, 2011 at 2:04 pm

    Great find, burbed.

    Essentially, these homeowners bought their homes, defaulted on their mortgages, and then — after a long legal struggle — get to stay in their homes. It’s unclear whether they still owe money to any lender, and Massachusetts is a recourse state, which means that the bank could try to go after them personally, as it might had it lent them money on an unsecured basis. But in reality, if a bank does not have the ability to foreclose and the borrower is genuinely distressed and in default, there’s no point pursuing them for the balance of the loan.
    …
    If a similar decision comes down in California, which is a non-recourse state, the resulting chaos could be massive. People who are current on their mortgage and perfectly capable of paying it could simply make the strategic decision to default, if and when they find out or suspect that the chain of title is broken somewhere. They would take a ding to their credit rating, but millions of people will happily accept a lower credit rating if they get a free house as part of the bargain.

  10. madhaus Says:
    January 8th, 2011 at 2:06 pm

    Oooooh! Now is the time to buy, everybody!

    The tail risk here is enormous, and there’s no easy solution to the problem. And this is over and above the problem of putbacks, or legal risk associated with the scandal of banks lying to investors in many mortgage-bond deals. And it’s certainly yet another reason not to buy a house right now. You don’t know if you really have title to what you’re buying, you don’t know whether you’ll be able to sell it if you have to, and there’s a good chance that as a result of all these problems shaking out, home prices could fall dramatically.

  11. waiting_for_the_fall Says:
    January 8th, 2011 at 5:51 pm

    Since there’s now thumbs up and down for likes/dislikes, how many people will automatically dislike all of Realtard’s posts?

  12. Alex Says:
    January 8th, 2011 at 6:16 pm

    *yawn*

    #7, that’s stale.

    http://market-ticker.denninger.net has been discussing these issues ad nauseum for several years.

  13. The Gilroy Alex Says:
    January 8th, 2011 at 6:58 pm

    I could use a good tractor around here, so I think I’m gonna go to court and foreclose on the neighbor’s nice vintage Ford. After all, he’s been making me payments on it for years, and stopped. You don’t believe me? What? You saying I’m a liar? But I SAY SO. The courts will hold it up because I’m too nice to let fail……

  14. burbed Says:
    January 8th, 2011 at 7:13 pm

    I had to suspend the comment voting feature. Memory use on burbed was going out of control

  15. madhaus Says:
    January 8th, 2011 at 7:38 pm

    #14, dang! I wanted to see which sockpuppet got the most LIKEs. My money was on Jason.

  16. The Gilroy Alex Says:
    January 9th, 2011 at 2:04 pm

    I was giving everyone positives, it was fun. I’d have given Excretor a negative if he showed up though!

  17. Alex Says:
    January 9th, 2011 at 2:16 pm

    #14,

    Keep this up and I’ll have to reduce my offer for your website to $1.


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