U.S. Bank Nat’l Assoc. v. Ibanez: Bank’s Foreclosures Reversed

Massachusetts’s highest court has considered whether a trial court had properly invalidated two foreclosure sales conducted by two large banks.

U.S. Bank National Association (“U.S. Bank”) and Wells Fargo Bank, N.A. (“Wells Fargo”) both acted as trustees for two separate pools of mortgages (collectively, the “Banks”). The Banks had foreclosed on two loans contained in the pools because the loans were in default. U.S. Bank had foreclosed on the mortgage of Antonio Ibanez (“Ibanez”), and the Wells Fargo had foreclosed of the mortgage of Mark and Tammy LaRace (“LaRace”).

Ibanez had received a mortgage of $103,500 in 2005 from Rose Mortgage. The originally loan was immediately assigned to another lender, who assigned the loan with the name assignee left blank shortly thereafter to Lehman Brothers Holdings, Inc., who then assigned it to Structured Asset Securities Corporation, along with 1200 other mortgages. The mortgages were placed into a trust, with U.S. Bank serving as the trustee, and the securitized loan pool was sold to investors.

Similar to the Ibanez loan, the LaRace mortgage was given to lender Option One in 2005 for $103,200. This loan was assigned to another lender in blank, who then assigned it to the Asset Backed Funding Corporation. The loan was then placed into a mortgage pool with Wells Fargo serving as the trustee and the loan pool was sold as securities to investors.

Following the loan securitization process, both loans were in default and so the Banks began the foreclosure process. The Banks first went to court and received judicial confirmation that the Serviceman’s Act did not bar the foreclosure. The Banks identified themselves during these proceedings as the current holders of the mortgages.

Foreclosure sales were then held, with the Banks purchasing the properties at these sales. Massachusetts does not require judicial confirmation of a foreclosure, as the state has a statutory foreclosure process that the Banks attempted to use. Pursuant to the statutory process, the Banks recorded the foreclosure deeds and the foreclosure affidavits. In both cases, the public record did not indicate the chain of assignments for each loan set forth above. Therefore, a year after the foreclosure sales, the Banks received assignments for the loans from the mortgage holders of record found in the public records.

Following those assignments, the Banks filed lawsuits seeking to quiet title in their names. The trial court ruled that the Banks had failed to follow state law during the foreclosure processes and so declared the foreclosure sales invalid. The Banks appealed these rulings.

The Supreme Judicial Court of Massachusetts affirmed the trial court’s ruling. In order for a mortgage holder to use the state’s nonjudicial foreclosure processes, the mortgage holder is required to strictly adhere to the state’s laws. One of the requirements in state law is that the party exercising a nonjudicial foreclosure must be the actual mortgage holder.

In both cases, the Banks had failed to provide documentation demonstrating that they had the power to foreclose. U.S. Bank failed to produce the trust agreement showing that it was trustee for the Ibanez mortgage, while Wells Fargo failed to produce documentation demonstrating that the LaRace mortgage had been specifically assigned to the mortgage pool. Further, both mortgages were not assigned to the Banks by the holders of record until after the foreclosure sales. Based on these procedural deficiencies and failure to comply with the state’s nonjudicial foreclosure process, the court affirmed the trial court’s invalidation of the Bank’s foreclosures.

U.S. Bank Nat’l Assoc. v. Ibanez, 941 N.E.2d 40, (Mass. 2011)

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