Inquiring minds are gazing upon the state of Massachusetts where standard foreclosure procedures are before the courts front and center:
Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real- estate law governing how mortgages may be transferred.
The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues.
This issue is potentially huge because it is so widespread:
“This is the first time the securitization paradigm is squarely before a high court,” said Marie McDonnell, a mortgage-fraud analyst in Orleans, Massachusetts, who wrote a friend-of-the-court brief in favor of borrowers. The state court, under its practices, is likely to rule by next month.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures. Massachusetts is one of 27 states where court supervision of foreclosures generally isn’t required.
In a nutshell, the problem is whether or not foreclosures are valid when banks didn’t follow the rules:
The Massachusetts homeowners argued that the banks that took their homes didn’t follow their own rules for transferring mortgages into mortgage-backed trusts that issued bonds. The banks and the mortgage-bundling industry counter that the securitization documents themselves assign the mortgages.
If loans weren’t transferred properly, the banks that sponsored such trusts may have to repurchase them, Adam J. Levitin, an associate professor at Georgetown University Law Center in Washington, said in prepared testimony in the U.S. House of Representatives in November.
If the problem is widespread enough, it may cost the banks trillions of dollars and make them insolvent, Levitin said.
This article is reccommended reading.
Filed under: Uncategorized |