The Massachusetts Supreme Judicial Court handed down its decision yesterday in the closely watched case Bevilacqua v. Rodriguez. And while the decision contained a ray of hope for buyers of property at flawed Massachusetts foreclosure sales, the court affirmed a lower court decision that took away a property from a foreclosure sale buyer and gave it back to the former owner who had defaulted on his mortgage-- something that many experts thought the courts would never do.
To bring those unfamiliar with the case up to speed: Francis Bevilacqua had bought a property in Haverhill, Massachusetts from U.S. Bank at a foreclosure sale in 2006. The property had been seized from Pablo Rodriguez, who had apparently abandoned his obligations on his mortgage and the property itself, and was not actively contesting the foreclosure. Unfortunately for Bevilacqua, the foreclosure sale was flawed-- U.S. Bank had not been properly assigned the mortgage at the time of the foreclosure sale.
When these facts became clear to Bevilacqua, he knew he might have a problem on his hands. When the same lack of proper assignments had occurred in another foreclosure case in Massachusetts, U.S. Bank v. Ibanez, the judge had voided the foreclosure sale. The Massachusetts Supreme Judicial Court upheld that ruling earlier this year-- another stake in the heart of Bevilacqua's claim to title.
Perhaps if his circumstances were different, Bevilacqua could have just asked for his money back from the bank and turned any interest he had in the property back over to them. But he had already plowed several hundred thousand dollars into renovating the property, and he reportedly had sold some of the units as well.
Given the fact that the former owner Rodriguez was still nowhere to be found, Bevilacqua thought that his best option was a "try title" action in court-- a procedure by which an owner of a property in Massachusetts can clear title by compelling the holder of a possible adverse claim to title to appear in court and assert their claim. If the holder of the possible adverse claim does not appear in court, their interest in the property is extinguished. It seemed likely that Rodriguez would never appear and Bevilacqua would win his try title case by default.
Sure enough, Rodriguez never appeared. But, unfortunately for Bevilacqua, that wasn't enough to win his case before the Massachusetts Land Court. The court ruled that Bevilacqua did not have standing to bring the try title case because he didn't have a cloud on his title, he had no title to the property-- the flawed foreclosure sale had conveyed no interest in the property to him at all. The judge basically said, I have some sympathy for your plight, but you are out of luck.
Again there was no surprise appearance by Rodriguez when the Massachusetts Supreme Judicial Court reheard the case earlier this year. But once again, it didn't matter-- the Supreme Judicial Court upheld the lower court ruling that because of the fatally flawed foreclosure sale Bevilacqua did not hold title to the property and therefore did not have standing to bring a try title case.
But unlike the land court ruling in the case, the court hinted strongly that Bevilacqua and those who find themselves in a similar situation probably have another remedy-- re-foreclosing on the mortgage. The court analyzed the sequence of deeds that were recorded in U.S Bank's foreclosure sale to Bevilacqua and concluded that while the record did not support a conclusion of a valid transfer of ownership interest in the property to Bevilacqua, it did likely support a conclusion that the mortgage had been implicitly transferred to Bevilacqua, even though the deeds that were filed were ineffective as far as passing good title to him.
Foreclosing on the property once again would likely be a costly hassle for Bevilacqua and would not be without possible complications. For example, what would happen if Rodriguez suddenly reappeared, and, perhaps liking the looks of the spruced up property which Bevilacqua had spruced up at great cost, chose to exercise his right of redemption? (I believe that Rodriguez's "right of redemption" may entitle him to stop a foreclosure if he can come up with the cash to become current on his mortgage debt-- a Massachusetts real estate lawyer would know for sure. It certainly entitles him to stop a foreclosure if he pays off the loan in its entirety.)
For that matter, Rodriguez could appear now and claim the property. It's still rightfully his as of this moment.
This has to be considered a landmark decision in the foreclosure crisis. Many title experts, up to and including the chief counsel of the largest title underwriter (first 1:30 or so of video), have surmised that the courts would not take properties away from purchasers for value out of foreclosure sales that turned out to be flawed, when the purchaser did nothing wrong.
I suppose it could be aruged the Massachusetts Supreme Judicial Court technically hasn't done that here, by ruling that Bevilacqua was not a bona fide purchaser for value by virtue of the fact that he had notice that U.S. Bank was not entitled to conduct the foreclosure sale due to the lack of an assignment of the mortgage into U.S. Bank in the public record.
But I think at least in spirit, the predictions of the experts have been proved wrong. The highest court in Massachusetts has indeed now taken properties away from buyers who plunked down good money at foreclosure sales and given the properties back to the former owners who didn't make their mortgage payments. These buyers' only sin may have been that they trusted the competence of banks too much at a time when sloppy bank foreclosure practices weren't yet making headlines. Any technicalities aside, the ruling that a buyer is not a bona fide purchaser for value because of paperwork issues that the buyer was likely totally in the dark about is going to seem pretty harsh to Massachusetts buyers who didn't have the benefit of looking into the future and seeing the Ibanez decision. In 2006, these buyers simply wanted to buy a property and were a victim of what has been described as a customary bank practice at the time-- recording assignments of mortgage into the foreclosing bank after the foreclosure sale.
Posted in similar form at Source of Title
