According to The Washington Post, the Massachusetts Supreme Court has ruled that two foreclosures should be voided because the banks didn't have the proper paperwork. This is the biggest decision yet in cases where banks had used robo-signing and other shortcut methods in their rush to issue new mortgages and securitize them. The decision could void foreclosures across the state.
After examining the paperwork filed by the banks, a lower court judge, the Massachusetts Land Court's Keith C. Long, said he had determined that the mortgage "note" that proves who the owner is had not been properly transferred when the banks auctioned off houses.
Long's decision hits on one of the most sensitive issues related to how mortgages were securitized: something called "endorsements in blank." In the rush to aggregate and sell and then resell mortgages, many of the mortgages documents were transferred without explicitly naming who the note was being sold to.
As Robert Kuttner noted in our current issue, how this plays out could have big consequences for the banking industry and lead to another crisis. The shoddier the foundations for each transaction, the more disastrous the unraveling will be.
-- Monica Potts
