Supreme Judicial Court Affirms Land Court in U.S. Bank, N.A., Trustee v. Ibanez

Matthew A. Kane, Esq.
Bulkley, Richardson and Gelinas, LLP

January 7, 2011

The Supreme Judicial Court of Massachusetts today issued a decision affirming the holding of the Massachusetts Land Court (Long, J.) in the case of U.S. Bank, N.A., Trustee¹ v. Ibanez, Slip Op. 10694 (Sup. J. Ct. January 7, 2011). The holding is simple and straightforward: before a bank can lawfully exercise the power of sale contained in a mortgage (i.e. before it publishes notice of foreclosure sale), it must possess the mortgage or a valid assignment thereof. See Mass. Gen. Laws c. 244, § 14. The implications of this simple holding are dramatic: the Court expressly declined to limit its holding prospectively. An unknown number of past foreclosures are therefore subject to attack.

Before commencing any foreclosure by sale in Massachusetts, the foreclosing bank must ensure that it holds a valid assignment of the mortgage. Best practices dictate possession of an assignment in recordable form, but an otherwise valid assignment may suffice with a subsequent confirmatory assignment in recordable form. See Ibanez, Slip Op. 10694 at *12 (Cordy, J. concurring) (“assignments do not need to be in recordable form or recorded before foreclosure, but they do have to have been effectuated”).

Ibanez explicitly rejects several proxies for actual possession of the mortgage that have until now been widely used by foreclosing banks. Possession of an assignment in blank is insufficient to commence foreclosure by sale. Possession of an equitable right to obtain the mortgage (i.e., possession of the note but not the mortgage) is insufficient. Possession of a contractual right to obtain the mortgage (i.e., pursuant to a servicing and pooling agreement) is insufficient. This holding is limited to Massachusetts – for now. Ibanez is the first decision from any state to reject common industry practice. Similar challenges to the several proxies identified above are pending in many non-judicial foreclosure states, and you can expect to see Ibanez cited frequently around the country.

¹For the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z.