Massachusetts Supreme Court Affirms Decision Invalidating Foreclosures by Securitization Trustees Who Failed to Demonstrate Valid Pre-foreclosure Assignments

On January 7, the Supreme Judicial Court of Massachusetts (Supreme Court) affirmed the decision of a lower court invalidating foreclosures by two securitization trustees (Trustees) who failed to demonstrate that they were the mortgage holder pursuant to valid pre-foreclosure assignments. U.S. Bank National Association v. Ibanez, No. SJC-10694 (Mass. Sup. Ct. Jan. 7, 2011) The case arose when the Trustees conducted non-judicial foreclosure sales pursuant to powers of sale contained in the underlying mortgages. The Trustees purchased the underlying properties at those foreclosure sales. Following the foreclosure sales, the Trustees recorded assignments of the relevant mortgages that they obtained after the completion of the foreclosure sales (though one of the assignments recited that it was effective as of a date prior to the sale). They then brought actions in the Massachusetts Land Court (Land Court) seeking a declaration that they held clear title in fee simple to the foreclosed properties. The Land Court ruled against them, finding that neither Trustee had shown by sufficient evidence that it was the holder of the relevant mortgage, thus invalidating the foreclosures. The Supreme Court affirmed the invalidation. The Supreme Court relied on a provision of Massachusetts law that allows the exercise of a statutory power of sale only by "the mortgagee or his executors, administrators, successors or assigns....Any effort to foreclose by a party lacking ‘jurisdiction and authority’ to carry out a foreclosure under these statutes is void." [Citations omitted.] Each of the Trustees was thus required to show that it was--at the time of the foreclosure sale--the holder of the relevant mortgage pursuant to an effective assignment. The Supreme Court noted that "[a] plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title." In addition to affirming the Land Court’s invalidation of the foreclosure sales, the Supreme Court held (i) that assignments do not have to be recorded or in recordable form to be effective, (ii) that assignments in blank "convey nothing and are void", (iii) that the mortgage does not follow the promissory note if not validly assigned (though the mortgage holder then holds the mortgage in trust for the noteholder) and (iv) that confirmatory assignments of earlier valid assignments are acceptable.