A recent Land Court Decision Affecting Foreclosures in Massachusetts

Guest

Some of the assignments I'm receiving are new FCs. Of those that were invalidated that I'm receiving now, the reforeclosure process was started shortly after Longs initial ruling or 4-5 months ago.

Guest

This is a little off topic, okay a lot, but I found it interesting. There's a shift afoot I'm hearing about. There are cities in the mid-America that have been more than a little abusive towards foreclosing banks. Inner city homes that had 3-4 hundred thousand mortgages are now worth 10,000. The cities are fining the banks, even filing criminal complaints for code violations. Many of which were present for years prior to the FC. It gives the city a large cash influx and the former owner is off the hook with regard to the property fines/complaints. To address this some of the banks are taking the tact of, rather than foreclose, the banks are leaving the property in the former’s name. This has a two-fold effect. The bank avoids all fines and more importantly it’s allowed to show the loan on the books at the original value, provided it sends loan mod letters periodically. Now it’s pretty obvious that can’t go on forever since the property taxes aren’t being paid. Eventually the city takes the property for unpaid property taxes. Once the tax redemption period passes, the city owns the property. At about that same time the lender FORGIVES the loan. Debt forgiveness is taxable income. There’s an exclusion to the tax due for debt forgiveness if it’s forgiveness associated with a short sale. The lender get’s the tax write of, avoids the fines and expenses associated with the property and the former owner get’s a huge IRS bill (3-4 hundred income at 50%), plus any criminal complaints the city elects to pursue. Before you cry about the poor owner consider this; In most of the inner city areas this is happening in it’s generally either an investor that walked away, or an owner occupant that decided to play the system. And the IRS bill is not dischargeable through bankruptcy, so the feds get some hefty revenue. Rumor has it that this tact is being considered more and more in the abusive municipalities that are using the banks for urban renewal and in those cases where the former is considered to be manipulating the system. There were obviously some cases where the former was duped by originators. There are also a number of cases where the owner knew they were going in way over their head and dove in anyway. Who in their right mind buys a $400,000 house on a $50,000 income and expects they can afford it? And who but a fool loans to that party? I’ve been to FCs where the interior looks like a Best Buy showroom. Lax lender’s made the loans often to people that they should have denied. Some owners were victims of the lenders and some owners victimized and often continue to victimize the lenders. The big target right now is the lender. However, I believe the actions of the initial players need to be looked at. The originators, appraisers, real estate agents and often the buyers made this all possible. That’s where the investigative focus should start. End of rant.

Guest

Pretty much as expected. It does seem to appear they're mor focused on the properties that have already conveyed.

Wells Fargo and U.S. Bank will appeal the Massachusetts Land Court decision that stung the lenders earlier this year by invalidating two foreclosures in Springfield because of improperly recorded mortgage assignments.
The initial papers preserving the right to appeal were filed in Appellate Court Oct. 29, according to Lawrence Scofield, a senior real estate attorney at Ablitt Law Offices of Woburn, who represented the lenders in the Land Court case.
Scofield said Ablitt Law Office would not handle the appeal, but would work with an unnamed "downtown law office" that will be retained to argue in Appellate Court. The firm had not been officially retained by press time, so Scofield declined to name the firm before the deal was finalized.
Scofield said the lenders, lawyers, and parties that filed amicus briefs in the Land Court will meet this week to discuss the more substantive details of the appeal.
The disputed decision has raised questions in the mortgage industry regarding potentially thousands of clouded titles, as the practice of back-dating mortgage assignments had been widely used in recent years.
"This is a big deal," Scofield said. "I hope in the worst case situation, the court will recognize the public policy impact this would have, and make this perspective decision and not a retroactive decision, which could really mitigate some of the collateral damage."
Judge Keith Long ruled in Hampden County Land Court March 26 that two foreclosure cases in Springfield - U.S. Bank v. Ibanez and Wells Fargo v. LaRace - were invalid because the foreclosing institutions could not prove they owned the property at the time of the foreclosure auction.
Ablitt Law Offices filed memos in June to have Long vacate his decision. On Oct. 14, Long denied the motion to vacate, stating the issues "are not merely problems with paperwork or a matter of dotting i's and crossing t's," instead saying "they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts Legislature."

Guest

REOMA,

Unilateral forgiveness to stick the borrower with an IRS bill is an interesting strategy which I think will work against unsophisticated borrowers, but not against smart ones or ones with good lawyers.

Simply put, unilateral forgivness of a loan by the lender does not conform to the stated contractual terms of the loan. It is simply a breach of contract by the lender. Furthermore, it can quite likely be shown to have been a breach done with malice, especially when compared with similar results obtainable without violating the contractual terms. For instance, selling the loan or foreclosing/selling the house, and taking a writeoff of the loss.

The lender's remedy for nonpayment is explicitly laid out as the right to foreclose and/or take possession. Forgiveness of the loan, while it sounds like something a borrower would normally accept, need not be accepted by a mortgage borrower any more than by a judgment-proof credit card borrower who turns down a $1 settlement offer for tax reasons.

An explanation from the borrower to the IRS saying that they neither requested nor accepted "loan forgiveness" ought to clarify that within the terms of the enforceable contract between the lender and borrower, the lender's action is not forgiveness, but merely a business decision to stop collection action on a bad debt which is still in force.

Think of the implications if this were not true. Say I take out a $4,000,000 mortgage, and make my first $20,000 payment on time in November. Does the bank at that point have the right to unilaterally "forgive" the remaining $3.995 million balance, unjustly creating an ungodly multi-million dollar tax bill for me that year, rather than just one more $20,000 mortgage payment? I say no, that was not within the scope of rights I granted them when I signed the contract to either pay the mortgage payments or be foreclosed upon.

And I don't see that the fact that someone has a smaller loan or is behind on their payments creates a unilateral right to forgive rather than foreclose. Only if I agree to let them.

Am I missing something here?

IndyMaxed

Guest

I am hopeful that people have had a chance to recover....albeit we will see the impact for years to come if this decision holds.

I have been told that some Title Insurance Companies are awaiting the appeals period, which I believe runs around the 16th.

I would venture to say that if the actual appeal is filed, the Title ins Co. will wait to hear a decision (all the while, probably not writing very many policies). If no appeal is filed (which is highly unlikely) then I hear they will at that time, try to determine how to move forward or backwards...as Long made it go!

We were at the finish line on the short sale on the second home and suddenly the bank asked the seller to sign a $15k prom note and his PMI would cover the majority of the remainder. He refused, said he would rather get foreclosed....he has no attorney to explain! We finagled the numbers to make it work so that the $15K note was covered....ie we are paying more, RE agents taking less.....and the bank refused, they "really want the selller to participate..."

This has turned personal I guess, it is no longer about a business anymore, not about numbers, but about punishing people. Here we are in a stale market, we covered the entire amount they wanted and they want to "teach a lesson" NOW is not the time, at all......this house has been vacant for 2 years.....and to top it all off, we just found out the house is scheduled for auction on the 27th.........

First we complain, these banks have no feelings, now they want to have feelings...they shouldnt have given this SINGLE PERSON a loan for $475K....thats the bottom line, now lets move forward....

UGH, if its not one thing holding the market up, its another!

Guest

Most of the banks I work with started the reforeclosure process with the initial ruling. As such I've seen a huge jump in the number of properties coming through. And they have clean titles. I'm one of those that called the folks that had waited patiently and put these right back under contract. Eventually this will all shake out, but it may take a while.

Guest

Our dreamhouse is now going through the re-foreclosure process. An auction date is to be published next week. We plan on going to the auction. However we also heard the original owner will also be attending the auction. I have no idea how they have the opportunity to do that! Regardless, my husband and I will see it through to the end. Does anyone know if there are any risks involved in purchasing at auction rather than through REO? Please advise. I heard something about potentially not haveing any title insurane???

Guest

gmorin, you need to have all your ducks in a row BEFORE the auction. Make sure your lending is all set, do all your due dilligence, etc. Typically at an auction once you buy it you have a short window to get everything all set. Since you know the details well, I'd say just double check everything and you should be ok.

Guest

Wow-I wish I found this blog sooner!

My fiance and I have been involved in this whole mess from the beginning as well. We are first time home buyers and it has been a nightmare.

After making 3 offers and losing out in multiple bid situations, we made an offer on a foreclosed home. The offer was accepted and two days after we received word that it needed to be re-foreclosed upon because of the ruling. Needless to say, we were devastated. The type of home we can afford without it being a foreclosed property is drastically different than the "dream home" we found.

We watched the property closely and it went through the foreclosure process again. We attended the auction (GMorin- be warned, the bank in our case wanted $30,000 above the previously accepted offer at the auction. We only know because we were there with 12-15 contractors and were the only "general public" participants. The representative from the bank/law firm was kind enough to give us a quick glance at the price the bank would sell the house via auction for. He must have seen the tears of frustration in my eyes! The contractors are only there to get a really good deal. In our case, they had never been inside, they had no idea if it was still occupied and therefore were unwilling to go as high as we knew the property was worth. Don't them them scare you off!)

The property finally came back on the market officially in late July. The agent representing the bank contacted our agent and we put together the same deal we had previously. Once again, the offer was accepted. This time we signed a P&S and gave our notice to our landlord. We received a note from our agent (poor guy feels really bad for us) :"The bank is once again saying that they have title issues, and that they have to pull the property from the market. I spoke at length with the listing broker about this. He doesn’t know much, other than the procedures to file the foreclosure deal weren’t done correctly once again. This means that they will have to go thru the foreclosure process again. If you are wondering if this is ridiculous, yes it is absolutely ridiculous. "

We were devastated again. That was in early August. We haven't been able to bring ourselves to look at other properties.

We got a call last Thursday saying that the bank is ready to sell again and wants to give us the opportunity first. We are moving forward, but first with a title search. We are worried- is a clean title enough?

Guest

I too wish I'd found this forum earlier. Seems like most of the posts are about people who are trying to buy foreclosures. My wife and I unfortunately bought a property out of foreclosure in 2008 that may be affected by this judge's ruling. Does anyone know where affected current property owners are gathering or discussing their circumstances and options? Thanks.

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