Should Courts Dismiss Foreclosure Actions When the Documentation is Faulty?

Last January, Alan White and I blogged about a Massachusetts Supreme Judicial Court decision nixing a foreclosure because the bank seeking foreclosure could not document title to the property. I also blogged about potential problems for downstream purchasers of foreclosed properties for which the bank could not prove title to the property.

Now, Professors Peter Pitegoff and Laura Underkuffler have written this detailed essay on the issues for the American Constitution Society. Here's ACS's blurb on the essay:

As news reports emerged today that foreclosure rates have surged, ACS releases “An Evolving Foreclosure Landscape: The Ibanez Case and Beyond,” an Issue Brief by Peter Pitegoff, Dean and Professor at the University of Maine School of Law, and Laura Underkuffler, J. DuPratt White Professor of Law at Cornell University Law School. In this paper, the authors address criticism from the mortgage industry of several recent state court decisions invalidating foreclosures. Professors Pitegoff and Underkuffler contend: 

 [T]he decisions in these cases are not extreme examples of judicial hyper-technicality run amok. Rather, they are attempts to address the radically new foreclosure realities in the age of mortgage securitization and subprime lending – realities that existing laws, on many levels, are inadequate to address.

The authors analyze the holdings in several recent cases that dismissed foreclosure actions for failure to provide adequate documentation, including a widely publicized Massachusetts case, U.S. Bank National Ass’n v. Ibanez. While the reasons for dismissal in these cases may appear “highly technical,” Pitegoff and Underkuffler explain, they are nonetheless crucial to ensuring that the burden of proof in foreclosure actions remains on the foreclosing party, that contracts involving housing are treated with a care that matches their societal importance, and that courts are more than just “automatons mindlessly processing paper motions in mortgage foreclosure actions.” “Neither Ibanez, nor any of the other cases discussed here, forbids mortgage securitization, multiple mortgage and note assignments, or other complex real estate financing transactions,” the authors write.  Professors Pitegoff and Underkuffler conclude, “The issue is not the blanket forbidding of complex transactions; it is the protection of all rights, including those of the property owner, when default and foreclosure are claimed.”

Comments

[Mike Gilmore]

Real estate mortgage foreclosure is an event of forfeiture. That's the law. Forfeiture is not favored by the law. Mortgage lenders and downstram securitisers have always known this. They built a securitization model seeking more profit, underbought necessary skill set talent to meet state law requirements, and now whine and moan that they can't get their mortgages to yield outcomes like trades of pork bellies on a commodities exhange. Talking heads from this industry have appeared on CNBC and other venues making the bald assertion that borrowers do not have a right to know who is the owner and holder of the mortgage note and lien on the residence. That is consistent with the rest of the hubris that has brought us to this point.