SJC puts foreclosure sales in doubt
The state’s highest court added further turmoil to the housing market yesterday when it ruled that buyers of some foreclosed homes may not be the legal owners of those properties.
The decision leaves in limbo hundreds, if not thousands, of people who bought homes seized by lenders under questionable circumstances. They are left with no easy recourse; among their options are to sue the lender behind the botched foreclosure or “reforeclose’’ on the prior owner.
“It leaves us nowhere,’’ said Edward M. Bloom, president of the Real Estate Bar Association for Massachusetts. “The residential housing market is never going to stabilize and grow until all of these properties that are in foreclosure are organized and cleaned out.’’
This is the second ruling in less than a year in which the Massachusetts Supreme Judicial Court has tried to sort out the mess created by the rapid-fire foreclosure of thousands of properties after the housing market’s collapse. During that time, some lenders seized and then resold homes before establishing a clear record of ownership. Last winter, the high court upheld a contentious ruling from the Massachusetts Land Court that challenged how banks had traditionally seized properties without having all the necessary paperwork.
In that case the high court overturned foreclosures of two properties in Springfield by U.S. Bancorp and Wells Fargo after the banks could not prove they owned the mortgages they foreclosed on.
Yesterday’s decision was a follow-up to that ruling. The case was brought by developer Francis J. Bevilacqua, who in 2006 bought a building in Haverhill from a trust for which U.S. Bank National Association, a unit of U.S. Bancorp, is trustee. Earlier in 2006 the trust had prematurely seized the property from the prior owner, acting about one month before the mortgage lender appointed it to do so.
With that cloud hanging over the foreclosure, Bevilacqua sought to clear any doubt that he was the legal owner by bringing a case against the former holder of the property. The high court ruled the earlier improper transfer of the property left him with no standing as an owner.
U.S. Bank had no comment, noting that, as trustee, it was not a party to the case.
The court’s decision could have major repercussions because it raises the specter that anyone else who purchased foreclosed homes with questionable paperwork may not actually own those properties. The court did not address who does own the Haverhill property, if not Bevilacqua.
“If a bank unlawfully forecloses on a home, its resulting foreclosure deed is void and it can’t sell that home,’’ said Max Weinstein, an attorney and instructor on predatory lending issues at Harvard Law School’s WilmerHale Legal Services Center. Weinstein, who filed a friend-of-the-court brief on behalf of the man whose foreclosed home was bought by Bevilacqua, said yesterday’s ruling extends the court’s protections for homeowners who were forced from their homes under questionable circumstances.
“Fundamentally, this decision is about holding the banks accountable for unlawful foreclosures,’’ Weinstein said. “It should be the banks who pay for their unlawful conduct, not the original homeowners.’’
Attorney General Martha Coakley, who acts as an advocate for consumers and also filed a friend-of-the court brief in Bevilacqua’s case, appeared to agree.
“In the rush to foreclose, the banks’ reckless origination and foreclosure practices have created a domino effect that has harmed Massachusetts homeowners as well as third-party purchasers who purchased properties after foreclosure,’’ Coakley said in a statement. “This is yet another clear demonstration that the only way we are going to restore a healthy economy is to address the foreclosure crisis and hold the banks accountable for their actions.’’
Already the court’s ruling implicates others beyond Bevilacqua, as he subsequently built and sold four condos on the property, so that it would appear the buyers of those condos likely do not own their homes.
Bevilacqua’s attorney, Jeffrey Loeb, said he and his client haven’t decided what their next step will be. Loeb said, however, he took some solace from a portion of the SJC’s ruling that appears to provide his client with a “road map’’ to try to reforeclose on the property. “It’s going to be a longer and more expensive process for third-party buyers, but there’s a method out there to cure the problem,’’ Loeb said. “It’s not necessarily the fix that my client and I were hoping for. But it is a fix, which is - bottom line - what everybody needed.’’
Some in the Massachusetts real estate community had been hoping the court would use the Bevilacqua case to answer questions raised by its earlier decision, known as the Ibanez case - specifically what the third-party buyers of these tainted properties can do to clarify their ownership.
“Ibanez created a lot of problems,’’ said Bloom, the Real Estate Bar Association president. “The hope was that the court might solve the title problems created by Ibanez for people who bought at foreclosure sales,’’ he said, but “the Bevilacqua case leaves all those people in limbo.’’