Headlines following the recent Massachusetts Supreme Court ruling against U.S. Bancorp (USB)
and Wells Fargo (WFC)
, point to a industry-shaking decision, but mortgage-backed securities analysts at Amherst Securities
are not buying it.
The Supreme court upheld a lower court's decision that the two banks did not hold the correct title to the property to empower foreclosure proceedings.
The cases were at one time combined with another similar case against LaSalle Bank
, but a lower court judge ruled in favor of LaSalle back in October 2007.
Massachusetts is not a judicial state, yet the law is clear: Banks must show title ownership before beginning foreclosure proceedings. U.S. Bancorp and Well Fargo failed to do so, despite having the right to foreclose, the lower court found.
In a note Monday to clients, Amherst analysts affirm one of the comments made by Supreme Court Robert Cordy in the ruling. "What is surprising about these cases is not the statement of principles articulated by the court … but rather the utter carelessness with which the plaintiff banks documented the title to their assets."
Indeed, a review of court records show both banks offering incomplete information as evidence.
But Amherst says the situation is not dissimilar to the procedural issues surrounding the robo-signing debacle, when foreclosure documents allegedly moved forward without proper review.
"Procedural violations in the foreclosure process appears to be a nonissue that just refuses to die," the analysts write.
They conclude ultimately that the impact overall will be muted, though add that if the mortgages would have been placed in the Mortgage Electronic Registration Systems
database, this may not have happened. MERS tracks mortgage ownership in around 60% of all residential U.S. loans. MERS declined comment.
So while the decision is likely to invite more lawsuits, Amherst said that a clear positive to U.S. Bancorp and Wells Fargo is that the banks can still clean up their records and re-foreclose on the properties.
"The lender should be able to restart and complete the action now, subject to the normal legal delays," they write.
Write to Jacob Gaffney