BOSTON—The state's highest court ruled Tuesday that individuals who purchased foreclosed homes from lenders who seized the property without first obtaining a clear title may not be the legal owners, and may not have access to at least one legal remedy.
The ruling comes in the case of Francis Bevilacqua who purchased a building on Summer Street in Haverhill from U.S. Bank National Association, who had seized the property from the prior owner.
The Massachusetts Supreme Judicial Court found that because U.S. Bank did not hold a valid mortgage at the time it initiated foreclosure proceedings, it failed to acquire title, according to Attorney General Martha Coakley.
As a result, she said, not only did U.S. Bank foreclose without legal authority to do so, but its failure means that it was unable to transfer clear title to Bevilacqua.
Bevilacqua sought to clarify the situation by invoking a statute that is designed to allow the holder of a clouded title to clear that title.
The state Land Court denied Bevilacqua's petition, ruling that anyone seeking to use the statute must have at least a plausible claim to the title. The court ruled that Bevilacqua has no such claim because he acquired a deed following an invalid foreclosure.
The SJC's ruling Tuesday upheld the Land Court's decision.
Bevilacqua's lawyer said that while he was disappointed the court wouldn't allow his client to use the statute, it still lets Bevilacqua to proceed with a foreclose proceeding.
"It allows him to foreclose on the prior owner," said Jeffrey Loeb, Bevilacqua's attorney.
Coakley called the case "one example of a much larger problem."
In their rush to foreclose, she said, banks created "a domino effect that has harmed Massachusetts homeowners as well as third-party purchasers who purchased properties after foreclosure."
It's the second foreclosure-related ruling this year from the state's highest court.
In January, the SJC affirmed a lower court judge's ruling invalidating two mortgage foreclosure sales because the banks, in their capacity as trustees for mortgage securities, did not prove that they actually owned the mortgages at the time of foreclosure.
The decision, which highlighted the failure of financial firms to adhere to the rules that govern mortgage-backed securities, was expected to lead more borrowers to sue bank servicers and trustees for wrongful foreclosures.
It was unclear what that earlier ruling meant for people who were forced from their homes after defaulting on their loans or for those who purchased houses in foreclosure sales.
The banking industry's foreclosure machine came under intense scrutiny last year with revelations that low-level employees called "robo signers" powered through hundreds of foreclosure affidavits a day without verifying a single sentence.
At the time, analysts warned that the banks' allegedly fraudulent document procedures could imperil their ability to prove that they owned the mortgages.