US BANK v. Ibanez - Amicus Manson Brief

8/4/2019 US BANK v. Ibanez - Amicus Manson Brief

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SUPREME JU DICIAL COURTFOR THE COMMONWEALTH OF MASSACHUSETTSNO. SJC-10694U.S. BANK NATI ONAL ASSOCIATION,AS TRUSTEE FOR THE STRUCTURED ASSET SECURITIESCORPORRTION MORTGAGE PASS-THROUGH CERTIFICATES, SER IES

2 0 0 6 - 2 ,V.ANTONIO IBANEZ,

PLAINTIFF/APPELLANT,

DEFENDANT/APPELLEE.

WELLS FARGO BANK, N.A.,AS TRUSTEE FOR ABFC 2005-OPT 1 TRUST, ABFC ASSETBACKED CERTIFICATES SERIE S 2005-OPT 1,PLAINTIFF/APPELLANT,V.

MARK A. LARACE AN D TAMMY L. LARACE,DEFENDwS/APPELLEES.

m DIRECT APPELLATE REVIEW OF A JUDGMENT OFTHE LAND COURT

BRIEF OF AMICI CURIAE DAR LENE MANSON, GERMAN0 DEPINA,ROBERT LANE, ANN COILEY, ROBERTO SZUMIK, GERAL D0 DOSANJO S

andNATIONAL CONSUMER LAW CENTER.

Kevin CostelloGary KleinShennan KavanaghRoddy Klein & RyanI 2 1 Atlantic AvenueBoston, M A 02111(617) 357-5500Stuart RossmanNational Consumer Law Cen ter7 Winthrop Square, 4th F1.Boston, MA 02110(617) 542-8010


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TABLE OF CONTENTSPage

Table o f Authorities ............................... iiiI. STATEMENT OF INTEREST ........................... 111. INTRODUCTION ................................... 4IIT. BACKGROUND ...................................... 8

A. Massachusetts Foreclosure Process ..........B. The Securitization Industry ...............12INTERPRETATION ................................. 18A. The Statute is to be Strictly Construed ... 19B. The Land Court's Plain Reading of theStatute Performed was Correct ............. 1

1. Appellants Are Not Mortgagees ........ 22 . Nor Do Appellants Fit Within Any of the

IV. THE QUESTION BEFORE THE COURT IS ONE OF STATUTORY

Other Categories Entitled to Exercisethe Power of Sale Under G.L. c. 244, 14. .................................. 2 4C. The Appellants Were Not the Holders of theSubject Mortgages at the Time of Notice andSale ...................................... 25

1. Statute of Frauds .................... 252 . Appellants' Sole Citation toMassachusetts Authority is Two

Bankruptcy Opinions that Do Not Supporttheir Position ...................... 3 0 Effective. ........................... 3 3 3 . An Assignment in Blank is Not

D. Note-holder Status Does Not Automaticallyand Without More Confer a Right to Foreclosethe Corresponding Mortgage in Massachusetts ........................................... 34V. THERE IS NO REASON IN LAW OR LOGIC TO LIMIT THELAND COURT'S RULINGS TO A PROSPECTIVE APPLICATTON

A. Massachusetts Jurisprudence Does Not Permit............................................... 3 1

the Plain Reading of an Unchanged Statute tobe Limited to a Prospective Application . . 3 1 B. There i s No Reason to Believe that Affirmingthe Land Court will Have the CatastrophicEffects Forecast by Appellants and theirSupporting Amici .......................... 41

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VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .


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TABLE OF AUTHORITIESPage

CasesBank of New York v . Appollos,_ _ ~No. 08-ADMS-10045, 2009 WL 1111198 ( M a s s . App. Div.

_April 17,, 009) .................................. 23149 Mass. 106 (1889) ......................... 30, 35Barnes v. Boardrnan,

Benton v. Land C O U , ~ ,367 Mass. 385 (1975) ......................... 10, 11Bevilacqua v. Rodriguez,

No. lO-MISC-427157(KCL), 2010 WL 3351481 (Mass. LandCt. Aug. 26, 2010) ............................... 45Bretta v - Meltzer,

280 Mass. 573 (1932) ............................. 33Cousbelis v. Alexander,Crane V. March,FleetE. ank v . Commissioner of Revenue,

315 Mass. 729 (1944) ......................... 26, 274 Pick. 131....................................... 37448 Mass. 441 (2007) ............................. 39

GMAC Mortgage, v. Visicaro,No. 07013084CI ( F l a . Cir. Ct. April 7, 2010) ...... 15In re Foreclosure Cases,No. 1:07-cv-2282-CAB, 2007 WL 3232430 (N.D. OhioOct. 31, 2007) ........................... 17, 4 0 , 43_ _n re Nosek,386 B.R. 374 (Bankr. D. Mass. 2008) .............. 16I n re Nos&-- 1609 F . 3 d 6 (1"' Cir. 2010) .................... 14, 15_ _n re Samuels,415 B.R. 8 (Bankr. D. Mass. 2008) ........ 30, 31, 32_ _n re Schwartz,

366 B.R. 265 (Bankr. D. M a s s . 2007) ...... 17, 24, 42Landmark Nat'L Bank V. Kesler,289 Kan. 528 (2009) .............................. 146. T Bank v. Smith,No. CA09-0418, Order Granting Defendant's Motion toDismiss Second Amended Complaint With Prejudice(Fla. Cir. Ct. June 10, 2010) ..................... 26

...111


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Manson v.e ortgage,s, t a l , ,Mazola, et al. V. 9 epartment Stores&,

No. 1:08-cv-12166 . . . . . . . . . . . . . . . . . . . . . . . . . . . . p assimNo. 97-CV-10872-NG, 1999 WL 1261312 (D. Mass.January 27, 1999) ................................. 2

McGreevey v. Charlestown Five Cents m . Bank,McGreevey v. Charlestown Pive Cents SavinqsEn&,MERSCORP, Inc. v. Romaine,Moore v. Dick,

294 Mass. 480 (1936) ............................. 19294 Mass. 480 (1936) .............................. 68 N.Y.3d 90 (2006) ............................... 14187 Mass. 207 (1905) .......................... 6 , 45

Powers v. Wilkerson,399 Mass. 650 (1987) ............................. 38Roqers v . Barnes,169 Mass. 179 (1897) ......................... 19, 21Rosenberq v. Lipnick,Rubijono v. Ameriquest Mortqaqe Q.,

377 Mass. 666 (1979) ............................. 39No. 07-01076-FJB, Supplemental Order on Motion f o rSummary Judgment (Bankr. D. Mass. May 27, 2010).............................................. 30, 32

Schrottman v. Barnicle,386 Mass. 627 (1982) ............................. 38Schwanbeck v. Federal-Mogul Corp.,Simon v. -,imon

~Tu11 v. Mister Donut Development Corp. ,T y l e r v . Yudgee of the Court of Reqistration,

412 Mass. 703 (1992) ............................. 2735 Mass. App. Ct. 705 (1994) ..................... 287 Mass. App. Ct. 626 (1979) ...................... 28175 Mass. 71 (1900) .............................. 43-~. S . Bank National Association v. Ibanez,Nos. 08-MISC-384283 (KCL) & 08-MISC-386755 (KCL),2009 WL 3297551 (Mass. Land Ct. O c t . 14, 2009)passim-~.S. Bank National Association v. Ibanez,NOS. 08-MISC-3842831KCL) & 08- MISC-386755(KCLI,.2009 WL 795201 (Mass. Land Ct. March 26, 2009) assim378 Mass. 85 (1979) .............................. 39Whitinsville - Ilaza ~Inc. v. Kotseas,

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Young v . Miller.7 2 Mass . 1 5 2 ( 1 8 5 6 ) ........................... 3 5 . 36Statutes2 8 U . S . C . s 1 3 3 2 ..................................... 32 8 U.S.C. $: 1 4 5 3 ..................................... 35 0 U.S.C. Appendix 5 0 1 ............................ 11G.L. c . 2 3 1 A ........................................ 40 G.L. c . 2 4 0 . 5 1 ................................ 40. 4 5 G.L. c 2 4 0 , $: 2 ................................ 4 0 . 4 5 G.L. c . 240. S 3 ................................ 4 0 . 4 5 G.L. c . 2 4 0 , 5 5 .................................... 4 5 G.L. c 2 4 4 . 1 .................................... 11G.L. c . 2 4 4 . 2 .................................... 1 0 G.L. c 244. S 1 4 ............................... passimG.L. c . 2 4 4 . 35A ................................... 9G.L. c 259. S 1 .................................... 26

G.L. c + 183. 21 .................................... 9

G.L. C . 2 4 0 . 5 4 ................................... 4 5G.L. C . 2 4 0 . 6 .................................... 4 5

O t h e r AuthoritiesChristopher L Peterson. Predatory StructuredGretchen Morgenson. Foreclosures Hit a Snag forKathleen C . Engel E, Patricia A . McCoy. PredatoryFinance. 2 8 Cardozo L . Rev 2 1 8 5 (2007) ........... 16Lenders, N.Y. TIMES! Nov. 15. 2 0 0 7 , at C1 ....... 15 . 16Lending: What Does Wall Street Have to Do with It?

Kurt Eggert. H e l d Up in Due Course: predatory Lending.15 Housing Pol'y Debate 715 ( 2 0 0 4 ) ................ 1 6 Securitization. and the Holder in Due CourseDoctrine. 35 Creighton L . Rev 503 (2002) ......... 16

Restatement 2d of Contracts. 9 .................... 34


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Mazola,--t al. v. Department Storesz,o. 97-CV-10872-NG, 1999 WL 1261312 at * 4 (D. Mass. January21, 1999). Through its advocacy and policy work, NCLChas developed expertise in the abuses visited onconsumers by the contemporary process of mortgagesecuritization. In NCLC's experience, this process isone o f the source causes of an extensive range ofproblematic lending and loan servicing practices.See,Q., Commonwealth v . Fremont Investment and- n oan 452 Mass. 733 (2008) ("Fremont").

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The Manson Amici and the similarly situatedhomeowners ,they seek to represent are Massachusettscitizens who have lost or are about to lose theirhomes to foreclosure without the legally mandatednotice protections at issue in this appeal. Manson is

NCLC has been representing low-income consumersbefore government agencies, Congress and statelegislatures since 1969. It has appeared in the UnitedStates Supreme Court and federal and state courts andhas successfully presented many important casesaffecting consumer borrowers. It provides consultationand assistance to legal services, private andgovernment attorneys. NCLC publishes a nationallyacclaimed series of manuals on all major aspects ofconsumer credit and sales. It also conducts trainingsessions on the rights of consumer borrowers forattorneys, paralegals and other counselors. NCLC worksclosely with lawyers representing low-incomeconsumers, and with federal and state officials, laborunions, and community and civil rights organizationsto promote justice for consumers. NCLC maintainsoffices in Boston and Washington, D.C.

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a challenge to these foreclosures, executed byentities improperly claiming status as mortgagee.' Thegravamen of the Manson complaint is that an entity isnot entitled to exercise the power of sale referencedin G . L . c . 244, 5 14, absent its possession of a validwritten assignment of the subject mortgage at the timeof notice and auction. See Am, Cosol. Compl., MansonV. GMAC Mortgage,G, t al., No. 1:08-cv-l2166(Attached a s Addendum Tab A). T h a t is precisely theissue presented here.

Given the pendency Of this appeal, the Mansonmatter has been stayed in order to allow the SupremeJudicial Court to render a final ruling on the properreading of G.L. c . 2 4 4 , rj 14. If the Supreme JudicialCourt upholds the Land Court decisions, the MansonAmici will resume their efforts to obtain relief forthemselves and the class they seek to represent in ,theUnited States District Court.

In the view of NCLC and the Manson Amici, theissue presented to the Court in this matter is but yet

Manson was initially filed by the Manson Amici in theBusiness Litigation Session of Suffolk Superior Court,on November 2 0 , 2 0 0 8 , which was several months priorto the Land Court's initial ruling in these cases onMarch 2 6 , 2 0 0 9 . After filing, Manson was removed bythe defendants under the Class Action Fairness Act, 28U . S . C . 1 3 3 2 ( d ) , 1453.

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another symptom of the larger set of problemsoccasioned by the largely unregulated mortgagesecuritization process. In its effort to maximizeefficiency for financial gain, and to the detriment ofMassachusetts homeowners, the securitization industryignored the law governing Massachusetts foreclosures,and the Land Court recognized this error. NCLC andthe Manson amici therefore believe the Land Court'sdecisions should be upheld.11. INTRODUCTION

The Supreme Judicial Court should affirm the LandCourt's rulings published as U . S . Bank NationalAssociation v. Ibanez, Nos. 08-MISC-384283(KCL) & 0 8 -MISC-386755(KCL), 2009 WL 795201 (Mass. Land Ct. March2 6 , 2009) ("IbanezI") nd 2009 WL 3297551 (Mass. LandCt. Oct. 14, 2009) ("Ibanez 11'' nd together withIbanez L, "Rulings"). The Rulings held thatforeclosures performed by U . S Bank N.A., as trustee,and Wells Fargo Bank, N.A. as trustee (together,"Trustees" or "Appellants" are invalid, where theTrustees did not possess a valid written mortgageassignment at the time notice was published and thesale took place. Ibanez I, 009 WL 795201. at *2."Neither an intention to do so in the future nor the

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backdating of a future assignment meets the statute'sstrict requirement that the holder o f the mortgage a tt h e t i m e notice is published and auction takes placebe named in the notice." -d. (emphasis in original).

Having been turned away by the Land Court ontheir theory that backdated mortgage assignments standa s sufficient to confer "mortgagee" status under G.L.c. 244, S 14, Appellants have turned to a more noveland tenuous argument on appeal. The thrust ofAppellants' position now is that they should be deemedholders of the subject mortgages by virtue ofdocuments associated with the securitization process.The S J C should reject this argument not just becauseit finds no support in Massachusetts jurisprudence orbecause Appellants have failed to meet their burden ofproof, but also because it would represent a dangerousstep away from a statutory scheme predicated onclarity and transparency in the transfer of land.

This amicus brief will begin with a backgroundsection summarizing the landscape on which thiscontroversy unfolds. Although the Land Court properlyidentified G.L. c. 2 4 4 , 14 as a "consumerprotection" statute, see lbanezI,009 WL 795201 at"6, a brief overview of the foreclosure process in

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Massachusetts creates context for the importance o fproper statutorily mandated notice. This Court'sjurisprudence has long balanced the minimal protectionin the text of the foreclosure statute with arequirement that it be strictly construed. See,3.McGreevey v . Charlestown Five Cents Savinqs Bank, 2 9 4Mass. 4 8 0 , 4 8 3 - 8 4 ( 1 9 3 6 ) ; Moore V. Dick, 187 Mass.2 0 7 , 211-212 (1905).

Amici also present some background o n theunregulated mortgage securitization industry and itsabuses. The "wild-west" nature of the industryunderscores the need both for heightened clarity inthe legal. rules governing property ownership and thedifficulties faced by average homeowners in navigatingtheir own debt.

Second, the amici emphasize that the questionbefore the Court is fundamentally one of statutoryinterpretation. By its plain language, G.L. c. 2 4 4 , s1 4 permits no interpretation other than that of theRulings - the entity named in the notice and in whosename the foreclosure is carried out must be thecurrent holder of a written mortgage assignment. TheAppellants newly adopted position on appealpurposefully mischaracterizes this dispute as a


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question of the propriety of its practices inmaintaining chain of title throughout thesecuritization process. In so doing, it ignores thestrict standard that this Court has articulated inconnection with the statute at issue, as well as theplain language of that statute.

Last, there is no ceason in law or logic to limitthe effect of the Court's ruling to a prospectiveapplication. Massachusetts jurisprudence is clear -only where a ruling announces change of a longstandingprinciple of common law should an appellate courtconsider prospective limitation. No such change is i nthe offing here, where the issue is one of statutoryinterpretation, rather than alteration of longstandingcommon law principles. Moreover, the Land Courtmerely read an unaltered statute in a mannerconsistent with this Court's prior rulings.

The assertions of Appellants and their amiciregarding the purported effects of the Court's rulinghere are overstated and based in speculation. To theextent the Rulings caused any disruption in thehousing market whatsoever - and there is no evidencethat they have - the clarity provided by this Court'sdecision, in concert wiLh the continuing

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implementation o f the Rulings by the Land Court andthe relief sought by the Manson Amici in federalcourt, will address it sufficiently.

The practices utilized by Appellants and theirsupporting amici, including REBA and its members, hasplaced expediency and convenience before following thelaw. In their rush to foreclose, these institutionshave declared their own rules, unilaterallyestablishing new and extra-legal practices aroundtheir awn creations. In so doing, these entities,along with the title insurers who sanction them, beart h e risk of their own mistakes. It is not thefunction of the Commonwealth's courts to relieve thatrisk. On appeal, Appellants and their amici resort tofear mongering, speculating that the Rulings willcreate a crisis in Massachusetts. The reality isotherwise. The real crisis lies in the plight ofhomeowners who have lost their homes i n recent yearswithout proper statutory notice and process.

111. BACKGROUND

A . Massachusetts Foreclosure ProcessMassachusetts foreclosures are governed by a

handful o f statutes that delimit and prescribe thecontractual relationship between mortgagor and

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mortgagee. Consumers, from their typical posture ashaving less information, less sophistication, andfewer resources than the mortgagee, are placed in a

vulnerable position in this process, relative to otherstates where foreclosures are overseen by a judicialofficer and auctions are conducted by a publicofficial. The purpose of this short overview is not'to question the wisdom of the statutory scheme; ratherthe amici wish to highlight both the imbalance ofpower that already exists in a typical Massachusettsresidential foreclosure, as well as the relative easewith which it may be accomplished by Appellants andtheir industry colleagues. I n short, theMassachusetts foreclosure process, properly followed,already accommodates Appellants' desire for expedienceand convenience - Appellants should not be heard tocomplain that the Rulings requiring them to meet themost fundamental statutory prerequisites unduly burdenthem.

Massachusetts recognizes three different means of4foreclosure, although only two are relevant here.

... ~4The third method of foreclosure in Massachusetts i sforeclosure by action, "a method rarely used." Beatonv. Land Court, 367 Mass. 385, 393 ( 1 9 7 5 ) . Under thismethod, the mortgagee may declare on its own seisen

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First, foreclosure by power of sale is governed byG.L. c. 244, 5 14 and G.L. c- 183, S 21. The statuterequires a foreclosing mortgagee to publish notice o fthe foreclosure sale in a newspaper for threesuccessive weeks prior to the foreclosure sale.'also requires that notice be sent to the homeowner byregistered mail at least fourteen days prior to thesale. The statute further provides a template of theform o f notice sufficient to meet its requirements.After meeting these two basic ministerialrequirements, the mortgagee may conduct a foreclosuresale.

It

The second means of foreclosure, commonlyperformed in concert with the power of sale, is entry.Under this method, the mortgagee effects an unopposed,peaceable entry - a fiction usually accomplishedduring the course of holding a foreclosure sale on ornear the property. G.L. c. 2 4 4 , $ 5 1-2.

.. . "..and receive a conditional judgment. See G.L. c. 2 4 4 ,S 1, 3-10.Recently, the General Court amended the Massachusettsforeclosure process to add a ninety-day period duringwhich the homeowner has a right to cure after noticeof default. ~See G.L. c. 244, 35A. The effectivedate of this new provision was May 1 , 2 0 0 8 . Thisadditional notice period has no effect on the non-judicial nature of the Massachusetts foreclosureprocess.

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Following the filing of a certificate of entry and theconclusion of a three-year period, the homeowner'srigh,ts are extinguished. This approach is employed asa failsafe measure to insure the success of theforeclosure if there are defects in the execution ofthe power of sale.

The practice at issue here - foreclosure by powerof sale that is often insured with a certificate ofentry - is an entirely non-judicial process."Compliance with this series of simple, ministerialsteps imposes a relatively light burden on theforeclosing entity. That the Trustees now come beforethe Supreme Judicial Court seeking to be excused fromeven the most fundamental requirements of the statute- i.e., that the entity foreclosing be either theoriginal mortgagee or an entity holding a writtenassignment from the original mortgagee that complies

' Standing separate and apart from these three methodsof foreclosure are the requirements of theServicemembers' Civil Relief Act, 50 U.S.C. Appendix 501 et seq. This federal statute protects active dutymilitary personnel from foreclosure and other civilactions. Massachusetts has adopted a Land Courtprocess by which foreclosing mortgagees may extinguishany future righl; o r a homeowner to challenge thelegality o f a foreclosure under this federal law. SeeMass. St. 1959, ch. 105. Failure to comply properlywith this process does not affect the validity of theunderlying foreclosure. Beaton v. Land Court, 3 6 1Mass. 385, 3 9 1 - 9 3 (1975).

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with the statute of frauds - is deeply out of balancewith a legislative scheme already tilted in theirfavor, and this Court's jurisprudence requiring those

statutory provisions be strictly construed.B. The Securitization IndustryAlthough this case presents a question of

statukory interpretation, it is impossible to divorcethe legal. question here raised from the factualcontext from which it springs. The Trustees thatbring this appeal are acting on behalf of trusts thatare nothing more than profit engines in the v a s tmachinery of securitization so prominently identifiedas being at the center of the recent economicmeltdown.' The causes and effects of this crisis wereno less present in Massachusetts than elsewhere.

. .. .. .. .See e.q.,Michael Lewis, The Big Short: Inside the_ IDoomsday Machine at 1 5 3 - 5 4 (W. W . Norton & company2010) (chronicling the connection between Option Oneand other subprime loan originators and their WallStreet partners in securitization as responsible forthe economic crisis of 2 0 0 8 - 0 9 ) ; Joe Nocera, A WallStreet Invention Let the Crisis Mutate, N.Y. Times,April 17, 2010 at B1 (no'ting hat "[subprime]mortgages turned out to be a n excuse for predatory

lending and fraud, enriching the lenders and WallStreet at the expense of subprime borrowers, many ofwhom ended up in foreclosure"); Press Release,Securities and Exchange Comm'n, "Goldman Sachs to PayRecord $550 Million to Settle SEC Charges Related toSubprime Mortgage CDO" (July 15, 2010) availablehttp://www.sec.gov/news/press/2010/2010-123.htm(noting that key securitizing agent Goldman Sachs12
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Much has been stated in both the popular mediaand in the courts regarding the carelessness withwhich the mortgage industry has operated during this

--"will pay $550 million and reform its businesspractices to settle SEC charges that Goldman misledinvestors in a subprime mortgage product just as theU . S . housing market was starting to collapse.") Seealso Ibanez 11 2009 WL 3297551 at * l o , citinq, inter&, R. Posner, A Failure of Capitalism: The Crisisof '08 and the Descent Into Depression (HarvardUniversity Press 2009).

See, e.q.,Press Release, Massachusetts AttorneyGeneral, "Morgan Stanley to Pay $102 Million for Rolein Massachusetts Subprime Mortgage Meltdown UnderSettlement with AG Coakley's Office" (June 24, 2010)

d

available athtts://~.mass.aov/?vaaeID=caaouressrelease&L=1&LO=Ho- - _ _me&sid=Cago&b=pressrelease&f=2O10~06~24~ms~settlement&csid=Cago ("AS a result of a lengthy investigation,the Attorney General's Office alleged that Morganentered the subprime arena in Massachusetts byoffering funding to retail lenders that specialized inl oans to less-qualified borrowers. Morgan providedbillions of dollars to subprime lender New Century,which used Morgan funds to target lower-incomeborrowers and lure them into loans that consumerspredictably could not afford to pay. These loans oftenwere unsustainable because of payment shock or poorunderwriting, but were lucrative for subprime lenders,who generated fees and could expect that borrowerswould have to refinance in the short term or faceforeclosure. Some Morgan Stanley investment bankersreferred to New Century as Morgan's "partner" in thesubprime lending business."); Press Release,Massachusetts Attorney General, "Attorney GeneralMartha Coakley and Goldman Sachs Reach SettlementRegarding Subprime Lending Issues" (May 11, 2009)availablehttp://www.mass.gov/?pageID=cagopressrelease&L=l&LO=Home&sid=Cago&b=pressrelease&f=2OO9~O5~ll~goldmanettlement&csid=Cago (listing the different aspects 07 thesecuritization industry being investigated for abuseby the Massachusetts Attorney General).

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time. Securitization occasioned a sort of "free-for-all" or "wild west" atmosphere in the industry, thathas resuled in massive confusion, competing claims tothe same property interest, and even fraud.'Nosek, 609 F.3d 6, 9 (1" Cir. 2010) ("Studies haveshown that mortgage holders and servicess routinelyfile inaccurate claims, some of which may not belawful."), citinq Porter, Misbehavior-nd MistakeBankruptcy Mortgaqe Claims, 8 7 Tex. L. Rev. 121, 123-2 4 (2008) (empirical study of misrepresentation and

---ee In re

' Securitization h a s caused further opacity in theprocess of property transfer with the introduction of"nominee" mortgagees that purport to act a s mortgageholders of record whilst the mortgage and loan travelthrough the securitization maze. This role, typicallyplayed by a private corporation known as MortgageElectronic Registration System or "MERs" removes frompublic view the many links in the chain of title thatoccur in a typical securitization. This practice hasbeen criticized as "obscuring from the public theactual ownership of a mortgage, [and] thereby creatingthe opportunity far substantial abuses and prejudiceto mortgagors." Landmark Nat'l Bank v. Kesler, 289Kan. 528, 543 ( 2 0 0 9 ) quotinq Johnson v. Melnikoff, 8 7 3N.Y.S.2d 234 ( N . Y . Sup. Ct. 2008). See also MERSCORP,G. . Romaine, 8 N.Y.3d 9 0 , 104 ( 2 0 0 6 ) (Kaye, C.J.,dissenting in part) ("Public records will no longercontain [important] information as, i f it achieves thesuccess it envisions, the MERS system will render t h epublic record useless by masking beneficial ownershipof mortgages and eliminating records of assignmentsaltogether. Not only will this information deficitdetract from the amount of public data accessible forresearch and monitoring of industry trends, but it maya l s o function, perhaps unintentionally, to insulate anoteholder from Liability, mask lender error and hidepredatory lending practices.")

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confusion of industry litigants seeking foreclosurethrough the bankruptcy process).characteristic has received perhaps the most attention

in connection with mortgage origination. See, e.q.,Fremont, 452 Mass. at 738-40 (describing subprimeorigination practice), Indeed, for years prior tocrescendo of the subprime mortgage crisis, scholarshad well documented the connection between

Thiso , 11

-l o The First Circuit's In re Nosek ruling modified anaward of sanctions against one of several litigantsand attorneys, including members of the law firm thatprosecuted the foreclosures sub judice, sanctioned bythe Bankruptcy Court for their actions in the courseof puizsuing foreclosure of a securitized loan. Lowerlevel review of these sanctions produced anextraordinary opinion by Judge Young of the UnitedStates District Court for the District ofMassachusetts, in which he laments "the unedifyingspectacle of a litigant and its lawyers engaging inegregious misrepresentations" vis-2-vis their ownroles in the creation, operation and defense of aresidential mortgage securitized trust. Nosek,4 0 6 B . R . 434, 436 (D. Mass. 2009).For an example of a judge expressing disbelief thatmultiple entities have claimed the right to forecloseon the same mortgage, based on the confusion caused bysecuritization, see Transcript of Proceedings at 5-7,GMAC Mortgage, zzC_ v. Visicaro, No. 07013084CI (Fh.

Cir. Ct. April 7, 2010) (attached as Addendum Tab B).~~See also Gretchen Morgenson, Foreclosures Hit a Snagfor Lenders, N.Y. TIMES, Nov. 15, 2007, at C1("Morgenson") (quoting a mortgage securitiesspecialist as stating with regard to mortgage-backedsecurities: "I have heard of instances where the sameloan is in two or three pools.")

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securitization industry and predatory lendingpractices. I

The erosion of proper compliance with state-mandated foreclosure processes constitutes yet anothercollateral effect of the modern securitizationindustry.13 Courts forced to sift through theprocesses used by the securitization industry in theirefforts to foreclose have expressed frustration and,at times, outright contempt, for the standards ofpractice exhibited. See Ibanez I, 2009 WL 3 2 9 7 5 5 1 at* 4 n.15; I n re Nosek, 386 B . R . 3 7 4 , 380 (Bankr. D.Mass. 2 0 0 8 ) vacated in part by 2009 WL 1 4 7 3 4 2 9 (D.

See Kurt Eggert, Held Up in Due Course: PredatoryLending, Securitization, and the Holder in Due CourseDoctrine, 35 Creighton L. Rev. 503 ( 2 0 0 2 ) ; Kathleen C.Engel & Patricia A . McCoy, Predatory Lending: WhatDoes Wall Street Have to Do with It? 15 Housing Pol'yDebate 7 1 5 (2004); Christopher L . Peterson, PredatoryStructured Finance, 28 Cardozo L. Rev. 2 1 8 5 (2007);

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&, e.q., Morgenson, supra n.10 (reporting on thejudicial rejection of a series of foreclosures s o u g h tby a securitization trustee for failure to show properauthority as mortgage holder); Gretchen Morgenson andGeraldine Fabrikant, Florida's High-speed Answer to aForeclosure Mess, N.Y. Times, Sept. 4 , 2010, at BU1(quoting the Florida Attorney General as stating, withregard to the three largest Florida law firmsprosecuting foreclosures: "Thousands o f finaljudgments of foreclosure against Florida homeownersmay have been the result of the allegedly improperactions of these law firms. . . . We've had so manycomplaints that I am confident there is a great dealof fraud here. )

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Mass. May 26, 2 0 0 9 ) ("Unfortunately the parties'confusion and lack of knowledge, or perhapssloppiness, as to their roles is not unique in theresidential mortgage industry."), citing, inter alia,_ _n -e Maisel, 3 7 8 B . R . 1 9 (Bankr. D. Mass. 2 0 0 7 ) ;re Schwartz, 366 B.R. 2 6 5 (Bankr. D. Mass. 2007);Ie Foreclosure Cases, No. 1:07-cv-2282-CAB, 2 0 0 7 WL3232430 at " 2 - * 5 (N.D. Ohio Oct. 3 1 , 2007)("ForeclosureW'') finding that a securitizationtrustee did not have standing to foreclose because itwas unable to show that it was an assignee of themortgagee). In sum, the securitization industry hasprosecuted foreclosures of residential mortgages in amanner that places a higher value on profit,efficiency and its own convenience than it does onproperly following the law. 4

The Rulings directly vindicated a most basicpublic interest in the maintenance of clear record of

..See Foreclosure Cases, 2007 W L 3 2 3 2 4 3 0 at *3 n.3("There is no doubt every decision made by a financialinstitution in the foreclosure process is driven bymoney. And the legal work which flows from winning the

financial institution's favor is highly lucrative.There i s nothing improper or wrong with financialinstitutions or law firms making a profit-to thecontrary, they should be rewarded for sound businessand legal practices. However, unchallenged byunderfinanced opponents, the institutions worry lessabout jurisdictional requirements and more aboutmaximizing returns.")

14 -

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the ownership of land by passing judgment on theAppellants' action to remove a cloud on title. Byreading the statute properly, the Rulings determined,that both the homeowner whose home is subject toforeclosure, as well as potential bidders at aforeclosure sale, should not be forced into a guessinggame, making assumptions as to who the proper andcurrent holder of the mortgage is. The statute, "withits mandate for clarity, permits no such assumptions."IbanezII,009 WL 3297551 at "11 & n.51.I V . THE QUESTION BEFORE THE COURT I S ONE OF STATUTORYINTERPRETATION

On appeal, the Trustees have now adopted a novelargument never before accepted in the courts of theCommonwealth - that a generalized panoply of paperworkdrafted for the purposes of effectuating asecuritization can, standing alone, effectuate theassignment of a security interest in a specific locusof land.15 Appellants would have courts sit as puzzle-solvers, left to navigate the byzantine universe ofsecuritization to rule on mortgagee status by cobbling

Appellants have now abandoned several of thearguments made before the Land Court, including, inter&, the assertion that they were entitled toforeclose because they were acting at the direction ofthe actual mortgage holder. Ibanez 11,2009 W L3297551 at *12.

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together jigsaw pieces. By recasting the issue inthis manner, the Trustees ignore the basic nature ofthis dispute as one of statutory interpretation.Given the stricture with which this statute is t o beinterpreted, t h i s tactic should be rejected.

A. The Statute is to be Strictly ConstruedThe starting point f o r a proper reading of G . L .

c. 2 4 4 , 5 14 i s this Court's unequivocal andlongstanding holding that the statute is to bestrictly construed. See McGreevey v . Charlestown Five--ents Sav.s,94 Mass. 480, 484 (1936) ("Thiscourt has said that 'the general rule is thatconditions precedent to the execution of a power ofsale must be strictly complied with.' . . . 'It isfamiliar law that one who sells under a power mustfollow strictly its terms. If he fails to do so , thereis no valid execution of the power, and the sale iswholly void."') (quoting Roqers v. Barnes, 169 Mass.179, 181 (1837) and M o o r e v. Dick, 187 Mass. 207, 211-12 (1905))." The Land Court recognized thisrequirement in both its decisions. See Ibanez A , 2009WL 795201 at " 2 , * 4 citing Bottomly v . Kabachnick, 13

l 6 This authority flatly contradicts Appellants'suggestion that the Land Court has applied a "hyper-technical,"= ppellants' Br. at 40, interpretationof G.L. c. 244, 14.19


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Mass. App. Ct. 480, 484 ( 1 9 8 2 ) ("The manner in whichthe notice o f the proposed sale shall be given is oneof the important terms of the power and a strictcompliance with it is essential to the valid exerciseof the power."); IbanezI1, 2009 WL 3 2 9 7 5 5 1 at *11 &n.51 (citinq Bottomly for the mandate that the"statute requires strict compliance")

Moreover, the Rulings articulated the reasonsbehind the strictness requirement, observing thatMassachusetts system of non-judicial foreclosureleaves it primarily to the foreclosing entity toensure a fair auction that protects the mortgagor'sinterest. Ibanez I, 0 0 9 WL 795201 at *2. The lackof any ex ante judicial involvement makes it difficultt-o correct mistakes committed during the foreclosureprocess. "AS even a cursory glance at the currentcaseload of this court reveals, titles arising frommortgage foreclosures can have many problems." Ibanez- I 2009 WL 795201 at *4.

Further, as discussed above, the Ibanezopinion explicitly ties the strict Construction of thestatute and the power of sale to which it refers tothe legislature's preference for clarity in records


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concerning the transfer of land. Ibanez s, 0 0 9 WL3297551 at *11 & n.51.

By requiring a foreclosing entity to abidestrictly by the terms of the statute, courts recognizethe public interest in promoting the clear transfer oftitle, whether by foreclosure or otherwise. TheAppellants' requests that the Court overlook theerrors in the processes by which they hold andforeclose on properties - that they be permitted toexecute the assignment that actually vests theforeclosing entity with the power to foreclose afterthe foreclosure has already been commenced andcompleted -- is wholly at odds with this fundamentalstrictness requirement. Appellants' position woulddisturb the careful balance constructed by thelegislature, in providing minimal prerequisites toforeclosure, and this Court, which has strictlyconstrued those prerequisites for well over onehundred years. See Rogers v. Barnes, 169 Mass. 179,181 ( 1 8 9 7 ) .

B . The Land Court's Pla in R eading of t h e S t a t u t ePerformed was Correct

The Land Court properly understood its role inreading the plain language of the statute. See Ibanez

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z,009 WL 3 2 9 7 5 5 1 at *lo, citing Martha's VineyardLand Bank Comm'n v. a. f Assessors--f West Tisbury,62 Mass. App. Ct- 2 5 , 27-28 (2004) ("Where theLanguage o f a statute is clear and unambiguous,it isconclusive as to legislative intent and the courtsenforce the statute according to its plain wording,which we are constrained to follow so long a s itsapplication would not lead to an absurd result.")

--

1. Appellants Are Not MortgageesIt is beyond dispute that Appellants were not

"mortgagees" authorized to execute the contractualpower of sale pursuant to G.L. c. 244, 1 4 at thetime of notice and sale. The plain meaning and commonunderstanding of mortgagee is "[olne to whom propertyis mortgaged." Black's Law Dictionary 1104 (9th ed.2 0 0 9 ) .

17

A s an initial matter, the holding o f Ibanezthat the notice published and sent to the mortgagorunder G.L. c . 244, 14 must list the name of thecurrent holder of the mortgage has not been seriouslyl7 This Court's framing of the issue on appeal for thepurposes of soliciting amicus briefs acknowledges thatthe record below establishes as much. See supra, n.1(characterizing the issue as ruling on the validity offoreclosure "where the record established that theplaintiff did not become the holder of the mortgageuntil fourteen months after the foreclosure sale.")

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challenged. The Land Court rejected the Appellants'contention that its notice need not name the currentholder of the mortgage on three separate grounds. SeeIbanez I, 2009 WL 795201 at *5. First, citingBottomly v. Kabachnick, 13 Mass. App. Ct. 480 (1982)("Bottomly"), the Court noted that the Appeals Courthas held a foreclosure to be invalid on the basis o fits failure to identify the holder o f the mortgage.Id. Second, the Land Court noted that the formprovided in G.L. c. 244, 14 calls for theidentification of the current holder of the mortgage.Id. That form, while not mandatory, is indicative ofthe legislature's intent.ln B . Last, the Land Courtheld that the body of the statute itself suggests thatit be the holder of the mortgage in whose name thenotice i s published and sent. a.

There is an even more fundamental reason,however, why Appellants cannot claim valid status as

'' - - _ ~ank of New York v. Appollos, No. 08-ADMS-10045,2009 WL 1111198 (Mass. App. Div. April 17, 2009)("Appollos") is not to the contrary. In that case,the Appellate Division held merely that where themortgagor had actual knowledge of a valid mortgageassignment to the foreclosing entity, the failure ofthat entity to include a reference to the assignmentin its notice would not void the foreclosure.Appollos, 2009 WL 1111198 at * 2 (noting that theomission of the assignment reference did not amount toa material defect in notice "[ulnder the particularfacts o f this case").

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mortgagees. The Trustees axe not the entities towhich the properties were originally mortgaged and sowhatever claim Appellants have to mortgagee statustherefore arises from their faulty assignments."While "mortgagee" has been defined to includeassignees of a mortgage, in other words the currentmortgagee, there is nothing to suggest that one whoexpects to receive the mortgage by assignment mayundertake any foreclosure activity." _ _n re Schwartz,366 B . R . 2 6 5 , 2 6 9 (Bankr. D. Mass. 2 0 0 7 ) . AccordIbanez II, 2009 WL 3297551 at *11. As discussed fullybelow, the Appellants have no legal basis for a claimthat they acquired mortgagee status via assignmentprior to the notice and sale.

2. N o r Do Appellants Fit Within Any of theOther Categories Entitled to Exercisethe Power of Sale Under G.L. c. 244, S14.In addition to the "mortgagee," the statute also

categorically identifies others permitted to exercisethe power of sale. These other categories include:1) a person having his estate in the land mortgaged;2) a person authorized by the power of sale; 3 ) theattorney duly authorized by a writing under seal; 4)the legal guardian or conservator of such mortgagee orperson acting in the name of such mortgagee or person.

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G.L. c. 244, 5 14. Appellants do not argue that theyfit within any o f these particular categories, norcould they. While Appellants previously argued that

they were ac.ting pursuant to the authority of the "ofrecord" holder of the mortgage, this position wasrejected by the Land Court, see Ibanezx, 009 WL3 2 9 7 5 5 1 at * 1 2 , and Appellants have now abandoned it.

C . The Appellants Were Not the Holders of theS u b j e c t Mortgages at the Time of Notice andSaleAppellants have shifted emphasis on appeal to

assert that they should be deemed "mortgagees" byvirtue of the aggregation of several disparateagreements and papers created for the purposes ofcreating and selling securitized mortgage-backed

securities. See Appellants' Br. at 1 7 - 2 2 . Onexamination of the record, it becomes apparent thatthere was simply no writing meeting the fundamentalrequirements of a mortgage assignment;in existence atthe time of notice and sale in these cases.

1. Statute of FraudsEven assuming the multiple actual deficiencies

in the record did not exist," Appellants still have

l9Briefs of the Appellees address the multitude offactual deficiencies in the record. For example, M r .2s


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the burden of showing Chat the securitizationagreements they rely on effectively amount to amortgage assignment. This they cannot do.

Appellants acknowledge that a mortgage assignmentis an agreement to convey an interest in land, andtherefore must comply with the strictures of thestatute of frauds, G.L. c. 259, 5 1. Appellants' Br.at 27, Thus, in order f o x there to be a satisfactorytransfer of the interest from Lhe original mortgageeto the Appellants, there is a burden to produce awritten document, executed prior to the date of thenotice and sale by the party to be charged, thatcontains the essential terms of a contract for thesale o f land, including the names of the parties, thelocus of the property, and in some circumstances theprice. Cousbelis v . Alexander, 315 Mass. 729, 730(1944) ("Cousbelis")

Appellants assert that the Larace PSA [A1443-17801 and the Ibanez PPM [A1292-1305] suffice as

Ibanez's brief identifies flaws with the validity ofthe mortgage assignmen,t: rom Rose Mortgage to OptionOne, and raises serious questions as regarding theintegrity of the chain of title. Appellees' Bc. at10-11, 41-42. Courts faced with such questions havestrongly condemned similar practices. -eem., 6Bank v. Smith, No. CA09-0418, Order GrantingDefendant's Motion to Dismiss Second Amended ComplaintWith Prejudice at 3 - 4 (Pla. Cir. Ct. June 10, 2010)(attached a5 Addendum Tab C).

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assignments of the subject mortgages from the originalmortgagees to Appellants. Appellants B Y + at 18-20.There are at least two fatal flaws in this argument.

First, for the purposes that Appellants seek touse them, neither the LaRace PSA nor the Ibanez PPMmeet the statute of frauds requirement that they beexecuted by the party to be charged and containsufficient description of essential terms. Mark andTammy LaRace resided at 6 Drookburn Street inSpringfield at the time their home was foreclosed.Nowhere in the PSA is the l o c u s of this propertyidentified. The inEormation included on the mortgageschedule attached to the PSA related to the LaRaceproperty is insufficient to identify it as ageographic locus at a level more specific thanSpringfield, MA. -ee CousbeLis, 315 Mass. at 7 3 0 .Nor is the price for which the assignment wastransferred identified. Id. These omissions arefatal to Appellants claims of an effective assignmento f the mortgage. cf. Schwanbeck v. Federal-Mogul

The mortgage schedule contains informationregarding, fox example, payment history of the subjectloans, loan principal amount and loan-to-value ratio,rather than the specific locus of the property. Thisis unsurprising, given that the purpose of the PSA wasto facilitate a securitization transaction and not, asAppellants now maintain, to constitute assignment ofindividual mortgages.27


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Corp., 4 1 2 Mass. 7 0 3 , 7 1 0 ( 1 9 9 2 ) (omission of price);Simon v . Simon, 35 Mass, App. Ct. 7 0 5 , 710-711 ( 1 9 9 4 )(omission o f duration of lease); Tu11 v . Mister DonutDevelopment Corp., 7 Mass. App. Ct. 6 2 6 , 630 ( 1 9 7 9 )(memorandum referring to "rudiments of the deal" andexpressing hope that "preliminaries will be completed"was not detailed enough to be sufficient writing).

The Ibanez matter requires even less discussion,as Appellants failed to offer into the record theagreement on which they rely for their assertion of anassignment. This Court i s thus left with noopportunity to review U . S . Bank's claim that themortgage was effectively assigned thereby. U . S .Bank's complaint that it was not permitted adequateopportunity to submit this agreement is flatlycontradicted by the record. -ee IbanezI,0 0 9 W L3297551 at *4 n . 2 1 (noting that at U.S. Bank'srequest, the deadline to submit the Trustees'supporting documentation was extended until two monthsafter the hearing on their motion forreconsideration). Nevertheless, if the Ibanezagreement is identical in form to the LaRace PSA, asAppellants suggest, it would suffer from the sameshortcomings identified above.

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The second fatal flaw i s that Appellants wouldhave the LaRace PSA and Ibanez PPM do too much. TheLaRace PSA cannot effect assignment from Option One(the "originator" and original mortgagee) to Bank ofAmerica (the "seller") to Asset Backed FundingCorporation (the "depositor") to Wells Pargo (theTrustee), when it is executed only by Option One inits capacity as servicer, not originator, and wherethe intermediate links in the chain of title are leftcompletely unfulfilled.

Although there is a reference in the PSA to an"Originator Mortgage Loan purchase Agreement,"purportiny to transfer interests from Option One toBank of America, and although an unexecuted "MortgageLoan Purchase Agreement,'' purporting to transferinterest from Bank of America to Asset Backed FundingCorporation is appended to the PSA as an exhibit, therecord is devoid of effectual evidence of thesetransfers sufficient to satisfy the statute of frauds.There is no agreement whatsoever transferring t h eLaRace mortgage from Option O n e to Bank of America inthe record. And t h e transfer from Bank of America toAsset Backed Funding Corporation nowhere identifies


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,the terms of assignment specific to the LaRacemortgage.

The Ibanez PPM is even weaker a s evidence ofassignment. Mr. Ibanez's brief provides a thoroughexplication of the reasons why no evidence exists inthe record to show effective assignment of the subjectmortgage to the Trustee until September 2008 - morethan one year after the Ibanez foreclosure hadoccurred. Appellee's Br. at 3 0 - 3 6 .

2. Appellants' Sole Citation toMassachusetts Authority is TwoB ankruptcy O pi n i ons tha t D o N o t Supporttheir P o s i t i o n z 1

Appellants place the weight of their argumentregarding the securitization agreements on the Exagileauthority of _ _n re Samuels, 415 B.R. 8 (Bankr. D.Mass. 2008) ("Samuels") and Rubijono V. Ameriquest

Appellants' reliance on opinions from outside1Massachusetts is similarly unavailing because, as tothe specific issues of law in this case, Massachusettslaw is somewhat unique. "The general rule is familiarthat an assignment or transfer of a mortgage debtcarries with it an equitable right to an assignment ofthe mortgage." Barnes v. Boardman, 149 Mass. 106, 114(1889) ("Barnes"). In such circumstances, this Courtnoted other jurisdictions in which "mere transfer ofthe debt without any assignment or even mention of themortgage carries the mortgage with it, so as to enablethe assignee to assert his title in an action at law."s. arnes goes on to clarify that "[tlhis doctrinehas not prevailed in Massachusetts." Td. The f u l limport of this aspect of Massachusettslaw on thefacts before the Court is discussed fully below.

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Mortqaqe G . , No. 07-01076-FJB, Supplemental Order onMotion for Summary Judgment (Bankr. D. Mass. May 27,2010) (''Rubijono"). Any fair reading of theseopinions shows they cannot bear the burden Appellantshave placed on them,

Appellants' reliance on Samuels, both in theiropening brief and redoubled in their reply, spuzzling. The holding of Samuels, as least so far asit is selevant here, is that the trustee of asecuritized trust does not have authority to forecloseabsent evidence that the relevant mortgage has beenproperly assigned through each step of thesecuritization process.22 Samuels, 415 B . R . at 2 0("[Trustee] has adduced evidence of an agreementpursuant to which [originator] agreed to transfermortgage loans to [Seller], but it has adduced nowriting evidencing the assignment of the SamuelsMortgage from [originator] to [seller]. Consequently,the chain of title is incomplete . . . . " )

~ . . . . __Although summary judgment was granted for the trustee2in Samuels, it was based on a new assignment executed

by the original mortgagee to the trustee after thebankruptcy litigation was underway, but before anyaction had been taken pursuant to the statutoryforeclosure process. Samuels, 415 B.R. at 11-13, 20-2 2 . Unlike the Land Court below, the Samuels courtwas therefore not presented with a completedforeclosure performed prior to the trustee having awritten mostgage assignment in its possession.

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Appellants' reliance on Samuels is especiallycurious, because its holding highlights a fatal flawin their own theory -- each of the Trustees' chains oftitle suffer from the same shortcoming identified inSamuels. In the LaRace matter, there is no agreementin the record transferring the mortgage from OptionOne to Bank of America, as described in above. In theIbanez matter, there are multiple defects in the chainof title, not the Least of which is the absence fromthe record o f the agreement on which U.S. Bank reliesas the transferring instrument. See Appellees' Br. at30 -38 .

When challenged by Appellees as to the paucity ofrelevant Massachusetts authority supporting theirnovel theory of assignment, Appellants responded byadding Rubijono to their Reply. Rubijono is anunpublished, single-paragraph, supplemental order fromthe court that authored Samuels. The Rubijono orderindicates that the motion was unopposed on the groundshere relevant - whether securitization documentsestablished some particular actor in the chain asassignee of a mortgage. Needless to say, the Rubijonoorder does not address the statute of frauds or chainof title concerns present in this case , nor offer any


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meaningful examination of the evidence before thecourt at all. For Appellants to place such heavyreliance on the Rubijono order in this appeal, which

could potentially affect: hundreds of Massachusettsforeclosures, is to stretch the extent of itspersuasiveness beyond the breaking point.

3 . An Assignment in Blank is N o t EffectiveDespite overwhelming authority to the contrary,

Appellants continue to assert on appeal that mortgagesmay be transferred via "assignments in blank."Appellants' Br. at 2 8 -3 2 . The assignments identifiedby Appellants purport to assign the interest of themortgagee from the current holder of the mortgage toan entity that is represented in the document only bya blank space.

Whatever case law exists in Massachusettsregarding mortgage assignments in blank, of whichthere is very little, consists of judging the validityof assignments in blank that were later fully executedunder dubious authority. -ee, e.q., Bretta v.Meltzer, 280 Mass. 573, 575-76 (1932), citing Phelpsv. Sullivan, 140 Mass. 36 ( 1 8 8 5 ) . Here, theassignments in blank were never executed. Instead,the Appellants later executed a n entirely new

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assignment and equally invalid assignment after theforeclosure was commenced and the sale held,backdating the "effective date." For the purposes ofthis Court's analysis, however, the only purportedassignment in existence at the relevant time, was andremains a contract with only one party to it.

There is no support f o r the position that anassignment of a mortgage in blank is sufficient topass the interest in that mortgage from the assigneeto some related party. Nor could there be. There isperhaps no more fundamental concept in the law ofcontracts than the notion that at least two partiesare required to form a binding agreement. Restatement2d o f Contracts, 9 ("There must be at least twoparties to a contract, a promisor and a promisee, butthere may be any greater number.")

Having failed to produce any effective evidencethat a writing existed at the time o f notice and salemaking them the holders of the mortgage, Appellantsresort to an argument that the Court should deem themto be mortgagees for the purposes of G.L. c . 244, 14by virtue of their status as note-holders. Thisargument, too, fails.

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D. Note-holder Status Does Not Automaticallyand Without More Confer a Right to Foreclosethe Corresponding Mortgage in MassachusettsIgnoring the factual deficiencies in the record,

and assuming arquendo that the Appellants have madeout a satisfactory case that trusts on whose behalfthey were acting were the valid holders of the no t e sin question, Appellants' arguments still l a c k merit.

Massachusetts jurisprudence makes it quite clearthat where, as here, a note and its mortgage are heldby different entities, the current mortgagee holds themortgage in trust for the note-holder. Barnes v.Boardman, 149 Mass. 106, 114 (1889) ("[Tlhe tendencyo f the decisions [in Massachusetts] has been that i nsuch a case the mortgagee would hold the legal titlein trust for the purchaser of the debt, and the lattermight obtain a conveyance by a bill in equity.") Itis thus clear that a bare note-holder is not amortgagee, but has the legal right to assume thatstatus by bringing an equitable action i f the mortgageassignment is not voluntarily given.

Further, this Court has addressed the questionwhether beneficiary of such a trust (i.e-, he note-holder) may enforce the mortgage directly withoutfirst obtaining a written mortgage assignment, either


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voluntarily or through an action in equity. Young v .Miller, 72 Mass. 152, 1 5 4 ( 1 8 5 6 ) . Young involved amortgage that secured two notes, A & B . Young, 72Mass. at 1 5 2 . The mortgagee indorsed note A to theplaintiff, but did not assign her the mortgage,retaining i t for himself, as well as note B. a- hemortgagee subsequently assigned both the mortgage andnote B to the defendant, who discharged the mortgage.@. The plaintiff then brought a writ c f entry toforeclose on the mortgage because note A had beendefaulted. -.d I 72 Mass. at 153 . The circumstancesare thus nearly identical in all relevant respects tothe case here - a bare note-holder sought to forecloseon a mortgage where she did not hold the correspondingmortgage, by assignment o r otherwise.

The Young Court's analysis begins by supposingthe same common law rule that would later be endorsedin Barnes -- where the note and mortgage areseparated, the note-holder becomes the beneficiary ofa trust and the mortgagee becomes the trustee of thattrust. s . , 2 Mass. at 1 5 4 . The Younq Courtproposed this rule as such:

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When a party h o l d s a mortgage to secure thepayment o f a single negotiable note only,and no formal assignment is made o f themortgage, and nothing to indicate anintention of the parties that it is not tobe assigned; as the mortgagee and indorsero the note, after such indorsement, wouldhold only a barren fee, without beneficialinterest, and as the mortgage accompanyingthe note would be highly beneficial to theindorsee for the security of his note, thelaw may well imply the intention of theparties that the mortgage is thenceforth tobe held by the mortgagee in trust for theindorsee.-d. Assuming that rule to be true, Young considered

whether the bare note-holder had the authority tobring a writ to foreclose the mortgage without firstbecoming holder o that mortgage. "But supposing thatsuch a trust would be implied, then the question is,whether such a cestui trust can maintain a realaction. The opinion of the court is that he cannot."

-d. In support of its holding, the Young court citedauthority forbidding the beneficiary of similar trustsfrom maintaining his own action. Ifd., 7 2 Mass. at1 5 6 , citinq, inter alia, Somes v. Skinner, 16 Mass.348; Crane v. March, 4 Pick. 1 3 1 . Young remains goodlaw. Therefore, just as the plaintiff note-holder inYounq could not bring a writ to foreclose the mortgagewithout a proper assignment, so should the Courtdetermine that Appellants' equitable interest in themortgages did not confer upon them such a right.

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V. THERE IS NO REASON IN L AW OR LOGIC TO LIMIT THELAND COURT'S RULINGS TO A PROSPECTIVE APPLICATIONA. Massachusetts Jurisprudence D o e s Not Permitthe Plain Reading of an Unchanged Statute to

be Limited to a Prospective ApplicationBoth the Appellants and their supporting Amici

have suggested thah the Court should limit itsdecision to a prospective application, should itaffirm the Rulings. This position finds no support inthe jurisprudence of this Court. "Decisional law isgenerally applied 'retroactively' to past events."Schrottman v. Barnicle, 386 Mass. 627, 631 (1982)citing Tucker v. Badoian, 3 7 6 Mass. 907, 919 (1978)(Tucker, J. concurring). The rationale underpinningthis axiom is simple - "courts are said to find anddeclare law, rather than to create new law that mightsurprise past actors." Id.. citinq, intera,W.Blackstone, Commentaries.

To support their position on prospectiveapplication, Appellants cite Powers v. Wilkerson, 399Mass. 650, 662-63 (1987) ("Powers"). Powers recitesthe concept that prospectivity may be warranted wherea court announces a change in long-established commonlaw that has formed the basis for reliance. Here, theLand Court did no such thing.


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First, as pointed out by Appellees, see IbanezBr. at 4 8 , the primary task before the Land Court w a sa reading of G.L. c. 244, 14. The Land Courtappropriately followed the rules o f statutoryconstruction - it was not opining on some principle ofjudge-made law. The Land Court did not, for example:overrule a longstanding common law rule of property,such a s whether a particular type of covenant runswith the land, see Whitinsville Plaza,-nc. v. Kotseas,3 7 8 Mass. 85 (1979); or find that certaincircumstances of disclosure no longer served as anappropriate basis to reject a challenge to thevalidity of a contract, as had been previouslyrecognized by Massachusetts courts, see Rosenberg v.Lipnick, 377 Mass. 666 (1979). Appellants have n o tand cannot offer relevant authority for theproposition that a court's plain reading of a statutecan ever be limited to a prospective application.

More importantly, the Rulings announce no newchange to l a w whatsoever. The Land Court relied onboth a plain reading of the statute's text, andprevious readings o f that same text by this Court._Iee Ibanez L, 2009 WL 7 9 5 2 0 1 at "4-*7; Ibanez 11, 0 0 9WL 3297551 at *lo-*12. This Court need not change any


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existing principle of property law in order to affirmthe Land Court - the issue is nothing more thanwhether Appellants are "mortgagees" under G.L. c. 244,5 14. This is not an instance where the Court isfaced with a decision as to whether to apply alegislative change prospectively. See,s.,leet-at. Bank v. Commissioner of Revenue, 448 Mass. 441(2007). The statute in question h as stood unalteredfor decades, What has changed is the industry subjectto the statute, and its appetite for cutting cornerson traditional practices of land transfer for the sakeof their own expedience and profit.

Appellants' argument on prospectivity is actuallya request for relief from their misreading of existingstatutory law. This is wholly different fromoccasions, such as those noted above, where this Courthas found ceason to change the course of common law onwhich the public relies. That the mortgage industryand its advocates formalized their misinterpretationin a Title Standard justifying their practice is of noimport. G. Foreclosure Cases, 2007 WL 3 2 3 2 4 3 0 at * 3n.3 ("The institutions seem to adopt the attitude thatsince they have been doing this for so long,unchallenged, this practice equates with legal


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compliance. Finally put to the test, their weak legalarguments compel the Court to stop them at the gate.)

It is incumbent on those subject to the statuteto respect the province of the judiciary ininterpreting law - had Appellants and their colleagueswished to validate their reading, an action pursuantto G . L . c. 240 5 s 1-3 or 5 6 , such as this one, or fordeclaratory relief under G.L . c. 231A would have beenappropriate Long ago. Their decision to wait untilnow is no ones fault but their own.

B . T h e r e i s No Reason to Believe t h a t Affirmingthe Land Court Will Have the CatastrophicEffects Forecast by Appellants and TheirSupporting AmiciThe Appellants and their supporting amici suggest

that the Land Courts ruling must not be allowed tostand, lest the system of assignment and foreclosureconstructed by financial institutions, title insurersand foreclosure attorneys be left in ruin, causingwidespread disruption. See Appellees Br. at 48-50;U.S. Bank Reply at 17-19.

It bears noting that the Appellants have offeredno proof that this Courts ruling will disrupt thehousing market. The Appellants citation to anewspaper article quoting the Chief of the BostonHousing Authority references only the lack o f clarity

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occasioned by the appeals process itself - not by theunderlying rejection of faulty assignment procedures.Indeed, the issues of concern to the Boston HousingAuthority would never have arisen in the first placehad the underlying foreclosure been handled properly.

For purposes of forecasting the Rulings' effects,it must be noted that these were not the first or onlydecision adjudging such practices to be unlawful underG.L. c. 244, 5 14. &, e.q., In re Schwartz, 366B.R. 265, 2 6 9 (Bankr. D. Mass. 2007) ("Acquiring themortgage after the entry and foreclosure sale does notsatisfy the Massachusetts statute.") Indeed, theAppellants brought these very cases before the Courtbecause they were unable to obtain title insurance i norder to resell the subject properties. Ibanez I r2009 WL 795201 at * 2 ("According to the Appellants,despite their successful bids and their subsequentrecording o f all the relevant documents, they cannotobtain title insurance for the properties-making themeffectively unsaleable - - unless and until theseissues are resolved in their favor.") While theRulings undoubtedly carry great significance, theAppellants' characterization as a clean break from

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prior law that will unleash disorder in the realestate industry is overstated.

More to the point, it is not the role of theCommonwealths courts to relieve the residentialmortgage industry of the natural consequences of itsfaulty practices. The Land Courts chief end is tointerpret the law in order that there be a clearrecord o f ownership in land. See Tyler v. Judqes ofthe Court of Registration, 175 Mass. 71, 73 ( 1 9 0 0 ) .This Court sits in review o f its judgments. Whenmortgage industry actors collectively created a systemof foreclosure in the context of securitization thatserved their own needs. and drafted a Title Standardto sanction that novel system, they accepted a riskthat their self-serving scheme would run a f o u l ofestablished law. AS illustrated by the Appellantsoriginal complaints here, that risk was willinglyborne by the title insurers who kept watch over thevalidity o that system. The Land Court has nowidentified a flaw in this practice. The consequencesof the systems flaws lie at the feet of theinstitutions that: constructed it and the titleinsurers w h o accepted that risk. It is not the


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province of the Commonwealth's courts to relieve theseentities from the consequences of their own choices,"

Finally, the Court should reject the speculationof the Appellants and its amici regarding the crisisthat: will erupt if the Ruling is not overturned ornarrowed. Whatever disruption will result to thebusiness practices of Appellants and their colleaguespales in comparison to the crisis that has manifesteditself in an explosion in the number of forelosures inthe Commonwealth in recent years.2P The Land Court'sown statistics show a greater than three-fold increasei n the number of Servicemembers Civil Relief Act

23 Cf. Foreclosure Cases, 2007 WL 3232430 at * 2 ("[TlhisCourt possesses the independent obligations topreserve the judicial integrity of the federal courtand to jealously guard federal jurisdiction. Neitherthe fluidity of the secondary mortgage market, normonetary or economic considerations of the parties,nor the convenience of the litigants supersede thoseobligations. )Appellants complain that *'the standards imposed bythe Land Court have frustrated Appellants' ability toreforeclose, thereby impairing, if not precluding,their right to recover on their notes." Appellants'Br. at 4 3 n.8. Once again, Appellants have overstatedthe case. The Manson amici are particularly familiarwith the Appellants' reforeclosure practice, as U . S .Bank, as Trustee has executed reforeclosures duringthe course of the litigation and adamantly defendedi t s practice of doing so. See Notice of Joinder ofU.S. Bank and Opposition of Harmon Law Offices, P.C.to Plaintiffs' Motion to Vacate, attached as AddendumTab D.

24

44


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cases, from 9,309 in 2 0 0 4 to 30,679 in 2 0 0 8 . L 5 To theextent that this explosion i s heightened byforeclosing entities failing to follow properly thenon-judicial foreclosure process outlined in G.L. c.244, S 14, the Land Court's Rulings provide a check onthis crisis. '

Moreover, evidence in the public sphere shows therisk of disruption to the housing market, should thisCourt affirm the Rulings, is minimal. The Land Courthas already begun to process claims made by third-party purchasers of homes that were subjected toinvalid foreclosures. See Bevilacqua v. Rodriquez,NO. 10-MISC-427157(KCL), 2010 WL 3351481 (Mass. Land

These statistics are made available by the Land5Court at:http://www.mass.gov/courts/courtsandjudges/courts/landcourt/stats2008fiveyea~.htrnl.26 Appellants' claim that no prejudice occurred a s aresult of their actions, see Appellees' Br. at 4 3 - 4 4 ,rings particularly hollow in light of the foreclosurecrisis. As detailed above, the minimal consumerprotections contained in the Massachusetts foreclosurestatute are only balanced by their strict constructionin the Courts. "A purchaser under a power of salemust see to it at his peril that there has been acompliance with the legal. and essential terms of thepower. If there has not been, then he is notprotected, whether acting in good faith or not."' 294Mass. at 4 8 4 , quoting Moore v. Dick, 187 Mass. at 211-12. Both homeowners facing foreclosure and potentialbidders at foreclosure sales justifiably expect thatthe entity claiming authority to foreclose actuallyholds the mortgage.
http://www.mass.gov/courts/courtsandjudges/courts/landhttp://www.mass.gov/courts/courtsandjudges/courts/land


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C t . Aug. 26, 2010) ("Bevilacqua"). In Bevilacqua, theLand Court ruled that such purchasers may not bring a"Lry-title" action under G . L . c. 240, 1-5, but

rather must seek redress for whatever harm h a s beendone i o them from the entity that purported to sellthe property following an invalid foreclosure. Id.,2010 WL 3351481 at " 3 . Bevilacqua reveals the truemotivation for Appellants' overblown warnings o fimpending disruption to be fear o f liability, not theupending of the housing market."

Nor is there reason t7 believe that horn owners whowere Chemselves subject to invalid foreclosures willbe the source of disruption to the housing market.Should .the Court affirm the Rulings, the Manson amiciwill seek relief on behalf of a statewide class o fhomeowners so affected. See Manson Am. Consol.C o m p l . , attached in Addendum as Tab A . Under thesupervision of the Manson Court, a process forproviding notice and relief to the class will occur.


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V I . CONCLUSION

For t h e faregoi .ng reasons, mici Curi e N ionalConsumer La w C e n t e r and Darlene Manson, GermanoDePina, Robert Lane, Ann Coiley, Roberto Szumik, andEeraldo Dosanjos urge t h i s Court to affirm completelyt h e j ud gm e nt of t h e Land C o u r t .

Respectfully Submitted,F o r Amici Curiae DarleneMansan, Germano DePina,Robert Lane, Ann Coiley,Roberto Szumik, and Gerald0

G&y Klein (BBO.# 560769)Shennan Kavanagh (BBO # 655174)Roddy Klein & Ryan727 Atlantic Avenue, 2d FloorBoston, MA 02111T e l . 617-357-5500Fax 617-357-5030FOr Amicus Curiae

Rossman (BBO # 43b640) fNational Consumer Law Center7 Winthrop Square, 4th Fir.Telephone: 617-542-8010Facsimile: 617-545-8028Boston, MA 02110

Documents

US BANK v. Ibanez - Amicus Manson Brief