Court rules banks screwed up, have no right to two properties they foreclosed on

The Supreme Judicial Court ruled today that two banks can't claim ownership of two foreclosed Springfield homes because of their shoddy paperwork.

The ruling is a possible blow against banks seeking to foreclose on mortgages that were sold and resold or bundled as "securitized" investments in the years leading up to the near collapse of the financial industry, at least if they failed to dot all their i's as they would normally expect their customers to do. In its ruling, the court said:

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."

Two of the justices went even further in expressing their disgust:

[We] concur fully in the opinion of the court, and write separately only to underscore that what is surprising about these cases is not the statement of principles articulated by the court regarding title law and the law of foreclosure in Massachusetts, but rather the utter carelessness with which the plaintiff banks documented the titles to their assets.

In one of the Springfield cases, the court said U.S. Bank was unable to provide proof the property was actually included in a bundle of securitized mortgages. In another, the current mortgage holder was unable to offer proof the morgage was actually transferred from the initial lender to Bank of America.

The court also noted the banks' alleged attempt to comply with a legal requirement to place foreclosure notices in a newspaper "of general circulation" by putting ads in the Boston Globe for the properties in Springfield.

In one case, the court noted:

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.

In the other case:

Wells Fargo did not provide the judge with a copy of the flow sale and servicing agreement, so there is no document in the record reflecting an assignment of the LaRace mortgage by Option One to Bank of America.

• Complete ruling