Massachusetts Court Hears Pivotal Mortgage-Transfer Case | Bedford NY Foreclosure News

A Massachusetts man should be allowed to keep property he bought from U.S. Bancorp even though the bank didn’t have the right to foreclose on the previous owner, a lawyer argued before the state’s highest court.

The Massachusetts Supreme Judicial Court heard oral arguments today in the appeal of a lower-court decision that said the buyer of residential property in Haverhill, Massachusetts, never owned it because U.S. Bancorp foreclosed before it got the mortgage. If that decision is upheld it could have wide implications in the foreclosure crisis in which banks are accused of clouding home titles through sloppy transferring of mortgages. The high court will rule at a later date.

The lower court’s “statement that my client received nothing is what we disagree with,” Jeffrey Loeb, a lawyer for so-called third-party buyer Francis J. Bevilacqua III told the panel today.

The state high court already ruled Jan. 7 in a different case, U.S. Bank v. Ibanez, that banks can’t foreclose on a house if they don’t own the mortgage. That case didn’t address the status of those who buy property from someone after an invalid foreclosure.

“If the decision is upheld, and generally applied, it likely will have adverse implications for hundreds or even thousands of Massachusetts property owners if they find themselves in Bevilacqua’s shoes,” the Mortgage Bankers Association wrote in a friend-of-the-court brief.

Bundled Mortgages

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse.

Bevilacqua’s case could affect trusts that bundled mortgages and sold securities to investors. Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new homebuyers who may hesitate to complete a purchase for fear of uncertain title. That may be especially so in states such as Massachusetts that don’t require court action to seize a house.

“The Massachusetts case will have significant repercussions in many states that allow nonjudicial foreclosure,” Alan White, a law professor at Valparaiso University in Indiana, said in an April 27 e-mail. “The decision in Bevilacqua will not only determine the fate of past foreclosure sale deeds, but hopefully provide guidance so that lenders and their lawyers can get it right going forward.”

Four Condominiums

The Ibanez and Bevilacqua cases both originated before Massachusetts Land Court Judge Keith C. Long in Boston.

Bevilacqua went to Long’s court to force the original owner to say whether he had a claim on the property. A city assessment website lists four condominiums at the location with four separate owners and a total value of $600,300.

In August, Long ruled that Bevilacqua wasn’t the property’s owner and didn’t have standing to inquire about claims. U.S. Bancorp, which oversees the mortgage-backed trust containing the loan, conducted an invalid foreclosure because it didn’t properly own the mortgage when it sold the property to Bevilacqua in 2006, Long said. The mortgage was assigned to it after the foreclosure sale by Merscorp Inc.’s Mortgage Electronic Registration Systems, a national database of mortgages.

All Bevilacqua had was a deed from an invalid foreclosure sale, the judge said.

‘Try-Title’ Statute

The servicer of the mortgage-backed trust the loan was in would have handled the foreclosure and sale, not U.S. Bancorp, Teri Charest, a spokeswoman for the Minneapolis-based bank, said in January. U.S. Bancorp isn’t a party to the Bevilacqua case.

In their appeal brief, Bevilacqua’s lawyers argue that Long confused requirements for the law used to prove one’s title to a property with those for the law their client sued under, the so- called try-title statute, through which one party seeks to force another to assert or waive a potential claim on the property.

Loeb, Bevilacqua’s lawyer, at Rich May PC in Boston, told the court today that his client had the right to bring the try- title case because he had “record title” to the property through the deed he got from U.S. Bancorp.

Richard A. Oetheimer, a lawyer at Goodwin Procter LLP in Boston for the mortgage bankers’ group, also argued today that Bevilacqua had record title.

Bevilacqua should have been aware that U.S. Bancorp didn’t have the right to sell the property to him when it did, Max Weinstein, a lawyer with the WilmerHale Legal Services Center of Harvard Law School, told the court.

‘Innocent’ Purchaser

“It matters not that you are the most pure-hearted and innocent of purchasers,” Weinstein said.

“While Mr. Bevilacqua’s situation engenders some sympathy, he lacks standing to bring a try title action,” Massachusetts Assistant Attorney General John M. Stephan told the court.

Justice Robert J. Cordy asked Stephan about the potential of thousands of people buying mortgages after faulty foreclosures that had been transferred many times.

“They are all void and that’s a situation that you’re comfortable with?” Cordy asked.

Stephan said there are other remedies available. A common one the state has seen is the original borrower giving a release to the third-party purchaser. Other possibilities are suing the bank or other party that sold the property after an invalid foreclosure, conducting a second and proper foreclosure against the defaulting homeowner or using a Massachusetts law that grants ownership of a property after possessing it for three years, Stephan said.

“My client wants the property,” Loeb said in response to a question from Justice Ralph D. Gants about the possibility of Bevilacqua canceling his purchase.

The case is Bevilacqua v. Rodriguez, 10880, Supreme Judicial Court of Massachusetts (Boston).

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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