Recent Land Court Decision Invalidates Foreclosures
Beveridge & Diamond, P.C. - Massachusetts Environmental, Land Use, & Real Estate Alert, 2009
In a decision issued relative to three cases before the Land Court on similar issues, Judge Long invalidated two out of three foreclosures and questioned Massachusetts Real Estate Bar Association (“REBA”) Title Standard No. 58. The three cases[1] were brought to remove a cloud on the title of three separate properties located in Springfield, Massachusetts. The issue that raises the most concern in the case is whether a notice that named the plaintiffs as the foreclosing parties even though they had no record interest in the properties at the time was sufficient under the statute. One of the plaintiffs held an unrecorded interest at the time of the foreclosure notice. U.S. Bank National Association, Trustee, at p.2.
Addressing this issue, the court invalidated the two foreclosures where the notice did not name the current mortgage holder, but named two entities that did not have any interest in the property at the time of the notice. Both of these entities were later assigned an interest in the property many months after the foreclosure sales had taken place. Id. at p.17. The court distinguished and upheld the foreclosure where the notice named the entity that held an unrecorded interest in the foreclosed property at the time of the notice. The court’s rationale was that this entity was the holder of the mortgage even though the interest was unrecorded. Id.
As a basis for its decision, the court reasoned that the statute governing foreclosures is largely a consumer protection statute that must be strictly complied with. The purpose of publication is to ensure that a sufficient number of likely bidders learn of the sale so that there will be competition resulting in the highest price. Obtaining the highest price is for the benefit of the mortgagor (property owner) who will lose his equity interest in the property and who may have personal liability for the full amount of any deficiency. The statute requires that the notice identify the holder of the mortgage. Failure to do so renders the sale void as a matter of law. Therefore, naming a party other than the current mortgage holder in the foreclosure notice creates a cloud on title that may chill the competitive bidding thereby harming the mortgagor’s interests. Id. at p. 9. The court also held that REBA Title Standard No. 58, relied upon by the plaintiffs, misconstrued prior case law as support for the standard. Id. at p.16.
A motion to vacate the judgment has been filed. This decision could raise serious questions for past foreclosures if applied retroactively. We will keep you informed of further developments in these cases.
For more information, please contact Deborah Eliason at deliason@bdlaw.com.
[1] US Bank National Association, Trustee v. Antonio Ibanez, Mass. Land Court Misc. Case No. 384283 (KCL); Lasalle Bank National Association, Trustee v. Freddy Rossario, Mass. Land Court Misc. Case No. 386018 (KCL); WellsFargo Bank, N.A. Trustee v. Mark A. Larace and Tammy L. Larace, Mass. Land Court Misc. Case No. 386755 (KCL).
