SJC issues new foreclosure decision

Earlier this week the SJC released its decision in Bevilacqua v Rodriguez, a case that involved a defective mortgage foreclosure.  Here are the facts: In 2005, Pablo Rodriguez granted a mortgage on his home in Haverhill to Mortgage Electronic Registration System, Inc (hereafter MERS) as nominee of Finance America LLC.  On June 29, 2006, US Bank executed a foreclosure deed on the property in which it purchased the property at the foreclosure auction it conducted (which is what usually happens in a foreclosure).  On July 21, 2006, MERS assigned the mortgage that had already been foreclosed to US Bank.  On October 9, 2006, US Bank sold the property to Francis Bevilacqua.  Because of uncertainty about the strength of his ownership of the property, Bevilacqua filed suit in the Land Court to clarify his title to the property.  The Land Court ruled that Bevilacqua did not own the property and he appealed.

In this case, the mortgage that had been signed by Mr. Rodriguez was held by MERS but the promissory note apparently was held by US Bank at the time Rodriguez stopped paying.  US Bank would be the entity to conduct the foreclosure.  But, before it could commence the foreclosure and certainly before it could conduct the foreclosure auction and then sign the foreclosure deed, US Bank had to be the owner of the mortgage.  Otherwise it would have no ownership interest in the property and therefore nothing to foreclose.  Because the assignment of the mortgage from MERS to US Bank came after US Bank had already foreclosed, its foreclosure was defective and title did not pass to it pursuant to the foreclosure deed it executed.  Because US Bank did not hold title, when it conveyed the property to Mr Bevilaqua with a regular deed, it owned nothing so Mr Bevilaqua got nothing.  This much of this case simply confirms the SJC’s ruling earlier this year in US Bank v Ibanez that an entity conducting a foreclosure must already have the mortgage assigned to it before the foreclosure sale occurs.

The new issue addressed in this case is the ownership status of someone like Bevilacqua who is the third party purchaser of a previously foreclosed home.  In almost every foreclosure, the high bid at the foreclosure auction is made by the lender that is conducting the foreclosure.  Once the foreclosure deed is recorded, that lender becomes the owner of the property.  Because the new owner wants to be a lender and not a property owner, it puts the property up for sale not as a foreclosure but as a normal arms-length sale to a third party (Mr Bevilacqua in this case).  Ibanez had left open the question of the rights of such a third party buyer who purchased from a lender that had conducted a defective foreclosure.  Bevilacqua quite clearly says that if the foreclosing lender did not obtain valid title through the foreclosure sale, no one who purchases from that lender could obtain valid title either.  Those are the buyers who, according to the Globe headline, are left in limbo.  That’s true, but I believe after Ibanez most people had already concluded that was the case.  At least now there’s a bit more legal clarity.