Massachusetts Fraudclosure – No Mortgages in MBS


Ok, I now have the Slip Opinion – it’s gnarly.

We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied. [FN5]

So far this just sounds like a “late assignment” problem.  Unfortunately it’s not – it’s far worse, and in fact it goes directly to what I’ve been talking about now for more than a year.

….. At a hearing on the motions on April 17, 2009, the plaintiffs conceded that each complaint alleged a postnotice, postforeclosure sale assignment of the mortgage at issue, but they now represented to the judge that documents might exist that could show a prenotice, preforeclosure sale assignment of the mortgages. The judge granted the plaintiffs leave to produce such documents, provided they were produced in the form they existed in at the time the foreclosure sale was noticed and conducted. In response, the plaintiffs submitted hundreds of pages of documents to the judge, which they claimed established that the mortgages had been assigned to them before the foreclosures. Many of these documents related to the creation of the securitized mortgage pools in which the Ibanez and LaRace mortgages were purportedly included. [FN9]

The judge denied the plaintiffs’ motions to vacate judgment on October 14, 2009, concluding that the newly submitted documents did not alter the conclusion that the plaintiffs were not the holders of the respective mortgages at the time of foreclosure. We granted the parties’ applications for direct appellate review.

The banks tried to get constructive assignment (e.g. assignment by contract, even though the PSAs said otherwise – that actual assignment and delivery had to take place) recognized by the judge, and failed to produce evidence of actual assignment (because there wasn’t any – the notes were originally endorsed in blank and there was no evidence of actual physical delivery to the trustee.)  The Judge said no.  That’s what I was talking about earlier in this case – this has been the pattern and practice in these securitized loans, and the ASF and others in the industry have argued that despite language in the PSAs that required physical delivery they didn’t have actually perform in that fashion to have a factually and legally-good transfer.

Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage–Structured Asset Securities Corporation–ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale. [FN19] Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.


Heh BAC, WFC and others: Dinner is served….


And for the market: “Here it comes…..” 


PS: Cramer gave 10 reasons to buy Bank of America (BAC) – gee, I wonder if one of them was that they were a potential zero if all these securitizations that Countrywide did could be unwound as a consequence of this decision? smiley


The Massachusetts Supreme Court just dealt a negative ruling to the banks in the closely-followed Ibanez case, which challenged securitization standards. It’s pretty straightforward: The banks didn’t have the proper parwork to foreclose, says the court. Hence, no legitimate foreclosure.

Oh oh.  That’s exactly what I argued at the time. 

If the details look like what this appears to be, the banks are totally fucked on their securitized paper.  This decision is from the State Supreme Court and thus is final within the State, and makes it likely that MBS holders will now sue en-masse for the sale of fraudulently-constituted securities (that is, there are no mortgages in the MBS they were sold!)

Bloomberg is trying to spin this as only governing the fact that the transfers happened late.  Nope – the problem is that they can’t happen now into the trusts at all due to the REMIC regulations and the fact that certifications were filed by the Trustees that appear to be facially false.  I’m sure the banks will try to put a happy face on this, but coming from a State Supreme Court this judgment will be cited as (albeit not as binding precedent) in other states with similar recording requirements and in addition will be cited by private actions in an attempt to unwind MBS and force them back on the banks.

More updates as I get them. 

— Original Post

No content yet, but the headline off the wire says the banks lost.

Waiting for more detail and will update this Ticker.  If you remember, a couple of days ago I wrote on this, and said the banks were absolutely f*cked if this one went the wrong way.

It appears it has.

Discussion (registration required to post)