Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

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S. Bank National Association v. Ibanez
Supreme Judicial Court of Massachusetts, 458 Mass. 637, 941 N.E.2d 40 (2011).
FACTS Mortgage, Inc., issued Antonio Ibanez a $103,500 home loan, and Option One Mortgage issued Mark and Tammy LaRace a $129,000 home loan. Each of the loans subsequently changed hands several times through various banks, as is common in the mortgage-lending industry. Both Ibanez and the LaRaces defaulted on their mortgages. U.S. Bank National Association foreclosed on the Ibanez mortgage, and Wells Fargo foreclosed on the LaRace mortgage. Both banks published notices of the foreclosure sales in a newspaper, as required by statute, and then bought the homes at the foreclosure auctions. Both banks purchased the properties for significantly less than the purported market value. At the time of the foreclosures, each bank represented that it was the "owner (assignee) and holder" of the mortgage. The banks filed separate lawsuits in a Massachusetts state court seeking a declaration that the banks now owned the properties. Neither bank, however, produced any signed documents showing that the mortgage had been properly assigned to it before the foreclosure sale. U.S. Bank received a written assignment of the mortgage more than a year after the foreclosure sale, and Wells Fargo received an assignment ten months after the sale. The court held that the banks, which were not the original mortgagees, had failed to show that they were holders of the mortgages at the time of the foreclosures. The banks appealed, and the cases were consolidated for appeal.
ISSUE Did U.S. Bank and Wells Fargo strictly comply with the statutory requirement that they prove they were entitled to exercise a power of sale foreclosure?
DECISION No. The Supreme Judicial Court of Massachusetts affirmed the lower court's ruling in favor of Ibanez and the LaRaces. U.S. Bank had failed to show that the Ibanez mortgage was among the mortgages assigned by the trust agreement. Wells Fargo had failed to demonstrate that it was the holder of the LaRace mortgage. Thus, the banks did not have the authority to foreclose, and the foreclosure sales were invalid.
REASON Although the state's power of sale statute provides a mortgage holder with substantial power to foreclose without immediate judicial oversight, the mortgage holder must strictly follow the statutory requirements. One of these requirements concerns who is entitled to foreclose. Only "the mortgagee or his [or her] executors, administrators, successors or assigns" can exercise the statutory power of sale. For the plaintiffs (the banks) to obtain the judicial declaration of clear title that they sought, they had to prove their compliance with this requirement. U.S. Bank argued that it was assigned the mortgage under a trust agreement that covered multiple mortgages, but it did not submit a copy of this agreement to the court. a The court reasoned that U.S. Bank therefore had failed to show that it had the authority to foreclose on the Ibanez mortgage. With regard to the LaRace mortgage, Wells Fargo did submit an assignment document (a mortgage loan schedule) to the court, but that document did not adequately specify the LaRace mortgage as one of the mortgages to be assigned. Moreover, Wells Fargo did not offer any evidence that the party purportedly assigning the mortgage in that document actually held it. Thus, both the foreclosure sales were invalid. The banks did not demonstrate that they were the holders of the Ibanez and LaRace mortgages at the time that they foreclosed these properties. Therefore, they also failed to demonstrate that they had acquired title to these properties by purchasing them at the foreclosure sale.
FOR CRITICAL ANALYSIS-Economic Consideration After the court's ruling, the price of Wells Fargo's stock dropped by about 3.4 percent. Why would a court's decision regarding a few mortgages affect the company's stock price?