The Massachusetts Supreme Court will hear yet another big foreclosure lawsuit in the spring. As detailed in this Bloomberg article, the case is Bevilacqua v. Rodriguez, and the court will seek to determine whether or not those who purchased foreclosed properties that the bank had no standing to foreclose upon are rightful owners of the property. The outcome of the case would have huge implications for foreclosed and distressed property sales, which account for anywhere from 20-50 percent of home sales depending upon the market.
In a different lawsuit, U.S. Bank v. Ibanez, the Massachusetts Supreme Court decreed that banks cannot foreclose on homes that they do not own. This seems like common sense, but frequently when mortgages are securitized and transferred from one party to another, notes get lost or are destroyed, and ownership becomes confused. For more background on the Ibanez case, click here.
The problem is that many houses have been foreclosed upon and resold over the past three years. If it turns out that those homes were wrongfully foreclosed upon, the sale may be invalid. This would pose massive issues for anyone who has purchased a foreclosed property, and would cast doubt over hundreds of thousands of home sales. Glenn Russell, a Massachusetts attorney in the Ibanez case was quoted in the Bloomberg article as saying:
“This ruling, in conjunction with Ibanez, may allow a wrongfully foreclosed-upon borrower to retrieve their property”
The buyer of the foreclosed property would be able to seek recourse against the title insurer and the entity that committed the wrongful foreclosure, but this would likely be costly and time-consuming. Another problem is that this would throw a monkey wrench into the still-recovering housing market. Buyers would likely be very hesitant to purchase a foreclosed property for fear it could be taken from them later. I also imagine that title insurers would be reluctant to insure many foreclosed properties for fear of increased liability.
It will be very interesting to see how this one plays out.
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