It is presently sunny and beautiful in Bellingham, WA. I’m told this weather is expected to remain through the weekend!

Are you in the process of buying a bank foreclosure or a short sale? Are you in the process of being foreclosed upon? There may be serious defects in the title associated with these types of lender controlled sales and foreclosures.

 I don’t know how to make a complex story short…but somehow in the reassignment of some mortgages (bundled packages of debt sold to investors around the world), if not all mortgages, the deed of trust did not go with the note that was purchased. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of a default. The person holding only the deed of trust will never experience a default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder does not hold the deed of trust.

Check out the ruling of Judge Keith Long of the Massachusetts Land Court on October 14, 2009. He said, “The issues in this case (U.S. Bank v. Ibanez /Judge Keith-Long -) are not merely problems with paperwork or a matter of doting i’s and crossing t’s. Instead they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature.”

He was referring to the industry practice of trading notes endorsed in blank, in direct violation of securities law. He said on that point: “The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitizations entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form.”

Other states have made similar judgments. They include Kansas, California, Nevada, Arkansas and Ohio.*

• If you are a homeowner facing foreclosure, consider Ibanez a gift. You now have a powerful tool to argue for the invalidation of the foreclosure sale.
• If you are contemplating purchasing a property out of foreclosure or are selling a previously foreclosed property, pray that there’s an existing title insurance policy on the property and ask the title company to insure over the issue. (Some are willing to do this, some are not.)
• Or, the expensive option is to hire an attorney to file a Land Court “quiet title” action to validate the proper assignment of the mortgage loan, assuming you can track the documents down and they were not backdated. (In Ibanez, the lender couldn’t produce the assignment until 14 months after the auction.)
• Or, sit, wait and see how the Land Court and appellate courts will rule ultimately.**