Banking and Finance Law
Mortgage securitization, subprime lending, a persistently weak housing market, and an explosion of residential mortgage defaults – today’s homeowners and banks face a new and challenging landscape. Recently, courts in several states have issued decisions that alter the terrain for mortgage foreclosures. In Massachusetts, New Jersey, and New York, among other states, courts have dismissed foreclosure actions on the basis of what might seem to be highly technical deficiencies in the pleading or proof. The most well-known – and controversial – in this cluster of cases is U.S. Bank National Ass’n v. Ibanez, decided by the Supreme Judicial Court of Massachusetts this year. In Ibanez, the court held that two assignee banks failed to obtain legal title to foreclosed properties because they failed to prove that they held valid assignments of the foreclosed mortgages at the moment that the foreclosure proceedings were begun.
The apparent attitude of the courts in these cases can be best summarized by the statement of a New York judge in a comparable context: that courts will not be mere “automatons mindlessly processing paper motions in mortgage foreclosure actions[,] most of which proceed on default.” Rather, in these cases, courts have held banks, other lenders, and securitized trusts to strict proof of what might otherwise seem to be fairly inferred facts and contractual obligations.
Are these decisions best seen as misguided attempts to temporarily save homeowners (and others) from the pain of foreclosure actions – delays that waste judicial and litigants’ time – when we consider that these foreclosures will, in any event, eventually occur? Or are they justified decisions which establish substantive norms that the real conditions of real estate financing in the twenty-first century demand?
In this Issue Brief, we maintain that the 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.
Peter Pitegoff and Laura Underkuffler, "An Evolving Foreclosure Landscape: The Ibanez Case and Beyond," 5 Advance 131-142 (2011)