By Dave Krieger
This opinion is based on legal research only and cannot be construed as legal advice!
IT’S HOMEOWNER-PLAINTIFF QUIET TITLE ACTION IN REVERSE
The point being here … if you didn’t learn anything about quieting titles in the book “Clouded Titles”, it would be best suited perhaps to espouse the deeds of U.S. Bank and Wells Fargo as they attempted to do what I call “a quiet title action in reverse”.
At first glance, this case involves procedural and agency relationship errors. For those of you in the Commonwealth of Massachusetts, you’ll note from the slip order issued by the Massachusetts Supreme Court that the actions preceding their ruling were brought “in the Land Court under G.L. c. 240 § 6, which authorizes actions to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto.”
The analysis by the High Court points to the law firms experienced with studying quiet title actions, yet the attorneys missed the boat on proving agency, which is a fundamental element of quiet title actions. Proving standing to foreclose on a mortgage or deed of trust is one thing; proving how you got the note to enforce on the other hand is part of what makes up the chain of title. When those assignments are not recorded, because they happen to be in the MERS system, or simply sold willy-nilly several times over without perfected security interests being recorded in the land records in the county where the property lies, you’ve got a problem. In these cases, the banks created their own problems without them even knowing it.
Both U.S. Bank and Wells Fargo were seeking the same thing … they wanted the lower court to issue a judgment that they were entitled to full right, title and interest of both defendant-homeowners upon which they foreclosed; declaratory judgment on the fact there was no cloud on title arising out of publication of the sale in the Boston Globe, and they wanted declaratory judgment in favor of themselves respectively that title was vested fee simple. The homeowners that are looking into matters quieting title might take note of what the banks were asking for.
The problem was … while the original homeowners had title in fee simple established by virtue of a general warranty deed, the banks had to connect the dots coming in the other way … and they couldn’t do it because they were attempting to prove agency AFTER THEY ALREADY FORECLOSED ON THE PROPERTIES! According to the High Court, the banks foreclosed FIRST. Then after the foreclosures, the lenders attempted to record newly-executed assignments in the Register of Deeds office. The gaps in the chain of title were created by the foreclosure actions themselves, so agency was negated from the point of foreclosure forward up to the point the actions to quiet title were filed.
Both lenders claimed to be the bona fide credit bid purchasers, even though neither had actually proven they had standing to foreclose in the first place! The Land Court invalidated the foreclosure sales, claiming that at the time of publication, the banks didn’t really own the properties! When asked to produce paperwork, the banks came back with securitization-related documents … another bad mistake when trying to tie agency ends together!
THE UNSIGNED LOTTERY TICKET
In Ibanez, the lender (Rose Mortgage) executed a note and mortgage on December 1, 2005. The original mortgage was recorded the following day. Days later, Rose Mortgage executed an assignment of the mortgage in blank (handing the unsigned lottery ticket off to another entity) to Option One Mortgage Corporation as the assignee, who recorded the assignment on June 7, 2006. The odd thing is however, is that on January 23, 2006, Option One executed an assignment in blank and assigned the mortgage to Lehman Brothers Bank FSB; who assigned it to Lehman Brothers Holdings, Inc.; who assigned it to Structured Asset Securities Corporation; who assigned it to U.S. Bank NA as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z. None of this was recorded in the Register of Deeds office
More unfortunately for U.S. Bank, it wore two hats (one as the purported holder and one as the purported purchaser) when it recorded a statutory foreclosure affidavit on May 23, 2008. On September 2, 2008, FIVE MONTHS after the foreclosure affidavit was recorded (which also had a gap of the several intervening assignees, further clouding the chain of title) American Home Mortgage Servicing, Inc. (where’d they come from?) as “successor-in-interest” to Option One, executed a written assignment of that mortgage to U.S. Bank, as trustee, to try to fill in the blanks. This assignment was recorded on September 11, 2008, almost a year-and-a-half AFTER the sale! [HINT: For those of you who are confused as to procedure, the gaps in the chain of title began the moment Option One assigned the note to Lehman Brothers Bank FSB.]
In the LaRace case, Option One set up a loan for Mark and Tammy LaRace on May 19, 2005, who gave a mortgage to Option One as security for the loan. A week later, Option One issued an assignment in blank to Bank of America; who later assigned it to Asset Banked Funding Corporation in a mortgage loan purchase agreement; who then later pooled the LaRace’s mortgage into ABFC 2005-OPT 1 Trust, AFBC Asset-Backed Certificates, Series 2005-OPT 1, with Wells Fargo as the Trustee of this trust. As with U.S. Bank, the Land Court wasn’t provided with any paperwork identifying whether the LaRace loan was actually assigned to Bank of America. [HINT: For those of you looking to identify intervening assignees here, the chain of title was broken when Option One failed to record its assignment to Bank of America in the land records.]
After the foreclosure sale, Wells Fargo did not execute a statutory foreclosure affidavit until May 7, 2008. The Land Court determined that Option One was still the holder of record of that mortgage!
Now … talk about backdating documents (this is fraud by the way because the affidavits don’t add up to the real actions in the case) … Option One executed a backdated mortgage to Wells Fargo as Trustee on May 12, 2008, TEN MONTHS AFTER THE FORECLOSURE SALE! But the assignment was backdated to a date preceding the publication of the notice of sale and actual sale. Thus, when discovered, Wells Fargo couldn’t prove agency either.
A NEW TWIST TO THE HUMPTY DANCE
Since the loans were securitized, no one bothered to record their successive interests in the land records (where the recordation counts). Under the Massachusetts statutes, when Plaintiff banks come in and ask for a declaration of clear title, a judge gets to ask for proof they owned the note at the time they foreclosed. Neither one of them could, so the sales were vacated. All the securitization documents that both banks produced “couldn’t put Humpty back together again!”
It’s like showing up to class without your homework. What do you expect?
In Massachusetts, you show up with a signed lottery ticket (a lawful assignment and convincing evidence of proper conveyances establishing the chain of title) or you don’t get to cash it in! That was the banks’ first mistake. Here they try to prove agency going through a gap in the chain of intervening assignees … both banks conceded that assignments in blank did not constitute lawful assignments of the mortgages. Duh.
The second mistake that came back to bite the banks in the proverbial kiesters is they did not have perfected assignments proving they actually owned the mortgages they were foreclosing on. In the 1912 statute that established the statutory power of sale, power to conduct the sale is reserved to the mortgagee or his executors, administrators, successors or assigns, but not to a party that is the equitable beneficiary of a mortgage held by another. (Wait a minute … doesn’t that sound a bit like a MOM mortgage?)
The third mistake is reinventing your arguments when the first ones don’t work. When you argue a case in the lower court, that argument stays with the case all the way up the appellate ladder. The fact remained that the lenders did not have proper assignments necessary to foreclose, so they lacked the authority to foreclose under statute. Post-foreclosure assignments can’t be backdated to reflect “effective dates”.
I should point out here that Massachusetts Law does give the valid holder of a mortgage assignment the right to foreclose even if it’s unrecorded … but at some point in time, a judge may ask the lender to “own up” to their chain of title, which neither bank could prove. How do you think that will fair when you start comparing chain of title issues like this to a title company? Do you really think the title company will stick its neck out that far, knowing that this case is out and haunting lenders everywhere?
In short, if you don’t have valid assignments at the time you foreclose … you can’t foreclose! Yet, this case gets better …
CONCURRING OPINION … DON’T LET THE DOOR HIT YOU IN THE A** ON THE WAY OUT!
Judges Cordy and Botsford together issued a concurring opinion in this case … interesting to note the following, before I close this mini-dissertation:
• The Plaintiff banks exercised utter carelessness in documenting the titles to their assets!
• There is no question that the respective homeowners were in default on their mortgages!
• Foreclosures in Massachusetts have strict guidelines, which were not followed here!
• You can’t backdate assignments and expect the court to give you what you want!
• Complicated by securitization arguments, the High Court saw through the smoke screen!
Now for the noteworthy part of this opinion … while there were several underlying comments issued as part of this slip order, two things stuck out in my mind …
• The Plaintiffs were seeking quiet title so they could obtain title insurance and needed a declaration by the court (a decree if you will) to quiet title to those properties.
• Massachusetts case law clearly identifies that foreclosure by entry may provide a separate ground for claim of clear title apart from the foreclosure by execution of the power of sale. This means that a mortgage holder who peaceably enters a property and remains for three years after recording a certificate or memorandum of entry forecloses the mortgagor’s right of redemption. [This was never cited by the banks; so the High Court didn’t need to discuss it!]
• It doesn’t matter whether you’re a bank or a homeowner, before filing a quiet title action; the outcome of such a case will depend on who identifies the gaps in the chain of title and who establishes prima facie case evidence first, to make the other side prove a negative.
• Also of last-minute noteworthiness is the fact that I have repeatedly stated that even though you may have studied up a bit on quiet title actions, when you serve up a dose of litigation on the banks seeking what U.S. Bank and Wells Fargo failed to do here, you can pretty much surmise that these lenders will not make the same mistake again; yet they still continue to press forward with robosigned documents and falsified notarizations in an attempt to wrongfully take something they can’t really prove they own, because the chain of title is broken and thus clouded.
THE RIPPLE EFFECT
Just hours after the release of this decision, Plaintiff Gwen Caranchini handed a copy of the slip order of this case to a Jackson County, Missouri Circuit Court Judge, who became very quickly educated. As a result of invalid assignments, trustees now face damage complaints for gross negligence and breach of fiduciary duty, for which the E&O carriers and title companies had better keep both eyes and ears open if they want their pocketbooks to survive what’s to come.