Ibanez Case Goes Against Banks in MA Supreme Court

07 Jan

A whole lotta shakin’ goin’ on today out in cyberland over the Ibanez case – we’ll give you a few of the blow by blows from Business Insder, FT’s alphaville, zerohedge and nakedcap – everyone’s a-buzz…

Banks Are Tanking After Massachusetts Supreme Court Voids Foreclosures

One step forward, one step back.The Massachusetts Supreme Court just dealt a negative ruling to the banks in the closely-followed Ibanez case, which challenged securitization standards. It’s pretty straightforward: The banks didn’t have the proper paperwork to foreclose, says the court. Hence, no legitimate foreclosure. Read More

A court case to challenge securitisation standards [updated]

Posted by Tracy Alloway on Jan 07 12:55.

Currently winding its way through the Massachusetts Supreme Court — a little court case that could end up having big consequences for mortgage securitisations.

It’s called the ‘Ibanez case’ and here’s the story.

In late 2005, Antonio Ibanez gets a $103,500 adjustable-rate mortgage loan on a Springfield, Massachusetts property from Rose Mortgage Inc. Rose then sells the loan to Option One Mortgage Co., which then passes it to Lehman Brothers Bank, which then sends it to Lehman Brothers Holdings. Lehman Bros Holdings then sends it to its Structured Asset Securities Corp. to be pooled with other loans and assigned to US Bank, acting as trustee for Structured Asset Securities Corp. Mortgage Loan Trust 2006Z.

In other words, the Ibanez mortgage gets pooled and securitised into a typical run-of-the-mill subprime Residential Mortgage-Backed Security (RMBS).

Meanwhile, in the same town, Mark and Tammy LaRace get a $129,000 mortgage from Option One. That loan is sold to Bank of America, which then sells it to Asset-Backed Funding Corp. which then pools and assigns the loan to Wells Fargo, who is trustee for ABFC 2005-OPTI — another RMBS.

Fast forward two years and both Ibanez and the LaRaces have stopped paying their mortgages and are being foreclosed on by the trustees. Sale notices are published in the Boston Globe, the properties go to auction and are subsequently bought by the trustees US Bank and Wells Fargo in the summer and fall of 2007.

And then there’s the first court case

At some point in the foreclosure process, there’s doubt about whether the Boston Globe advertisements (as opposed to say, a Springfield-based paper) satisfy foreclosure notice requirements in the state of Massachusetts.

The two trustee banks go to the Massachusetts Land Court in the fall of 2008 to debate this — when suddenly, Massachusetts Land Court Judge Keith C. Long orders US Bank and Wells Fargo to prove they had the right to foreclose in the first place.

Here’s what happens next:

The Land Court then proceeded to find that (1) neither Appellant had a valid assignment of mortgage at the time of publication of the notices or at the time of the foreclosure sale, (21 the foreclosure notices failed to identify the “holder” of the mortgage, and ( 3 ) the notices were deficient under Mass. Gen. L. ch. 244, 5 14. [A592-93]. Put another way, the Land Court held that Appellants lacked authority as assignees to conduct the subject: foreclosures.

The judge promptly voids the foreclosure sales and dismisses the Land Court case.

A semi-technical explainer here

US Bank and Wells promptly and unsurprisingly disputed the finding — which is the stuff now going to the MA Supreme Court. It’s also where things get tricky.

One of the problems with the originate-to-distribute mortgage model so prevalent in the years before the financial crisis is that it tends to complicate things. It generates lots of paperwork, lots of bureacratic process and costs — while amplifying the cast of characters involved. In just these two loans you have eight financial entities involved and something like seven (supposed) changes of ownership before foreclosure.

And in each part of the originate-to-distribute process you have to have the right documents to demonstrate that the mortgage ‘note’ is properly transferred, and in the correct order too. According to Judge Long, US Bank and Wells weren’t the actual holders of the mortgage note when they auctioned off the Ibanez and LaRace houses. Read More

And here is what ZeroHedge wrote above their posting of the document:

This is not quite the end of Bank of America (and Wells.. suck it up Munger), but it very could be the start, unless Brian Moynihan’s bank now spends hundreds of millions if not much more more bribing judges across the country… The only winners out of this? The plaintiff’s bar as usual. Luckily, at this stage burying fraudclosure will be far more difficult for the kleptocratic banker mafia syndicate…”

and Naked Capitalism weighs in:

Mass Supreme Court Rules Against Wells Fargo, Deutsche Case on Validity of Mortgage Transfers in Securitizations

from naked capitalism by Yves Smith

1 person liked this

Bottom line: even thought the Supreme Court ruling in this Massachusetts case, Ibanez, was narrow, it still represents a major blow to the securitization industry, specifically, the argument made by the American Securitzation Forum and securitization law firms that have liability on opinions they provided on residential mortgage securitizations. It is also certain to fuel more challenges in court based on failures of the parties to securitizations to adhere to the requirements of their contracts.  Read More

That should give everyone a good well rounded view of the major issues and underlying meanings on this one – it’s a big deal – and it’s getting big attention, none of which is what the banks wanted – but hey, all we can say is, it’s about time!  – thanks Massachusetts…

Here is the document from Scribd:

Ibanez Case


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Leave a Reply

  1. reggie david

    January 7, 2011 at 4:15 pm

    this isn’t the first time wells fargo has been accused of funny business, remember the overdraft fee timing scandal??