This ruling on this case has the potential to be a very significant decision. In Ibanez, the Massachusetts Supreme Court held that two banks did not have clear title to property that they acquired in a non-judicial foreclosure where those banks obtained mortgage assignments after the Sheriffs sale. The Ibanez case is obviously good for homeowners, but it is only the tip of the iceberg.
The Ibanez Court is good for homeowners because it holds that banks who allege that they hold securitized mortgages must dot their i’s and cross their t’s in the non-judicial foreclosure process or risk having their foreclosure voided. If they don’t, they cannot establish clear title to the foreclosed property and will be stuck with an unsalable property. Although the core of the Ibanez decision relates to the timing of a mortgage assignment in relation to the Sheriff’s sale (the sheriff’s foreclosure sales were invalid because assignments occurred after the sale), the facts recited in the case show very clearly the banks’ soft underbelly—lack of clear, clean legal title to both the note and the mortgage.
The banks in Ibanez tried to show the Court that they “owned” the mortgages prior to the Sheriff’s sale by admitting pooling and servicing agreement schedules. The Ibanez court found that these documents did not provide evidence of an assignment prior to the sale. Lost in the Court’s decision is the basic premise—where is the actual, physical note (original or copy)? and how do these plaintiffs (both PSA SPE trustees—see Foreclosure Fraud tab on this website for explanation) claim legal title to the note?
The Ibanez decision therefore dances around some very problematic facts presented by the Plaintiffs. The Plaintiffs (allegedly SPE trustees holding notes and mortgages in safekeeping) did not present the original notes or even copies of the original notes properly endorsed to the Plaintiffs. The Plaintiffs instead presented computer printouts of cash flows paid through REMICs to unsecured MBS certificate holders. An unsecured stream of payments is a “payment intangible,” not a promissory note. The mortgages secured a real, live physical promissory note, not a payment intangible.
Most importantly, in Ibanez, there was no evidence that the Plaintiffs were holders of the original note or the mortgage. There was clearly a “failure of the trust.” Not only could the Ibanez Plaintiffs not show clear legal title to the mortgage, more importantly they could not (and most likely cannot) show clear legal title to the obligation which the mortgage secures, i.e., the promissory note.
Pooling and Servicing agreements nationwide are built on the proposition that the “mortgage follows the note”; that is, the holder of the note (if he is a holder in due course) is also entitled to enforce the mortgage. All of the robosiging and antedating of mortgage assignments is really just an illustration of banks operating under this principle. Banks scramble (and often lie) to connect the mortgage (often in the name of MERS or a defunct entity) to the current alleged owner of the “note.” The Ibanez court (perhaps incorrectly) rejected the “mortgage follows the note” principle. If the mortgage does follow the note, it meets the same fate—it goes through a confetti machine called a pooling and servicing agreement where it (like the note) gets transformed into a little piece of unsecured paper called a “mortgage backed security.”