Massachusetts' highest court on Friday voided foreclosures on two homes because the servicers that tried to take title to the properties failed to show they held the mortgages at the time of foreclosure.
The ruling by the Supreme Judicial Court upheld a lower court ruling against U.S. Bancorp and Wells Fargo & Co., and sent the share price of certain large banks lower while fanning fears that if other states rule the same way the foreclosure and REO market could slow to a crawl.
One investor in nonperforming loans and REO said, "I guess being the owner of a 'bearer bond' or 'assignment in blank' is not good enough for the liberal Massachusetts folks who want to protect all of the non paying borrowers from being out in the cold this winter."
According to figures compiled by National Mortgage News, the largest holders of REOs outside of Fannie Mae and Freddie Mac are: Bank of America, Wells Fargo & Co., and JPMorgan Chase. (See Monday's paper edition for an analysis of the bank foreclosure market.)
But servicers fear the ruling may cause other foreclosure sales to be invalidated, especially where lenders may not have access to all of the underlying documentation.
The ruling has the potential to harm securitizations because it raises the issue of whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a
mortgage follows the promissory note it secures when the mortgage is sold, as the servicing industry has argued.
But some analysts believe the court ruling, in the long term, may mean little as servicers are forced to re-file documents with the court, giving additional proof of lien ownership.
