The Fallout of US Bank v. Ibanez on Georgia Law

By: Hugh Wood, Atlanta, GA
 If the legal holding in In U.S. BANK NATIONAL ASSOCIATION, Trustee vs. Antonio IBANEZ, Mass. Sup. Ct. Appeals, No. SJC.,10694. (January 7, 2011), (hereinafter “Ibanez”) makes its way to Georgia, then Georgia non-judicial foreclosures are in for a significant legal change.

“The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity.” Carpenter v. Longan, 83 U.S. 271, 274, 21 L.Ed. 313 (1873). This hundred year old maxim from the United States Supreme Court should have provided a complete victory for U.S. Bank in Massachusetts. However, it would appear that U.S. Bank foreclosed without holding ANY completed assignment and then created the necessary assignment and back dated (which was accepted industry custom) the assignment after the non-judicial foreclosure.


In Ibanez, the Massachusetts Supreme Judicial Court wrote, “Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such.” Ibanez, at 13 – 14 (Slip Opinion).


The Massachusetts Supreme Judicial Court held that banks that cannot show the absolute land title ownership at the time of (on the day of) a non-judicial foreclosure, do not have “title,” on which to bring the non-judicial foreclosure. Thus, their foreclosures are void – not merely voidable. And, they, the banks, may be sued for those historical foreclosures that were/are fatally defective. They held that Ibanez was not prospectively only.


Massachusetts, like Georgia, is one of about 29 states that allow for a non-judicial foreclosure. [1] Ibanez seems like it will have the most initial fallout on non-judicial foreclosures. A case like Ibanez would, perhaps, not occur in a judicial foreclosure state, since the lender as Plaintiff would be subject to a Motion to Dismiss for failure to prove its title or its standing prior to proceeding to judgment.


The central focus of the Ibanez ruling holds:


Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that "one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void." Moore v. Dick, 187 Mass. 207, 211 (1905). Ibanez, supra, at 10 (Slip Opinion).


I.  The Effect of Ibanez on Georgia


Because Georgia is primarily a non-judicial foreclosure state, Ibanez will resonate throughout the non-judicial foreclosures pleadings in Georgia. However, Ibanez has no direct precedential effect in Georgia. The showdown in the fallout of Ibanez is going to focus on the financial industries (i.e., Wall Street’s) resolution of the desire and need to securitize and sell home loans in bundles versus the still required demands that a lender hold and prove title (and a valid assignment) on the day of the non-judicial foreclosure. This entire tug-of-war seems to turn on the swift and speedy needs of securitization supported by 15 U.S.C. § 77r versus the 333 year old (Statute of Frauds 1677) requirement of a writing in land transactions.


II.  Georgia’s After Acquired Title Doctrine may Come Under Attack in Foreclosures after Ibanez


The Georgia Doctrine of, “after acquired title,” states:


"The petitioner invokes the principal that: 'where a grantor conveys land in which he has no interest and later acquires title, the after acquired title will vest in the first grantee as against subsequent purchasers.'" Roy Brinson v. Clara B. Thornton, et al., 220 Ga. 234, 138 SE 2d 268, 270 (1964). Citing, JL Dillard v. Christine Crane Brannan, et al., 217 Ga. 179, 122 SE 2d 768, 771 (1961). [2]


This doctrine works quite well in Georgia if there is a missing link in a title chain that is made complete by an after acquired title. Ibanez, supra, though pits the non-judicial foreclosure process against this often used Georgia title doctrine.


If the theory underpinning Ibanez were to become law in Georgia, the doctrine presently asserted with regard to late filed assignments (after acquired, thus the title error is cured), will no longer work. Ibanez said that the non-judicial foreclosure itself was a nullity. Therefore, all of the after acquired title to a null act will not cure it.

If Ibanez were law in Georgia, the lender would need to show that it possessed the title on the day it foreclosed. Merely showing that the bank somehow acquired good title long after the foreclosure occurred will no longer cure the foreclosure, in a post Ibanez world.


III.  Borrowers May Attack the Doctrine of Privity in Georgia after Ibanez


The doctrine of privity of a contract requires that only parties to a contract may bring suit to enforce it. Scott v. Cushman & Wakefield of Georgia, Inc., 249 Ga. App. 264, 547 SE 2d 794 (2001). [3] An exception to this requirement of contractual privity occurs when a party assigns to another the contractual right to collect payment, including the right to sue to enforce the right. However, to be enforceable by the assignee, such assignment must be in writing. Level 1 Contact, Inc., et al. v. BJL Enterprises, LLC, 305 Ga. App. 78, 699 SE 2d 89 (2010).

Given that the Bank moving to foreclose in a Georgia Non-Judicial Foreclosure may not be able to produce the Security Deed, the Note and the Assignment, we may see an uptick in challenges to the lender’s privity of contract and the sister doctrine in this context – standing.


The problem with Georgia is that the borrower must find a method to get into a courtroom prior to the foreclosure [perhaps a TRO under OCGA § 9-11-65] or risk having to pursue his or her remedies post foreclosure and eviction.


IV.  The Ibanez Opinion Reviewed


While not fleshed out well in the opinion, U.S. Bank’s briefing exposed the inherent conflict between the stiff and inflexible requirements of a non-judicial foreclosure versus the loose application of filing a completed assignment in blank after the non-judicial foreclosure. [4]


Instead of looking directly to the Court’s Opinion, let us look initially to the summary of arguments presented by U.S. Bank concerning why the Massachusetts Supreme Judicial Court should find against Ibanez and for U.S. Bank.


U.S. Bank’s lawyers wrote in its Brief to the Massachusetts Supreme Judicial Court, as follows:


Issues as posed by U.S.Bank:


US Bank Brief-to-MassachusettsSJC -

STATEMENT OF THE ISSUES PRESENTED

[First] The Land Court [5] erred in ruling that Ibanez’ securitization documents did not act to assign the Ibanez mortgage and thus did not confer legal authority on which to foreclose.

[Second] The Land Court erred in ruling that Ibanez’ assignment of the mortgage in blank did not act to assign the Ibanez mortgage and thus did not confer legal authority on [USBank] on which to foreclose.


[Third] The Land Court erred in ruling that USBank did not have legal authority to foreclose through possession of the original notes, the original mortgages, the assignments of mortgage in blank, and the securitization documents.


[Fourth] The Land Court erred in ruling that the execution and recording of a confirmatory assignment did not validate the prior actions taken by USBank in furtherance of foreclosure.


[Fifth] The Land Court erred by not limiting its rulings to prospective application only, where it failed to take into consideration Title Standard No. 58 of the Real Estate Bar Association for Massachusetts and the far-reaching consequences of the retroactive application of its rulings on numerous titles to real property in Massachusetts. U.S. Bank Brief to Court at 1.

& & &


SUMMARY OF THE ARGUMENT [By U.S. Bank] The Land Court’s rulings were erroneous and should be reversed for the following reasons.


First, the Land Court erred by ignoring the plain language of Appellants’ securitization agreements that assigned all interest in Appellees’ loans to Appellants. The assignment provisions in those agreements are valid and enforceable, and provided the legal predicate on which to provide notice pursuant to Mass. Gen. L. ch. 244, § 14, and to invoke the power of sale pursuant to Mass. Gen. L. ch. 183, § 21. [pp. 17-28].


Second, rather than giving effect to the language of assignment in the securitization agreements, the Land Court devoted much of its analysis to whether assignments of mortgage in blank satisfy Mass. Gen. L. ch. 244, § 14. The controlling language of assignment is found in the securitization agreements, but even if that were not the case, the Land Court erred in holding that assignments of mortgage in blank do not evidence a valid transfer of a mortgage. [pp. 28-34].


Third, the Land Court erred in ruling that Appellants’ equitable interests in the mortgages as note holders, their status as owners of Appellees’ mortgage loans under the operative securitization [ -15- ] agreements, and their legal possession and control of all indicia of ownership in the mortgages did not vest in them authority to foreclose. The Land Court’s interpretation of Mass. Gen. L. ch. 244, § 14, is not supported by the law, and the Court erred in considering the hypothetical possibility of prejudice where no evidence existed in the record. [pp. 34-46].


Fourth, after the foreclosure sales, Appellants recorded confirmatory assignments of mortgage in accord with a decades-long practice in Massachusetts and in accordance with REBA Title Standard No. 58. The Land Court’s rejection of the confirmatory assignments of mortgage was plain error. [pp. 46-48].


Finally, the Land Court’s decisions have arguably affected thousands of properties that have a “void” foreclosure sale in their chain of title. As a matter of public policy, the Land Court’s rulings should not stand. If, however, they are affirmed on appeal, sound policy mandates prospective application only of those rulings. V. [pp. 18-50]. U.S. Bank Brief at 15.

Ibanez’s lawyers wrote in his Brief to the Massachusetts Supreme Judicial Court, as follows:

Issues as posed by Ibanez:


Ibanez Brief-to-MassachusettsSJC -

QUESTIONS PRESENTED 1. Whether a Land Court judge correctly entered judgment against U.S. Bank on the ground that G. L. c. 244, § 14, authorizes a foreclosure only by the holder of the mortgage, where the record established that U.S. Bank did not become the holder of the mortgage until fourteen months after the foreclosure sale. Whether a Land Court judge abused his discretion in denying U.S. Bank’s Rule 60(b) motion to vacate judgment on the grounds that U.S. Bank lacked a valid, foreclosable interest at the time of its foreclosure sale, where U.S. Bank failed to produce title documents as promised and as ordered produced, and where the Rule 60(b) motion was based upon claimed title obtained by mortgage assignments “in blank,” a postforeclosure mortgage assignment, possession of the note, and “financial interest[s]”, “splintered rights” or “indicia of ownership?” Whether U.S. Bank can prevail on appeal on the basis of arguments which U.S. Bank failed to make in the Land Court proceedings? Ibanez Brief to the Court 1, Question 1 only.

& & &


III. SUMMARY OF THE ARGUMENT In some respects, this appeal is simple and straightforward. Plaintiff-Appellant U.S. Bank foreclosed on a mortgage by sale on July 2, 2007, and received its assignment of the foreclosed mortgage fourteen months later. (pp.16-30) This foreclosure [ -12- ] sale was undertaken pursuant to statutory provisions which required that non-judicial foreclosure sales be conducted only by mortgagees, or their assignees. (pp. 17-18) The foreclosure sale was authorized by a power of sale in the mortgage being foreclosed, which allowed only the original lender and its assignees to exercise the power, and U.S. Bank was neither. (pp. 16-17) Judicial precedent establishes that foreclosures under such powers of sale must strictly comply with the terms of the power – and invalidates foreclosure sales which do not name the mortgagee at the time of sale. (pp.18-40) Consequently, it seems unremarkable that the Land Court invalidated the U.S. Bank foreclosure sale, and denied its motion to vacate judgment; a holding which should be affirmed, given the deference afforded trial courts’ Rule 60 decisions. (pp.16-17) The appeal takes on greater significance, however, because Plaintiff-Appellant U.S. Bank insists that requiring foreclosing entities to possess legally sufficient and valid documents establishing title before foreclosure over-burdens securitized conveyances. (pp.30-44) U.S. Bank argues that this Court should discard the requirement that only entities with then-valid assignments of mortgagees’ rights may lawfully foreclose upon an underlying mortgage; and that this Court should hold that an [ -13- ] entity with mere “financial interests[s]” or “splintered rights” may conduct foreclosure sales.(pp.23-33) However, the rule that U.S. Bank asks this Court to create is contrary to both statutory commandments and explicit contractual agreements between the borrowers and lenders themselves, and, moreover, likely to add uncertainty and inaccuracy to foreclosure titles. The conflict actually presented by this appeal is, indeed, a significant one. (pp. 30-46) For literally hundreds of years, our system of conveyancing and recording of titles, deeds, and assignments has provided certainty and doctrines developed to protect integrity of title have served well. (pp. 30-46) The securitization documents – and specifically, the securitization documents for the securitized trusts at issue in this appeal – incorporate, and require compliance with, applicable title and assignment recording rules for the securitized mortgages held by them. (pp.35-36) However, neither trust has provided evidence that it complied with the recording requirements of their own trust documents, or the foreclosure statutes and contractual terms which govern conveyance and ownership of these mortgages. Id. Instead, U.S. Bank argues that this Court should do what U.S. Bank’s own governing rules do not: relax or abrogate requirements [ -14- ] which ensure that title to real property is public and transparent, and allow undisclosed and private conveyance of mortgages, and even non-judicial foreclosure sales based on private and undisclosed conveyance, in the name of expediency. (pp.23-44) The record here evidences repeated instances of careless – even reckless – treatment of long-standing rules governing the integrity of conveyancing documents, and careless – even reckless – disregard of statutory and contractual obligations governing nonjudicial property foreclosures. (pp.41-46) Indeed, there is nothing in the record which lends confidence to the integrity that private, undisclosed and unrecorded securitized conveyances would have, were the Court to accept the invitation to abrogate the title protections contained in mortgages and foreclosure statutes. Id. More importantly, the statutory protections U.S. Bank violated are clear and unequivocal, and its remedy, if any, lies in the legislature. (pp.17-32) Finally, U.S. Bank failed to even present the claims and evidence upon which it relies on appeal during the trial court proceedings. (pp. 47-50) Its improper attempts to assert these materials for the first time in this appeal should be rejected, as should its meritless insistence that decades-old [ -15- ] statutory requirements should be applied only to future conveyances. (pp.47-49). Ibanez Brief to the Court at 12 - 16.
& & &

V.   The Pertinent Portions of the Ibanez Opinion:


The Opinion, finding generally for Ibanez, holds, in pertinent part as follows:


46471786-IbanezOpinionMassachusetts01072011 -


GANTS, J.

[ * * * ]

Procedural history. On July 5, 2007, U.S. Bank, as trustee, foreclosed on the mortgage of Antonio Ibanez, and purchased the Ibanez property at the foreclosure sale. On the same day, Wells Fargo, as trustee, foreclosed on the mortgage of Mark and Tammy LaRace, and purchased the LaRace property at that foreclosure sale.


In September and October of 2008, U.S. Bank and Wells Fargo brought separate actions in the Land Court under G.L. c. 240, § 6, which authorizes actions "to quiet or establish the title to land situated in the commonwealth or to remove a cloud from the title thereto." The two complaints sought identical relief: (1) a judgment that the right, title, and interest of the mortgagor (Ibanez or the LaRaces) in the property was extinguished by the foreclosure; (2) a declaration that there was no cloud on title arising from publication of the notice of sale in the Boston Globe; and (3) a declaration that title was vested in the plaintiff trustee in fee simple. U.S. Bank and Wells Fargo each asserted in its complaint that it had become the holder of the respective mortgage through an assignment made after the foreclosure sale.


In both cases, the mortgagors--Ibanez and the LaRaces--did not initially answer the complaints, and the plaintiffs moved for entry of default judgment. In their motions for entry of default judgment, the plaintiffs addressed two issues: (1) whether the Boston Globe, in which the required notices of the foreclosure sales were published, is a newspaper of "general circulation" in Springfield, the town where the foreclosed properties lay. See G.L. c. 244, § 14 (requiring publication every week for three weeks in newspaper published in town where foreclosed property lies, or of general circulation in that town); and (2) whether the plaintiffs were legally entitled to foreclose on the properties where the assignments of the mortgages to the plaintiffs were neither executed nor recorded in the registry of deeds until after the foreclosure sales. [FN6] The two cases were heard together by the Land Court, along with a third case that raised the same issues.


On March 26, 2009, judgment was entered against the plaintiffs. The judge ruled that the foreclosure sales were invalid because, in violation of G.L. c. 244, § 14, the notices of the foreclosure sales named U.S. Bank (in the Ibanez foreclosure) and Wells Fargo (in the LaRace foreclosure) as the mortgage holders where they had not yet been assigned the mortgages. [FN7] The judge found, based on each plaintiff's assertions in its complaint, that the plaintiffs acquired the mortgages by assignment only after the foreclosure sales and thus had no interest in the mortgages being foreclosed at the time of the publication of the notices of sale or at the time of the foreclosure sales.


[FN8]


For ease of reference, the chain of entities through which the Ibanez mortgage allegedly passed before the foreclosure sale is:

Rose Mortgage, Inc. (originator)

ꜜ

Lehman Brothers Bank, FSB

ꜜ

Lehman Brothers Holdings Inc. (seller)

ꜜ

Lehman Brothers Holdings Inc. (seller)

ꜜ

Structured Asset Securities Corporation (depositor)

ꜜ

U.S. Bank National Association, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z

According to U.S. Bank, the assignment of the Ibanez mortgage to U.S. Bank occurred pursuant to a December 1, 2006, trust agreement, which is not in the record. What is in the record is the private placement memorandum (PPM), dated December 26, 2006, a 273-page, unsigned offer of mortgage-backed securities to potential investors. The PPM describes the mortgage pools and the entities involved, and summarizes the provisions of the trust agreement, including the representation that mortgages "will be" assigned into the trust. According to the PPM, "[e]ach transfer of a Mortgage Loan from the Seller [Lehman Brothers Holdings Inc.] to the Depositor [Structured Asset Securities Corporation] and from the Depositor to the Trustee [U.S. Bank] will be intended to be a sale of that Mortgage Loan and will be reflected as such in the Sale and Assignment Agreement and the Trust Agreement, respectively." The PPM also specifies that "[e]ach Mortgage Loan will be identified in a schedule appearing as an exhibit to the Trust Agreement." However, U.S. Bank did not provide the judge with any mortgage schedule identifying the Ibanez loan as among the mortgages that were assigned in the trust agreement.


On April 17, 2007, U.S. Bank filed a complaint to foreclose on the Ibanez mortgage [ * * * ] At the foreclosure sale on July 5, 2007, the Ibanez property was purchased by U.S. Bank, as trustee for the securitization trust, for $94,350, a value significantly less than the outstanding debt and the estimated market value of the property.

[ * * * ]

On April 27, 2007, Wells Fargo filed a complaint under the Servicemembers Act in the Land Court to foreclose on the LaRace mortgage. The complaint represented Wells Fargo as the "owner (or assignee) and holder" of the mortgage given by the LaRaces for the property.

[ * * * ]

At the foreclosure sale on July 5, 2007, Wells Fargo, as trustee, purchased the LaRace property for $120,397.03, a value significantly below its estimated market value. Wells Fargo did not execute a statutory foreclosure affidavit or foreclosure deed until May 7, 2008. That same day, Option One, which was still the record holder of the LaRace mortgage, executed an assignment of the mortgage to Wells Fargo as trustee; the assignment was recorded on May 12, 2008. Although executed ten months after the foreclosure sale, the assignment declared an effective date of April 18, 2007, a date that preceded the publication of the notice of sale and the foreclosure sale

[ * * * ]

Discussion. The plaintiffs brought actions under G.L. c. 240, § 6, seeking declarations that the defendant mortgagors' titles had been extinguished and that the plaintiffs were the fee simple owners of the foreclosed properties. As such, the plaintiffs bore the burden of establishing their entitlement to the relief sought. Sheriff's Meadow Found., Inc. v. Bay-Courte Edgartown, Inc., 401 Mass. 267, 269 (1987). To meet this burden, they were required "not merely to demonstrate better title ... than the defendants possess, but ... to prove sufficient title to succeed in [the] action." Id. See NationsBanc Mtge. Corp. v. Eisenhauer, 49 Mass.App.Ct. 727, 730 (2000). There is no question that the relief the plaintiffs sought required them to establish the validity of the foreclosure sales on which their claim to clear title rested.


Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on a mortgaged property. See G.L. c. 183, § 21; G.L. c. 244, § 14. With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servicemembers Act, a mortgage holder can foreclose on a property, as the plaintiffs did here, by exercise of the statutory power of sale, if such a power is granted by the mortgage itself. See Beaton v. Land Court, 367 Mass. 385, 390-391, 393, appeal dismissed, 423 U.S. 806 (1975).


Where a mortgage grants a mortgage holder the power of sale, as did both the Ibanez and LaRace mortgages, it includes by reference the power of sale set out in G.L. c. 183, § 21, and further regulated by G.L. c. 244, §§ 11-17C. Under G.L. c. 183, § 21, after a mortgagor defaults in the performance of the underlying note, the mortgage holder may sell the property at a public auction and convey the property to the purchaser in fee simple, "and such sale shall forever bar the mortgagor and all persons claiming under him from all right and interest in the mortgaged premises, whether at law or in equity." Even where there is a dispute as to whether the mortgagor was in default or whether the party claiming to be the mortgage holder is the true mortgage holder, the foreclosure goes forward unless the mortgagor files an action and obtains a court order enjoining the foreclosure. [FN15] See Beaton v. Land Court, supra at 393.


Recognizing the substantial power that the statutory scheme affords to a mortgage holder to foreclose without immediate judicial oversight, we adhere to the familiar rule that "one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void." Moore v. Dick, 187 Mass. 207, 211 (1905). See Roche v. Farnsworth, 106 Mass. 509, 513 (1871) (power of sale contained in mortgage "must be executed in strict compliance with its terms"). See also McGreevey v. Charlestown Five Cents Sav. Bank, 294 Mass. 480, 484 (1936). [FN16]


One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The "statutory power of sale" can be exercised by "the mortgagee or his executors, administrators, successors or assigns." G.L. c. 183, § 21. Under G.L. c. 244, § 14, "[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person" is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking "jurisdiction and authority" to carry out a foreclosure under these statutes is void. Chace v. Morse, 189 Mass. 559, 561 (1905), citing Moore v. Dick, supra. See Davenport v. HSBC Bank USA, 275 Mich.App. 344, 347-348 (2007) (attempt to foreclose by party that had not yet been assigned mortgage results in "structural defect that goes to the very heart of defendant's ability to foreclose by advertisement," and renders foreclosure sale void).


A related statutory requirement that must be strictly adhered to in a foreclosure by power of sale is the notice requirement articulated in G.L. c. 244, § 14. That statute provides that "no sale under such power shall be effectual to foreclose a mortgage, unless, previous to such sale," advance notice of the foreclosure sale has been provided to the mortgagee, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town. Id. "The manner in which the notice of the proposed sale shall be given is one of the important terms of the power, and a strict compliance with it is essential to the valid exercise of the power." Moore v. Dick, supra at 212. See Chace v. Morse, supra ("where a certain notice is prescribed, a sale without any notice, or upon a notice lacking the essential requirements of the written power, would be void as a proceeding for foreclosure"). See also McGreevey v. Charlestown Five Cents Sav. Bank, supra. Because only a present holder of the mortgage is authorized to foreclose on the mortgaged property, and because the mortgagor is entitled to know who is foreclosing and selling the property, the failure to identify the holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void. [FN17] See Roche v. Farnsworth, supra (mortgage sale void where notice of sale identified original mortgagee but not mortgage holder at time of notice and sale). See also Bottomly v. Kabachnick, 13 Mass.App.Ct. 480, 483-484 (1982) (foreclosure void where holder of mortgage not identified in notice of sale).


For the plaintiffs to obtain the judicial declaration of clear title that they seek, they had to prove their authority to foreclose under the power of sale and show their compliance with the requirements on which this authority rests. Here, the plaintiffs were not the original mortgagees to whom the power of sale was granted; rather, they claimed the authority to foreclose as the eventual assignees of the original mortgagees. Under the plain language of G.L. c. 183, § 21, and G.L. c. 244, § 14, the plaintiffs had the authority to exercise the power of sale contained in the Ibanez and LaRace mortgages only if they were the assignees of the mortgages at the time of the notice of sale and the subsequent foreclosure sale. See In re Schwartz, 366 B.R. 265, 269 (Bankr.D.Mass.2007) ("Acquiring the mortgage after the entry and foreclosure sale does not satisfy the Massachusetts statute"). [FN18] See also Jeff-Ray Corp. v. Jacobson, 566 So.2d 885, 886 (Fla.Dist.Ct.App.1990) (per curiam) (foreclosure action could not be based on assignment of mortgage dated four months after commencement of foreclosure proceeding).


The plaintiffs claim that the securitization documents they submitted establish valid assignments that made them the holders of the Ibanez and LaRace mortgages before the notice of sale and the foreclosure sale. We turn, then, to the documentation submitted by the plaintiffs to determine whether it met the requirements of a valid assignment.


Like a sale of land itself, the assignment of a mortgage is a conveyance of an interest in land that requires a writing signed by the grantor. See G.L. c. 183, § 3; Saint Patrick's Religious, Educ. & Charitable Ass'n v. Hale, 227 Mass. 175, 177 (1917). In a "title theory state" like Massachusetts, a mortgage is a transfer of legal title in a property to secure a debt. See Faneuil Investors Group, Ltd. Partnership v. Selectmen of Dennis, 458 Mass. 1, 6 (2010). Therefore, when a person borrows money to purchase a home and gives the lender a mortgage, the homeowner-mortgagor retains only equitable title in the home; the legal title is held by the mortgagee. See Vee Jay Realty Trust Co. v. DiCroce, 360 Mass. 751, 753 (1972), quoting Dolliver v. St. Joseph Fire & Marine Ins. Co., 128 Mass. 315, 316 (1880) (although "as to all the world except the mortgagee, a mortgagor is the owner of the mortgaged lands," mortgagee has legal title to property); Maglione v. BancBoston Mtge. Corp., 29 Mass.App.Ct. 88, 90 (1990). Where, as here, mortgage loans are pooled together in a trust and converted into mortgage-backed securities, the underlying promissory notes serve as financial instruments generating a potential income stream for investors, but the mortgages securing these notes are still legal title to someone's home or farm and must be treated as such.


Focusing first on the Ibanez mortgage, U.S. Bank argues that it was assigned the mortgage under the trust agreement described in the PPM, but it did not submit a copy of this trust agreement to the judge. The PPM, however, described the trust agreement as an agreement to be executed in the future, so it only furnished evidence of an intent to assign mortgages to U.S. Bank, not proof of their actual assignment. Even if there were an executed trust agreement with language of present assignment, U.S. Bank did not produce the schedule of loans and mortgages that was an exhibit to that agreement, so it failed to show that the Ibanez mortgage was among the mortgages to be assigned by that agreement. Finally, even if there were an executed trust agreement with the required schedule, U.S. Bank failed to furnish any evidence that the entity assigning the mortgage--Structured Asset Securities Corporation--ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale. [FN19] Thus, based on the documents submitted to the judge, Option One, not U.S. Bank, was the mortgage holder at the time of the foreclosure, and U.S. Bank did not have the authority to foreclose the mortgage.


Turning to the LaRace mortgage, Wells Fargo claims that, before it issued the foreclosure notice, it was assigned the LaRace mortgage under the PSA. The PSA, in contrast with U.S. Bank's PPM, uses the language of a present assignment ("does hereby ... assign" and "does hereby deliver") rather than an intent to assign in the future. But the mortgage loan schedule Wells Fargo submitted failed to identify with adequate specificity the LaRace mortgage as one of the mortgages assigned in the PSA. Moreover, Wells Fargo provided the judge with no document that reflected that the ABFC (depositor) held the LaRace mortgage that it was purportedly assigning in the PSA. As with the Ibanez loan, the record holder of the LaRace loan was Option One, and nothing was submitted to the judge which demonstrated that the LaRace loan was ever assigned by Option One to another entity before the publication of the notice and the sale.


Where a plaintiff files a complaint asking for a declaration of clear title after a mortgage foreclosure, a judge is entitled to ask for proof that the foreclosing entity was the mortgage holder at the time of the notice of sale and foreclosure, or was one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14. A plaintiff that cannot make this modest showing cannot justly proclaim that it was unfairly denied a declaration of clear title. See In re Schwartz, supra at 266 ("When HomEq [Servicing Corporation] was required to prove its authority to conduct the sale, and despite having been given ample opportunity to do so, what it produced instead was a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them"). See also Bayview Loan Servicing, LLC v. Nelson, 382 Ill.App.3d 1184, 1188 (2008) (reversing grant of summary judgment in favor of financial entity in foreclosure action, where there was "no evidence that [the entity] ever obtained any legal interest in the subject property").


We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage. See In re Samuels, 415 B.R. 8, 20 (Bankr.D.Mass.2009). A foreclosing entity may provide a complete chain of assignments linking it to the record holder of the mortgage, or a single assignment from the record holder of the mortgage. See In re Parrish, 326 B.R. 708, 720 (Bankr.N.D.Ohio 2005) ("If the claimant acquired the note and mortgage from the original lender or from another party who acquired it from the original lender, the claimant can meet its burden through evidence that traces the loan from the original lender to the claimant"). The key in either case is that the foreclosing entity must hold the mortgage at the time of the notice and sale in order accurately to identify itself as the present holder in the notice and in order to have the authority to foreclose under the power of sale (or the foreclosing entity must be one of the parties authorized to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14).


The judge did not err in concluding that the securitization documents submitted by the plaintiffs failed to demonstrate that they were the holders of the Ibanez and LaRace mortgages, respectively, at the time of the publication of the notices and the sales. The judge, therefore, did not err in rendering judgments against the plaintiffs and in denying the plaintiffs' motions to vacate the judgments. [FN20]


We now turn briefly to three other arguments raised by the plaintiffs on appeal. First, the plaintiffs initially contended that the assignments in blank executed by Option One, identifying the assignor but not the assignee, not only "evidence[ ] and confirm[ ] the assignments that occurred by virtue of the securitization agreements," but "are effective assignments in their own right." But in their reply briefs they conceded that the assignments in blank did not constitute a lawful assignment of the mortgages. Their concession is appropriate. We have long held that a conveyance of real property, such as a mortgage, that does not name the assignee conveys nothing and is void; we do not regard an assignment of land in blank as giving legal title in land to the bearer of the assignment. See Flavin v. Morrissey, 327 Mass. 217, 219 (1951); Macurda v. Fuller, 225 Mass. 341, 344 (1916). See also G.L. c. 183, § 3.


Second, the plaintiffs contend that, because they held the mortgage note, they had a sufficient financial interest in the mortgage to allow them to foreclose. In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Barnes v. Boardman, 149 Mass. 106, 114 (1889). Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment. Id. ("In some jurisdictions it is held that the mere transfer of the debt, without any assignment or even mention of the mortgage, carries the mortgage with it, so as to enable the assignee to assert his title in an action at law.... This doctrine has not prevailed in Massachusetts, and the tendency of the decisions here has been, that in such cases the mortgagee would hold the legal title in trust for the purchaser of the debt, and that the latter might obtain a conveyance by a bill in equity"). See Young v. Miller, 6 Gray 152, 154 (1856). In the absence of a valid written assignment of a mortgage or a court order of assignment, the mortgage holder remains unchanged. This common-law principle was later incorporated in the statute enacted in 1912 establishing the statutory power of sale, which grants such a power to "the mortgagee or his executors, administrators, successors or assigns," but not to a party that is the equitable beneficiary of a mortgage held by another. G.L. c. 183, § 21, inserted by St.1912, c. 502, § 6.


Third, the plaintiffs initially argued that postsale assignments were sufficient to establish their authority to foreclose, and now argue that these assignments are sufficient when taken in conjunction with the evidence of a presale assignment. They argue that the use of postsale assignments was customary in the industry, and point to Title Standard No. 58(3) issued by the Real Estate Bar Association for Massachusetts, which declares: "A title is not defective by reason of ... [t]he recording of an Assignment of Mortgage executed either prior, or subsequent, to foreclosure where said Mortgage has been foreclosed, of record, by the Assignee." [FN21] To the extent that the plaintiffs rely on this title standard for the proposition that an entity that does not hold a mortgage may foreclose on a property, and then cure the cloud on title by a later assignment of a mortgage, their reliance is misplaced because this proposition is contrary to G.L. c. 183, § 21, and G.L. c. 244, § 14. If the plaintiffs did not have their assignments to the Ibanez and LaRace mortgages at the time of the publication of the notices and the sales, they lacked authority to foreclose under G.L. c. 183, § 21, and G.L. c. 244, § 14, and their published claims to be the present holders of the mortgages were false. Nor may a postforeclosure assignment be treated as a pre-foreclosure assignment simply by declaring an "effective date" that precedes the notice of sale and foreclosure, as did Option One's assignment of the LaRace mortgage to Wells Fargo. Because an assignment of a mortgage is a transfer of legal title, it becomes effective with respect to the power of sale only on the transfer; it cannot become effective before the transfer. See In re Schwartz, supra at 269.

However, we do not disagree with Title Standard No. 58(3) that, where an assignment is confirmatory of an earlier, valid assignment made prior to the publication of notice and execution of the sale, that confirmatory assignment may be executed and recorded after the foreclosure, and doing so will not make the title defective. A valid assignment of a mortgage gives the holder of that mortgage the statutory power to sell after a default regardless whether the assignment has been recorded. See G.L. c. 183, § 21; MacFarlane v. Thompson, 241 Mass. 486, 489 (1922). Where the earlier assignment is not in recordable form or bears some defect, a written assignment executed after foreclosure that confirms the earlier assignment may be properly recorded. See Bon v. Graves, 216 Mass. 440, 444-445 (1914). A confirmatory assignment, however, cannot confirm an assignment that was not validly made earlier or backdate an assignment being made for the first time. See Scaplen v. Blanchard, 187 Mass. 73, 76 (1904) (confirmatory deed "creates no title" but "takes the place of the original deed, and is evidence of the making of the former conveyance as of the time when it was made"). Where there is no prior valid assignment, a subsequent assignment by the mortgage holder to the note holder is not a confirmatory assignment because there is no earlier written assignment to confirm. In this case, based on the record before the judge, the plaintiffs failed to prove that they obtained valid written assignments of the Ibanez and LaRace mortgages before their foreclosures, so the postforeclosure assignments were not confirmatory of earlier valid assignments.


Finally, we reject the plaintiffs' request that our ruling be prospective in its application. A prospective ruling is only appropriate, in limited circumstances, when we make a significant change in the common law. See Papadopoulos v. Target Corp., 457 Mass. 368, 384 (2010) (noting "normal rule of retroactivity"); Payton v. Abbott Labs, 386 Mass. 540, 565 (1982). We have not done so here. The legal principles and requirements we set forth are well established in our case law and our statutes. All that has changed is the plaintiffs' apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.

Conclusion. For the reasons stated, we agree with the judge that the plaintiffs did not demonstrate that they were the holders of the Ibanez and LaRace mortgages at the time that they foreclosed these properties, and therefore failed to demonstrate that they acquired fee simple title to these properties by purchasing them at the foreclosure sale. Judgments affirmed.

VI.   Conclusion

The technical application of Ibanez is limited only to foreclosures in The Commonwealth of Massachusetts. However, given that the market value of foreclosing banks fell shortly after Ibanez was issued, it is a state legal opinion of national importance. If Ibanez makes it to Georgia or impacts a significant number of other non-judicial foreclosure states, it will either cause a slowdown of all non-judicial foreclosures or spark the U.S. Congress to step into this fray and settle this economic dispute. That is, we as a nation are going to have to decide whether we want the speed of quick, sloppy secured home sales or, the slower, time tried, transfer of real property titles by filing with the local county clerk of court. Ibanez is not the last word in this gargantuan fight over mindboggling sums of money.

Hugh Wood, Esq.
Wood & Meredith, LLP
3756 LaVista Road
Suite 250
Atlanta (Tucker), GA 30084


www.woodandmeredith.com
hwood@woodandmeredith.com
www.hughwood.blogspot.com
twitter: USALawyer_
Phone: 404-633-4100
Fax: 404-633-0068
&&&

[1]
The true separation of judicial and non-judicial states is misleading since 25 of states allow both judicial and non-judicial foreclosures. Georgia allows both, but lenders only resort to a judicial foreclosure if they are forced into due to a defect in the non-judicial paperwork or an inability to proceed on the courthouse steps.

  [2]
If a vendor convey land to a purchaser before he acquire title himself, and he subsequently acquire the title, does such title enure to the benefit of the vendee as against subsequent purchasers or mortgagees? We think it does, and such subsequent mortgagee and those holding under him by subsequent conveyances, hold subordinate to the title which vested in his first vendee the moment the vendor himself got it.' Parker v. Jones, 57 Ga. 204; Terry v. Rodahan, 79 Ga. 278, 292, 5 S.E. [217 Ga. 183] 38; Lathrop v. White, 81 Ga. 29, 35, 6 S.E. 834; Hill v. O'Bryan Brothers, 104 Ga. 137, 30 S.E. 996; Donalson v. Yeates, 173 Ga. 30(7), 159 S.E. 856; Guy v. Poss, 212 Ga. 724, 95 S.E.2d 682. JL Dillard v. Christine Crane Brannan, et al., 217 Ga. 179, 122 SE 2d 768, 771 (1961).
  [3]

Scott v. Cushman & Wakefield of Georgia, Inc., 249 Ga. App. 264, 547 SE 2d 794 (2001). The brokers Cushman & Wakefield brought suit to enforce real estate commissions. The Court of Appeals found that they "lack standing" to bring the action and reverse the trial court. Standing arose out of privity of contract.
The doctrine of privity of contract requires that only parties to a contract may bring suit to enforce it. Decatur North Assoc. v. Builders Glass, 180 Ga.App. 862, 863(1), 350 S.E.2d 795 (1986); see OCGA § 9-2-20(a). Cushman Georgia invoked a recognized exception to the requirement of immediate contractual privity between the parties to an action, specifically, that a party may assign to another a contractual right to collect payment, including the right to sue to enforce the right. Decatur North Assoc., 180 Ga.App. at 863(1), 350 S.E.2d 795; Chancellor v. Gateway Lincoln-Mercury, 233 Ga.App. 38, 41(1), 502 S.E.2d 799 (1998) (choses in action, including accounts receivable, may be assigned); Paulsen Street Investors v. EBCO Gen. Agencies, 224 Ga.App. 507, 509, 481 S.E.2d 246 (1997) (choses in action include the [249 Ga.App. 266] proceeds from a contract performance and are assignable). See OCGA §§ 44-12-20 (chose in action defined); 44-12-22 (assignment of choses in action arising upon contracts). To be enforceable by the assignee, such an assignment must be in writing. Levinson v. American Thermex, 196 Ga.App. 291, 292(1), 396 S.E.2d 252 (1990). Cushman Georgia relies on the affidavit of its senior counsel, a sharing agreement, and two notices of assignment to show that Royal Georgia assigned to it the right to collect commissions from Scott
The parties to the 1992 "sharing agreement" which assigned certain commission receivables were Royal LePage Real Estate Services Limited, an Ontario corporation ("Royal Ontario"), and Cushman & Wakefield, Inc., a New York corporation ("Cushman New York"). The record shows that Royal Georgia ceased to exist as a Georgia corporation in June 1993 when it merged with Royal LePage Real Estate Services United States, Inc., a Delaware corporation ("Royal Delaware"). Cushman Georgia, however, has not identified any document purporting to memorialize an assignment of the right to receive the commissions from Scott by Royal Georgia (or Royal Delaware) to Royal Ontario, or from Cushman New York to Cushman Georgia. In notices Royal Ontario sent to clients responsible for commissions receivable, it stated that it "and its affiliates" entered into a sharing agreement with Cushman New York "and its affiliates" and directed questions to an employee of Cushman Georgia. The face of the sharing agreement, however, shows that neither Royal Georgia nor its successor, Royal Delaware, was a signatory to the agreement. Nor did the affidavit of Cushman Georgia's senior counsel refer to any written agreements which could complete the chain of assignments from Cushman New York to Cushman Georgia. Therefore, Cushman Georgia failed to come forward with evidence supporting its allegation that it was the successor in interest to Royal Georgia's right to receive the commissions from Scott. Levinson, 196 Ga.App. at 292(1), 396 S.E.2d 252. Because Cushman Georgia failed to show it was entitled to file suit to recover the commissions Scott owed to Royal Georgia, Scott is entitled to summary judgment on Cushman Georgia's claim. Lau's Corp., 261 Ga. at 491, 405 S.E.2d 474; Benton v. Gaudry, 230 Ga.App. 373, 376(2), 496 S.E.2d 507 (1998).  The judgment is reversed and the case is remanded for entry of judgment in favor of Scott on Cushman Georgia's claim. Judgment reversed and case remanded.

[4]
While avoiding taxation at the county level is beyond the scope of this article, much of the securitization process is designed inherently to skip all recording taxation and recording fees at the county recording filing desk. That is, under the current securitization, in cooperation with MERS, the initial Trust Deed, Security Deed, Mortgage is filed with the local County Clerk holding the land records of the County. The filing fee/tax is paid at the time of filing. The loan/mortgage is then registered with MERS. The mortgage is (it may or may not be) uploaded into a securitized instrument that may be sold in the financial markets. Assignments are made and, as in the Ibanez case, are available in blank after the sale of the security underpinned by the mortgage. While this vehicle allows for the quick and easy sale of the mortgage in a “pool” of similar mortgages, it seems to violate all locale state recording statutes and recordation of assignment statutes. The industry’s response is that they are exempt from these state filing fee requirements, because the mortgage merely backs the security and the security is exempt from state law. 15 U.S.C. § 77r. The sale and issuance, etc. of securities is exempt from all state law requirements – such as intervening assignment transfer fees. However, one must ask the ultimate question, how is the secured party to enforce its security interest, if it refuses to comply with the requirements of state law. It needs the state to enforce its security interest. This question is driving issue in all cases similar to Ibanez.

[5]
Massachusetts has a specialized division of its plenary Court system referred to by Massachusetts statute as the “Land Court.” Georgia has no such administrative designation. “The Land Court Department of the Trial Court has statewide jurisdiction. While the court has jurisdiction throughout the Commonwealth, the justices of the Land Court normally sit in Boston. However, it is usual, where the circumstances warrant and counsel request, for the court to hold trials in other locations within the state. The court has exclusive, original jurisdiction over the registration of title to real property and over all matters and disputes concerning such title subsequent to registration. The court also exercises exclusive original jurisdiction over the foreclosure and redemption of real estate tax liens. The court shares, with certain other court departments, jurisdiction over other property matters. Effective January 1, 2003, the court has concurrent jurisdiction over specific performance of contracts relating to real estate and over petitions for partitions of real estate. Under G.L. c.40A and 41, the court shares jurisdiction over matters arising out of decisions by local planning boards and zoning boards of appeal. Both the Land Court and the Superior Court Department have jurisdiction over the processing of mortgage foreclosure cases, determining the military status of the mortgagor. Additionally, the court has superintendency authority over the registered land office in each registry of deeds.” http://www.mass.gov/courts/courtsandjudges/courts/landcourt/jurisdiction.html


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