Wednesday, July 30, 2014

An Act clearing titles to foreclosed properties

Ever since the Ibanez decision by the Supreme Judicial Court several years ago, the validity of the title to homes that have a foreclosure in their recent past has been put into doubt.  Ibanez held that a mortgage being foreclosed must have been assigned to the foreclosing lender at least before the first publication of the notice of mortgagee's sale.  To be clear, the SJC's decision did not require that a formal assignment be recorded at the registry of deeds prior to that date; just that the assignment had been made between the original mortgage holder and the foreclosing lender.  Establishing compliance with this holding is a question of fact on a case by case basis and there's no easy or efficient way to make that determination.  Innocent third parties who purchased homes that had a foreclosure somewhere in the background are now locked into those homes until questions about the title can be resolved.  Also, many homes that are still owned by the foreclosing lender are unmarketable which further contributes to the lethargy of the real estate market.

In response to this predicament, the Massachusetts legislature is on the verge of passing Senate Bill 1987 entitled "An Act clearing titles to foreclosed properties."  Essentially, the bill establishes a three year statute of limitations for challenging the validity of a foreclosure.  After the passage of three years (from the later of the date of the foreclosure or of the enactment of this bill), the prior homeowner and everyone else would be barred from challenging the foreclosure.  This would resolve the title defects lurking in the back titles of so many foreclosed properties after three years, at least.

The Globe today has a front page story of the prospects of passage of this bill.  The full text of the bill is available on the state legislature's website.

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