Foreclosures Rely on Lenders Having Clear Title

We've been hearing about this for well over a year now as many homeowners across the country threatened with foreclosure are challenging lenders to produce proof of clear title to their properties.

Here in Massachusetts, the question is being raised again as the Massachusetts Supreme Judicial Court rules invalidating foreclosures on two properties in Western Mass. Here is the article that appeared Boston.com:

SJC ruling may void thousands of foreclosures
January 7, 2011
By Jenifer B. McKim, Globe Staff

The Massachusetts Supreme Judicial Court today upheld a contentious land court ruling that puts in question the ownership of hundreds, possibly thousands, of foreclosed properties in the state.

The ruling challenges the way lenders have traditionally foreclosed on properties -- without having all the paperwork in place at the time a home is seized. It affirms a 2009 lower court decision that invalidated foreclosures on two Springfield homes because the lenders did not hold clear titles to the properties.

Cambridge attorney Paul Collier, who represented one of the homeowners in the case, said the supreme court ruling invalidates thousands of foreclosures, reverting ownership back to the homeowners who lost the homes, at least temporarily. In most cases, those property takings will have to be redone, further clogging an already bogged down foreclosure process that many real estate specialists say has contributed to the stagnant housing market.

"The banks and the investors are going to have to deal with those homeowners as to what happens to those properties," Collier said.

During the housing boom, millions of mortgages were packaged into bonds and sold to investors, a process that resulted in lengthy and tangled paper trails that can obscure ownership. Many lenders believed they could complete foreclosure transactions and later produce formal proof they held a mortgage. Today's ruling makes it clear that the practice will not be allowed in Massachusetts.

"We agree with the [land court] 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,'' the justices said in their opinion.

The decision will also have national implications at a time when lenders' foreclosure practices are being scrutinized by federal regulators and state attorneys general.