Adam Levitin | Ibanez and Securitization Fail

Ibanez and Securitization Fail

posted by Adam Levitin

The Ibanez foreclosure decision by the Massachusetts Supreme Judicial Court has gotten a lot of attention since it came down on Friday. The case is, not surprisingly being taken to heart by both bulls and bears. While I don’t think Ibanez is a death blow to the securitization industry, at the very least it should make investors question the party line that’s been coming out of the American Securitization Forum. At the very least it shows that the ASF’s claims in its White Paper and Congressional testimony are wrong on some points, as I’ve argued elsewhere, including on this blog. I would argue that at the very least, Ibanez shows that there is previously undisclosed material risk in all private-label MBS.

The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.

There’s broad agreement that absent such a chain of title, they don’t have the right to foreclose–they’d have as much standing as I do relative to the homeowners. The trusts claimed three alternative bases for chain of title:

(1) that the mortgages were transferred via the pooling and servicing agreement (PSA)–basically a contract of sale of the mortgages

(2) that the mortgages were transferred via assignments in blank.

(3) that the mortgages follow the note and transferred via the transfers of the notes.

The Supreme Judicial Court (SJC) held that arguments #2 and #3 simply don’t work in Massachusetts. The reasoning here was heavily derived from Massachusetts being a title theory state, but I think a court in a lien theory state could easily reach the same result. It’s hard to predict if other states will adopt the SJC’s reasoning, but it is a unanimous verdict (with an even sharper concurrence) by one of the most highly regarded state courts in the country.  The opinion is quite lucid and persuasive, particularly the point that if the wrong plaintiff is named is the foreclosure notice, the homeowner hasn’t received proper notice of the foreclosure.

Regarding #1, the SJC held that a PSA might suffice as a valid assignment of the mortgages, if the PSA is executed and contains a schedule that sufficiently identifies the mortgage in question, and if there is proof that the assignor in the PSA itself held the mortgage. (This last point is nothing more than the old rule of nemo dat–you can’t give what you don’t have. It shows that there has to be a complete chain of title going back to origination.)

On the facts, both mortgages in Ibanez failed these requirements. In one case, the PSA couldn’t even be located(!) and in the other, there was a non-executed copy and the purported loan schedule (not the actual schedule–see Marie McDonnell’s amicus brief to the SJC) didn’t sufficiently identify the loan. Moreover, there was no proof that the mortgage chain of title even got to the depositor (the assignor), without which the PSA is meaningless:

Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation [the depositor] — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale.

So Ibanez means that to foreclosure in Massachusetts, a securitization trust needs to prove:

Check out the rest here…

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4closureFraud.org

Comments
3 Responses to “Adam Levitin | Ibanez and Securitization Fail”
  1. l vent says:

    I found an interesting article on cltv.com entitled: More Banks Walking Away From Homes, Adding to Housing Crisis at: cltv.com/news/ct-biz-0113-walkaway–20110113,0,1284057.story

  2. DanJS says:

    Foreclosure Time! — Who’s Got the Ball… Not me – Check the Playback! Start Over – Replay! Whaddyamean? The Games Over!…. Replay the Game! Please!!!

    http://www.cnbc.com/id/40999895/page/2/

  3. It is necessary to understand what Ibanez says and what it does not say. The recent slip opinion of the Massachusetts Supreme Judicial Court in US Bank National as Trustee v. Ibanez, No DSJC 10694 (Sup.Jud.Ct.MA 2011) affirming the decision that the plaintiff which foreclosed the two properties involved did not have clear title because plaintiff was unable to demonstrate it was the holder of the mortgage at the time of foreclosure. Massachusetts is a title theory state and if the mortgage confers the power of sale upon the mortgagee, the mortgagee can exercise the power of sale in the event of default without the intervention of a court. The transfer of the mortgage is a conveyance of an interest in land which must be in writing and signed by the mortgagee of record.
    “Like the sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G.L.c. 183, Section 3; Saint Patrick’s Religious, Educ. & Charitable Ass’n v. Hale, 227 Mass 175,177 (1917).” Id at
    This language would seem to prohibit transfer of a mortgage by a mortgagee to a successor in interest by electronic document because such a document is arguably not in writing if“writing” must be written on paper and because the electronic document does not contain the wet ink signature of the transferor of the mortgage. However, it seems the Court was disturbed by the date of the citation and was cognizant that much had transpired since 1917.

    Accordingly, the Court stated:
    ‘Where a pool of mortgages is assigned to a securitized trust, the executed agreement which assigns the pool of mortgages, with a schedule of pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr.D.Mass.2009). 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. See In re Parrish, 326 B.R. 708, 720 (Bankr.N.D). Ohio 2005). (“If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant.” Emphasis supplied.
    The substitution of the word “evidence” for assignment apparently means that other evidence may be used to demonstrate the requisite ownership of the notes. Such other evidence arguably includes electronic documentation. So long as the purchase agreement from the Depositor to the trustee of the securitized trust specifically includes and identifies the specific mortgage being foreclosed, electronic documents may be used to show the chain by which the Depositor became the holder of the mortgage note.

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