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Mass. Supreme Court rules against US Bancorp, Wells Fargo in foreclosure case

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[Update 2: Adds comment form Wells Fargo; adds trade group commentary.] In a case that could cause many others to be reviewed, the Massachusetts Supreme Court ruled against U.S. Bancorp (USB) and Wells Fargo (WFC) Friday saying the banks were not the mortgage holders when they foreclosed on two separate homes. The ruling upheld a lower court's ruling after the two banks appealed. "We agree with the 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," Justice Ralph Gants wrote in the court's opinion. "As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied." U.S. Bancorp said the judgment has no financial impact on the firm, and that the bank's role in the case is solely as a trustee, since the mortgage is owned by a securitization trust. "As trustee, U.S. Bancorp has no responsibility for the terms of the underlying mortgage or the procedure by which they were transferred to the trust and has no ownership interest in the underlying mortgages," the bank said. Wells Fargo said it did not own, organize, service or foreclose upon any of the loans at issue with this case, and that it expects the entities who do services these loans to abide by all applicable state laws. The case began as two separate events that took place at the same time. U.S. Bank foreclosed on Antonio Ibanez and purchased his home in a foreclosure sale on July 5, 2007. That same day Wells Fargo foreclosed on Mark and Tammy LaRace and sequentially purchased their home at a sale. In late 2008, both banks filed actions in a lower court to affirm the right, title and interest of the mortgagor in the property were extinguished by the foreclosure — an action "to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto," the slip opinion said. When neither Ibanez or the LaRaces answered the complaint, both banks filed a default judgment against the former homeowners. On March 26, 2009, judgment was entered against U.S. Bank and Wells Fargo. "The judge ruled that the foreclosure sales were invalid because … the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages," the lower court ruled. The judge in the case said the banks acquired the mortgage notes only after the foreclosure sale. That decision was upheld by the Supreme Court ruling. Later Friday, the American Securitization Forum said it agrees with the Supreme Court ruling, which unlike the lower court allows assignment of mortgages in blank, and "is confident securitization transfers are valid and fully enforceable." Tom Deutsch, executive director of the ASF, said the group of more than 330 financial firms is pleased the Massachusetts Supreme Court "validated the use of the conveyance language in the securitization documents as being sufficient to prove transfers of the mortgages under the unique aspects" of the state's mortgage laws. "In this particular case, however, the executed documents with the loan schedules were not introduced in the lower court and so the (Supreme) Court ruled that an otherwise valid confirmatory assignment was not sufficient to prove right to foreclose," Deutsch said. He also said the ruling would have been substantially different had those documents been introduced in the original case. Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.

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