Friday, January 7, 2011

MA Supreme Court Rules in Ibanez Case

Catching everyone off guard is the speed of a MA Supreme Court ruling today.   The court agreed with an MA Land Court ruling.  The issue regards the banks acting as servicer on behalf of the private investor who held a defaulted mortgage.  When a home is purchased there is a note (obligation to pay) and a security interest (mortgage) that allows the owner of the note to foreclose on a home to recoup the outstanding balance of the note.  What's been shown and upheld by the court is that the servicer did not have the authority to foreclose on behalf of the investor because the investor never held the mortgage or note.  The mortgage was assigned to MERS and the note never properly conveyed to the investor.

It's no different than me selling you a car for cash and not signing the title over to you.  I can call the police and say you stole my car and the title is inside.  The police find the car, see the title is in my name (seller) and therefore give me the car back.  What's bigger in this case is not the issue of possibly reversing prior foreclosures but pertains to the investor who bought the note.

The investors own a note (in theory) that is defaulted.  They are taking a hit on their investment.  But now the court just said, the sale was never completed to the investor.  The investor now has grounds to demand the sale be reversed and the bank buy back the security.

More to come for sure but the implications short term and long term are pretty big.  Short term it will continue to slow up the foreclosure process which will continue to reduce bank earnings. Long term, I dare not say to jinx a trade but let's just say it could be massive.  Kind of ironic should this become a major issue that the first shot "fired" is in Massachusetts.

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