As you may be aware, the Land Court issued two recent decisions that call into question the validity of several titles coming out of foreclosure.
The result of these two decisions is that titles based on foreclosures by an Assignee lender are potentially fatal unless the Assignment in question was executed and held by the foreclosing lender prior to the commencement of foreclosure under M.G.L. c. 244, §14. Foreclosures based on Assignments that were dated after the foreclosure sale were deemed invalid even if the Assignments were "backdated" (i.e., contained an "effective date") prior to the first c. 244, §14 notices.
Accordingly, subject to certain exceptions discussed later in this Bulletin, until further developments in these cases and the law upon which these cases were decided, Stewart Title Guaranty Company is suspending authorization to insure titles derived from foreclosures where the recorded Assignment into the foreclosing Lender is not dated prior to the date of the first publication under c. 244, §14.
The Land Court Decisions
The first decision was issued by Judge Long on March 26, 2009, in the consolidated cases of U.S. Bank National Association, as Trustee v. Ibanez (Misc. Case No.384283 KCL), LaSalle Bank National Association, as Trustee v. Rosario (Misc. Case No. 386018 KCL) and Wells Fargo Bank, N.A., as Trustee v. Larace (Misc. Case No. 386755 KCL), 2009 WL 795201 (hereinafter referred to collectively as "the U.S. Bank case" and individually as "Ibanez," "Rosario" and "Larace").
The second decision was issued by Judge Scheier on March 30, 2009, in the case of Federal National Mortgage Association v. Alas (Misc. Case No. 384854 KFS) ("the FNMA case").
The US Bank decision
In the US Bank case, Judge Long reviewed the foreclosures in each of the consolidated cases with respect to (1) the common issue of whether publishing c. 244, §14 notices in the Boston Globe rather than the Springfield Republican satisfied the requirement of publishing in a "newspaper with general circulation in the town where the land lies" and (2) whether the notices and the foreclosures based thereon were valid under c. 244, §14 where all of the assignments to the foreclosing lenders were recorded after the foreclosure sale but where, in Ibanez, the assignment was dated 14 months after the sale; in Rosario , the Assignment was dated prior to the publications and "in hand and ready for recording at the time of the auction sale" but not recorded until over a year after the sale; and in Larace, the Assignment was executed 10 months after the sale but contained an "effective date" about 2 months prior to the first publication.
While Judge Long found that the publications in the Boston Globe were "good enough to meet the statutory test at the times in question" (i.e., June of 2007), he cautioned that "[t]he drop-off in the Globe's circulation in Springfield between October 24, 2006 and October 23, 2007 . . . suggests that foreclosure notices published subsequent to October 2007 may need to be assessed on a case-by-case basis."
Based on a lengthy analysis, Judge Long ultimately ruled that:
1. The foreclosure in the Rosario case was valid because LaSalle Bank had the Assignment prior to the c. 244, § 14 publications and the foreclosure sale (even though recorded over a year after the sale), was "in fact" the holder of the mortgage at that time and "could have produced proof of that status . . . if asked;"
2. The foreclosure in Ibanez was invalid because the Assignment was both dated and recorded after the sale and the notices, therefore, "failed to name the mortgage holder as required by G.L. c. 244, §14;" and
3. Notwithstanding REBA Title Standard 58, par. 3, the foreclosure in Larace was also deemed invalid because the Assignment was dated after the foreclosure sale despite its recitation of an "effective date" 2 months prior to the first publication.
The FNMA case
In the FNMA case, a so-called "fast-track foreclosure" was in issue. In this case, the foreclosure sale took place prior to when the Servicemember's Civil Relief Act ("SCRA") Judgment was entered by the Land Court and the plaintiff sought a declaratory judgment that this did not result in a title defect.
In this case, Judge Scheier found that FNMA was not entitled to relief because the foreclosing party, HSBC, was not the holder of the Mortgage at the time of the foreclosure sale. In this case, MERS, the original Mortgagee, did not assign the Mortgage to HSBC until over a year from the sale. Although the Assignment had an "effective date" of almost 4 months prior to the sale, Judge Scheier determined that "HSBC held the foreclosure sale before it had received any interest in the MERS mortgage" and, therefore, "the foreclosure sale is a nullity..."
Judge Scheier provided FNMA an opportunity to file further pleadings in the case by April 15th. In the US Bank case, Judge Long did not provide the plaintiff banks such an opportunity. As a result of that failure, US Bank and Wells Fargo filed Motions to Vacate, which were heard on Friday, April 17, 2009. While not ruling on the motions, Judge Long re-opened the case for purposes of providing US Bank and Wells Fargo the opportunity to submit, within 30 days, additional evidence on the issue of their status as holder of the mortgage at the time of commencement of the foreclosure.
Stewart Title's Position
As a result of these cases, Stewart Title is suspending authorization to insure titles coming out of foreclosures where the foreclosing lender did not record or does not have for recording an Assignment dated prior to the first publication under G.L. c. 244, §14, except in the following limited circumstances to be reviewed on a case-by-case basis by its Legal Underwriting Department:
1. Property has been sold out of the foreclosing lender and the current owner is insured under a Stewart Title Guaranty Company Owner's Policy OR an insured Lender under a Stewart Title Loan Policy is foreclosing on the affected property, and, the respective Policy contains no exceptions for the issues raised by these cases;
2. Property is insured by another underwriter and Stewart Title is provided a satisfactory hold harmless and indemnity; or
3. Title is held by an Owner who is refinancing with a Lender which is currently insured under a Stewart Title Loan Policy seeking title insurance with Stewart Title.
Upon further developments in either of these cases, we will keep you informed of any change in our current position.
If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.
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