Court Ruling Rattles Foreclosure Industry; Massachusetts Judge Says U.S. Bancorp, Wells Fargo Didn't Prove Ownership of Mortgages

Article excerpt

Byline: ROGER BULL

A court ruling Friday in Massachusetts is sending repercussions through the foreclosure industry and driving down bank stocks.

That state's highest court ruled against U.S. Bancorp and Wells Fargo & Co. in affirming a lower court judge's ruling invalidating two mortgage foreclosure sales because the banks did not prove that they actually owned the mortgages at the time of foreclosure.

The judge had said the loans were improperly transferred into two mortgage-backed trusts.

April Charney, a lawyer with Jacksonville Area Legal Aid, who has become a national spokeswoman on foreclosures, said the case will make foreclosure cases easier to defend against.

The question of who actually owns the mortgage has been a key point in foreclosure defense, particularly with so many being packaged into securitized trusts, she and others have maintained.

"That's the focus of the problem," Charney said. "That's the main infection."

"It's not just who owns them," said James Kowalksi, a Jacksonville attorney, "but when and if the ownership was transferred [appropriately], which is more what this court addressed."

The problem, Charney and Kowalksi said, is that the trusts were set in such a way that all the mortgages they were buying had to be acquired in a defined time frame. But they weren't, and that's going to cause problems not just with foreclosures, but with titles for years to come.

"Part of the learning curve is that people thought there was some sort of way for securitized trusts to fix the problem. But it's too late. That ship has done sailed."

Kowalksi, who has been defending foreclosure cases for 10 years, followed the Massachusetts case closely.

"Wells Fargo had every opportunity to walk the judge through all the complicated steps to show ownership," he said. "And they couldn't do it."

In a concurring opinion to the Massachusetts case, Justice Robert J. Cordy said he was struck by "the utter carelessness with which the plaintiff banks documented the titles to their assets."

"There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure," Cordy wrote. "But that is not the point. Foreclosure is a powerful act with significant consequences, and Massachusetts law has always required that it proceed strictly in accord with the statutes that govern it."

Although the ruling has no immediate impact on Florida courts, both Charney and Kowalksi said that the issues with trusts are the same everywhere. …