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 05/05/2009

To: All Agents and Approved Attorneys

Re: Mortgage Assignments and Foreclosure Proceedings

The conveyancing and title insurance communities in Massachusetts have been surprised by recent decisions from the Land Court which discuss the validity of foreclosures conducted by assignees of mortgages.
 
The first decision by Judge Long, dated March 26, 2009, is a consolidation of 3 separate actions: U.S. Bank National Association as trustee v. Ibanez, L.C. Misc. Case 384283; LaSalle Bank National Association, as trustee v. Rosario, L.C. Misc. Case # 386018; and Wells Fargo Bank, N.A., as trustee v. Larace, L.C. Misc. Case # 386755.
 
The Court considered 3 different assignments of mortgages, dated and executed at different times relative to the foreclosure proceedings:

          1.) Ibanez:  Assignment had an effective date, and was signed and acknowledged,          

                  almost 14 months after the foreclosure sale;
          2.) Larace: Assignment had an effective date prior to the sale, but was
                  signed and acknowledged 10 months after the sale;
          3.) Rosario: Assignment was unrecorded, but contained an effective date and    
                  was signed and acknowledged prior to publication and sale.
 
The Court held the only valid foreclosure was done by the Assignee in Rosario, # 3 above. The foreclosures in Ibanez and Larace were invalid because the mortgagee named in the newspaper ads was unable to produce a written assignment dated and executed as of the date of the first publication.  We understand that Motions to Vacate the Judgments have been filed in both Ibanez and Larace.
 
The next decision by Judge Scheier, dated March 30, 2009, is FNMA v. Alas, et al., L.C. Misc. 384854.  The facts of this assignment were similar to those in Larace: its effective date was almost 4 months prior to the sale, but it was signed and acknowledged almost 11 months after the sale.  Judge Scheier found this foreclosure void because the mortgagee held the sale prior to having a written assignment.  However, this Order is not final, as FNMA had been granted until April 15, 2009 to present further written arguments.
 
It is important to note that neither decision discusses the identity of the mortgagee who is the plaintiff in the Petition filed under the Servicemembers' Civil Relief Act; the issues were framed solely in terms of the mortgagee named in the publications and notices pursuant to M.G.L.c. 244, § 14. However, in light of these decisions, we believe that cautious foreclosure attorneys will ascertain that a mortgagee conducting a foreclosure proceeding is the holder of the mortgage in writing as of the date the Servicemembers' petition is filed.
 
The most important issues for our Companies involve foreclosures which have already been completed and foreclosures which are currently pending, both of which may be affected by these decisions. Conveyancers and title insurers have relied on REBA Title Standard 58, originally adopted in 1995 and revised in 2008.  This standard reflects the reality that complications in the secondary market translate into many instances where the written documentation of mortgage assignments is not completed until after a foreclosure sale.  Thousands of foreclosures have been completed, and arms length bidders and subsequent purchasers have acquired title to these properties, all without objection.  It is in these completed and pending foreclosures where new questions have arisen.
 
Our Companies will continue to insure without exceptions for these assignment issues where we have issued the current owners or loan policies subsequent to the foreclosure in question. Where another title insurer has issued its policies insuring a foreclosure that is possibly defective under the facts in Ibanez, Larace or FNMA, we are willing to accept a satisfactory indemnity on this issue and issue our policies without exceptions.  
 
In currently pending foreclosure proceedings, we will decline to insure unless the assignment complies with Rosario; i.e., is dated and executed prior to the first publication under M.G.L.c. 244, § 14.  However, we are not requiring that the assignment be dated and executed prior to the commencement of the Servicemembers' case, as the judges did not consider that issue.
 
We are hopeful that the issues arising as a result of these decisions will be clarified in the near future.  In any case, we will keep you posted on future developments in this area.
 
Do not hesitate to contact any of our underwriters if you have any questions on these issues

 
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