Lawyers Journal

Massachusetts attorneys involved in conveyancing or mortgage foreclosures, as well as those employed as staff counsel or underwriters by title insurance companies, are all too familiar with the Supreme Judicial Court's recent decisions in U.S. Bank Nat'^l Ass'n v. Ibanez1 and Bevilacqua v. Rodriguez.² The fallout from these decisions has created havoc for such practitioners. This article attempts to explain the significance of these cases to the rest of us.

Prior to the Land Court's decisions in Ibanez and the companion cases of Wells Fargo Bank Nat'l Ass'n v. LaRace³ and LaSalle Bank Nat'l Ass'n v. Rosario,⁴ the timing of the signing or recording of an assignment of a mortgage was generally not considered critical to the validity of a foreclosure by the assignee of the mortgage.

In fact, until recently, paragraph 3 of Real Estate Bar Association of Massachusetts (REBA) Title Standard 58, as adopted in 1995, provided that 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."⁵

That all changed following the Land Court's decisions in Ibanez, LaRace and Rosario, each of which presented slightly different facts. In Ibanez, the assignment of the mortgage was executed after the foreclosure process was initiated.⁶ The same was true in LaRace, except that the assignment contained language that purported to make it effective prior to the commencement of the foreclosure proceedings.⁷ In Rosario, the assignment was executed prior to commencement of the foreclosure, but not recorded until afterwards.⁸

The court found the foreclosures in Ibanez and LaRace to be defective because the party foreclosing was not the holder of the mortgage at the time of the foreclosure, as required under G.L. c. 183, Section 21, with which the courts have always required strict compliance.⁹ The court found that the party foreclosing was not the holder of the mortgage in either Ibanez or LaRace, since no assignment had been executed prior to commencement of foreclosure.^l0 In Rosario, on the other hand, the court upheld the validity of the foreclosure, noting that the mere failure to record an assignment prior to commencement of a foreclosure was not the problem.¹¹

Following these decisions by the Land Court, REBA suspended paragraph 3 of Title Standard 58 pending the appeal of the Ibanez and LaRace decisions. The SJC took these cases on direct appellate review. Earlier this year, the SJC affirmed the decisions of the Land Court in a single decision now commonly referred to as Ibanez. Not surprisingly, paragraph 3 has now been permanently deleted from REBA Title Standard 58.

As a consequence of the SJC's decision in Ibanez, a great number of foreclosures, perhaps thousands, are defective. This means that anyone buying a property following such a defective foreclosure, either from the foreclosing entity or a subsequent purchaser, does not have good title. While such a buyer's pain may be lessened somewhat by the existence of an owner's title insurance policy issued pursuant to previous practice and former REBA Title Standard 58 and insuring that the title is good, the pain still persists.

Bevilacqua was one of these buyers. In an attempt to clear his title of this Ibanez problem, Bevilacqua brought a "try title" action under G.L. c. 240, §§ 1-5 in the Land Court.^l2 Such a proceeding allows a property owner to compel anyone with an adverse claim on his title to come forward and prove the case, or be forever barred from asserting such claim. The conveyancing and foreclosure bars, as well as the title companies, were hopeful that this would provide a way of rehabilitating foreclosures defective under Ibanez. Had Bevilacqua succeeded, the try title action would likely have become the most expedient way to fix an Ibanez problem.

Unfortunately for Bevilacqua and others similarly situated, the SJC held that a try title action requires the plaintiff to have record title.^l3 In Bevilacqua, since the mortgage had not yet been assigned to the foreclosing party at the time of the foreclosure, it did not have good title, and hence, Bevilacqua did not have record title and he could not avail himself of the try title procedure.^l4

Where does this leave Bevilacqua and other property owners with an Ibanez problem? The most obvious solution would be for the foreclosing entities to re-foreclose. The problem with this approach is that it requires repeating the foreclosure process, including all required notices and conducting a new sale. Under such a scenario, the current "owner" would face the possibility of being outbid at the auction sale. Any such foreclosures would also likely be subject to recently enacted moratorium legislation dramatically delaying the foreclosure process, even though such legislation was not aimed at foreclosures brought under these circumstances.

A second approach would be to conduct a new foreclosure by entry, a process which commonly accompanies a foreclosure by power of sale as part of a "belt and suspenders" approach. The problem with this alternative is that it takes three years for a foreclosure by entry to become effective. This will not help an "owner" who desires to sell or refinance his property in the meantime.

This situation has created a real dilemma, not only for the lenders and buyers of foreclosed property, but also for the title insurance companies. Rather than waiting for the thousands of claims that will inevitably be asserted, the title insurance industry has tried to be proactive. Reviewing all existing title insurance policies to locate each one with an Ibanez problem is a daunting task, and as set forth above, the only obvious remedy, re-foreclosure, is not particularly attractive. Instead, the title insurers are wisely seeking a legislative remedy.

Legislation has recently been filed on behalf of the Massachusetts Land Title Association. Senate Bill 830, entitled "An Act Clearing Titles to Foreclosed Properties" provides that once the affidavit (required under G.L. c. 244, Section 15, in connection with the foreclosure of a mortgage) has been recorded, the former owner has 90 days to bring an action in the Superior Court challenging the right of the foreclosing entity to foreclose.

If the former owner fails to do so, the affidavit shall be deemed to be conclusive evidence in favor of a good faith purchaser for value at or subsequent to the foreclosure sale that the foreclosing party identified in the affidavit is in fact the holder of the mortgage.

This would fix the Ibanez problem without the need to re-foreclose or to bring a court action. For the sake of all innocent buyers of properties following foreclosures defective under Ibanez, let us hope that the Legislature will pass this or similar legislation soon. Stay tuned.

Thomas L. Guidi is a partner in the Boston law firm of Hemenway & Barnes LLP, where he serves as chair of the Real Estate Practice Group. He is also chair of the MBA Property Law Section Council.

^l458 Mass. 637 (2011).
²460 Mass. 762 (2011).
³2009 WL 795201 (Mass. Land Ct. Mar. 26, 2009).
⁴Id.  
⁵REAL ESTATE BAR ASSOCIATION Title Standard 58, ¶ 3 (1995).
⁶Ibanez, 458 Mass. at 643.
⁷Id.  at 645.
⁸Rosario, 2009 WL 795204, at *2.
⁹Ibanez, 458 Mass. at 653.
^l0Rosario, 2009 WL 795204, at *2.
^l1Id.
^l2Bevilacqua, 460 Mass. at 765.
¹³Id.  at 780.
^l4Id  at 772.