Although the popular news media have reported widely on the recent Ibanez foreclosure decision recently handed down by the highest court in Massachusetts, and have characterized it as a significant blow to the securitization industry, securitization market participants, including securitization trustees, should not panic or become too distracted by this news. A careful review of the decision will show that the actual ruling, and its limited impact, is far different from what many in the media might lead you to believe.
On January 7, 2011, the Massachusetts Supreme Judicial Court (the “SJC”) issued its decision in the consolidated cases styled, U.S. Bank National Association, as Trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z v. Ibanez and Wells Fargo Bank, N.A., trustee v. LaRace (Case No. SJC-10694), affirming a prior ruling by the Massachusetts Land Court in a “quiet title” action commenced by two securitization trustee plaintiffs. The SJC ruled that the inability of the plaintiffs to produce sufficient evidence at trial to establish that they were the holders of mortgages being foreclosed upon prior to commencement of the foreclosure process, precluded the court from validating their acquisition of title to the subject properties. Under Massachusetts non-judicial foreclosure procedure, ownership of the mortgage by the foreclosing party must exist at a point in time before the publication of legal notice of sale or the subsequent foreclosure sale itself, and the SJC agreed with the trial court’s determination that the evidence presented by the plaintiffs in this case failed to make the required showing.
The Ibanez decision, however, should be kept in perspective for several reasons. First, in issuing its decision, the SJC applied existing foreclosure law in Massachusetts and did not establish groundbreaking new law with respect to foreclosures or securitization. Second, Ibanez is solely a Massachusetts decision and is not legally binding on courts outside Massachusetts. Third, although the outcome of the case is not favorable to the securitization trusts involved, several points of clarification contained in the decision are generally favorable to the securitization process. In that regard, here are some takeaways from the Ibanez decision:
- Assignment of Mortgages may be Established by Securitization Documents. The SJC decision states that a foreclosing party (including a securitization trustee) can establish that it holds the mortgage by any appropriate document, which may include securitization documents in proper form: “...Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgages that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.” (Page 19 of Ibanez Decision) The court rejected arguments that there must be a separately executed instrument of assignment, or that an assignment in recordable form is required.
- Recordation of Assignment Prior to Foreclosure is Not Required. Although recognizing that “recording is likely the better procedure,” the SJC rejected the argument that recordation of the assignment of mortgage in the official real estate records is necessary prior to commencement of foreclosure in Massachusetts, and ruled that a “confirmatory” assignment can serve to confirm an earlier, valid assignment that occurred through a pre-foreclosure agreement, such as through a securitization sale agreement.
- Multiple Assignments Not Required. The SJC also rejected the argument that execution of separate instruments of assignment must be presented where there are multiple transfers in the chain of ownership. For purposes of Massachusetts foreclosure procedure, the Court stated that “[a] foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage.” (Page 20 of Ibanez Decision)
The Ibanez decision is certainly important and it leaves open several issues that remain to be resolved, including others not addressed in this summary. However, its impact, especially outside of Massachusetts courts addressing issues of Massachusetts foreclosure law, should not be overstated or misunderstood.