Refresher for Reviewing Foreclosures
Articles from The Massachusetts Focus
Newsletter of Stewart Title Guaranty Company, Massachusetts Offices Summer 2010, Volume 9, Number 1
Refresher for Reviewing Foreclosures
by Jane Greenhood, Esq., Underwriting Counsel
I am offering this article as a refresher for issues to spot when reviewing a foreclosure. The same rules and standards apply whether the foreclosure took place in your back title or is the immediate source of title to the current buyer.
Start by comparing the deed into the borrower against the mortgage being foreclosed.
Identity of the Mortgagor
- Are the grantees and mortgagors the same? Too often we see one spouse being dropped from the mortgage because of their bad credit rating; good, bad, or indifferent; all owners must be accounted for as mortgagors.
- Are your mortgagors subject to some restraints to act freely, such as being a ward under a guardianship requiring a license to mortgage, or under protection of a bankruptcy petition requiring permission of the court to grant a mortgage? Make sure your examiner has checked probate and bankruptcy indexes.
In the event the borrower(s) was not an individual, is the signatory duly authorized?
- Trust: Is the Declaration of Trust or a 184/35 Trustee’s Certificate recorded with or prior to the mortgage?
- LLC: Can you verify on record or on line that the LLC was in existence at time of granting mortgage and corroborate the identity of the manager or other signatory who executed the mortgage?
- Corporation: Check to see mortgage was signed by President or Vice President and Treasurer or Assistant Treasurer, otherwise was a vote recorded therewith?
- Limited Partnership: Can you verify on record or on line that the party signing was its General Partner?
- General Partnership: Is there compliance with REBA Standard 44?
Power of Attorney: Is the POA previously or contemporaneously recorded with the mortgage? Is there an affidavit of no knowledge of revocation, death, or disability or incapacity recorded therewith? Does the POA authorize the attorney in fact to sign mortgages? Was the proper format followed: Mortgagor identified as Principal, signature “Principal’s Name, by so and so, her Attorney in Fact”?
- Does the deed’s property description agree with the mortgage description?
- If there is an Exhibit, was it actually attached?
Necessary Powers Contained in the Mortgage
- Does the mortgage contain a reference to Statutory Conditions and Statutory Power of Sale?
- If the mortgage in question was a refinance and the borrower is an individual who previously recorded a homestead, double check to see if the deed into borrower identified him/her as being unmarried. If not, failure to have a non-title holding spouse join in signing the mortgage in order to subordinate the homestead will result in un-extinguished rights of the family to possess the premises.
- Is the assignor the same as the original mortgagee?
Example: Mortgagee is MERS as Nominee for Bank of Massachusetts and Assignment is from MERS not Bank of Massachusetts.
Example: Mortgagee is A and Assignment recites “B, successor by merger to A.”
Example: Mortgagee is A and Assignment from A by its Attorney in Fact with a reference to the Power of Attorney in the signature block or recorded immediately therewith.
- Do the Mortgagor’s name, date of mortgage and recording book and page of mortgage all agree? The so-called two out of three rule may resolve an incorrect reference so long as the Book and Page reference does not refer to another mortgage from the same borrower to same lender, rendering the instrument be too ambiguous.
Out-of-Order and Post-Dated Assignments
- The companion cases of Ibanez, Larace and Rosario involved three variations on the same theme of foreclosures by assignees whose assignments were not dated and recorded at the time of the first publication date of the mortgagee’s notice to sell pursuant to G.L.c. 244 §14.
Ibanez’s mortgagee/assignee did not acquire an interest in the mortgage until long after the foreclosure sale by an assignment dated post sale.
Larace’s mortgagee/assignee did not acquire an interest in the mortgage until after the foreclosure sale by an assignment dated effective as of or prior to the foreclosure sale but the actual date (based on date of notarization) was post sale.
Rosario’s mortgagee/assignee was the actual holder of the mortgage prior to the first publication date but failed to record its assignment until a year after the sale.
The only foreclosure that was held to be valid was Rosario’s.
- Practical effect of the holding:
The lender who publishes the three consecutive week notices in a newspaper with circulation in the town where the land lies, pursuant to G.L.c. 244 §14 must be the actual holder of the mortgage by an assignment dated prior to the first publication date.
In order to determine if foreclosure is in compliance with this ruling check the actual date (not effective date) of the assignment(s) and make sure it is dated no later than one day prior to the first publication date as recited in the foreclosure affidavit.
- What can be done to correct a foreclosure that violates the holding in Ibanez?
If the bank was the original highest bidder, the bank could re-foreclose as there is no third party buyer who may be ousted by a new highest bidder;
Record a release deed from the mortgagor to the third party buyer. Caveat: Other than the borrower’s reluctance to aid the foreclosing lender, any subordinate liens that would have otherwise been wiped out by the foreclosure will remain valid and will require releases or discharges.
The conveyancing bar awaits further ruling on this issue, and until that time if your title is dependent on a “Ibanez style” foreclosure in which re-foreclosure or release deed are not an option, inquire if there is a current title insurer who would be willing to indemnify the proposed new insurer
Service members Civil Relief Act (SCRA)
If the borrowers qualify for protection because they are natural persons, not a business entity (other than a nominee trust) the foreclosing lender is required to prove to the satisfaction of the court (Land Court or Superior Court) that the borrowers are not protected by the Relief Act.
Recent case law in the Bankruptcy court may render the foreclosure void if:
The borrower files for bankruptcy protection and the lender petitioning bankruptcy court for removal from the automatic stay in order to foreclose is not the holder of record at the time of filing the complaint. (In Re Schwartz) Bear in mind, unless the fact pattern involves a borrower in bankruptcy at the time the lender brings the complaint under SCRA, under current case law, the fact that the lender is not yet the holder of the mortgage by assignment until after the complaint is filed is not, on that account, fatal.
Judgment under the SCRA action must issue before the foreclosure sale date. Should judgment enter on the date of the sale or later an action to remove a cloud from title will be necessary.
The main focus of your review of the Complaint and Judgment is to verify that the owner(s) of the equity of redemption (the borrowers or whoever bought the property subject to the mortgage) is/are properly identified.
A post judgment assignment of the mortgage will not invalidate the SCRA decree; just be certain that whoever was the holder of the mortgage received the same by an assignment dated before the first publication in compliance with the Ibanez holding.
- The Entry or Evidence of Possession is a separate means of foreclosing independent of the lender’s exercise of its statutory rights under its conditions and power of sale. The act of the Entry is symbolic to show the world that the lender entered upon the property and asserted ownership rights. Three years thereafter the entry “ripens” and the bank becomes the owner and any procedural errors in the foreclosure deed, affidavit, notice and publication are no longer of concern as this “belts and suspenders” measure cures any defects with the foreclosure process.
- There must be two witnesses to the entry, and the entry itself must be made by the lender through one of the bank’s officers or by the lender’s agent by way of a power of attorney. The notary clause in the Entry should contain the language “under other,” and the notary must be a third party.
- Verify that whoever is making the Entry is duly authorized.
- If the person giving oath is doing so pursuant to a Power of Attorney make certain to review the POA. If there is none recorded therewith, it may have been previously recorded, but typically examiners are not going to hunt for it. Therefore, it is recommended that an Attorneys’ 183/5b Affidavit be recorded in order to identify the book and page of the authority document(s).
- Powers of attorneys granted for making Entry and for signing the foreclosure deed may be signed by any of the principal’s officers. In all other contexts, the power of attorney must be signed by a duly authorized officer with the benefit of a vote or resolution.
- Often the attorney in fact will delegate his or her authority to a third party to make Entry. This delegation of authority must be recorded with or referred to in the Entry. If the POA is not recorded simultaneously, a 183/5(b) affidavit will help to incorporate by reference the recording information for the authority document.
- This delegation in an Entry context is authorized even if the Power of Attorney does not contain the power to delegate. In all other contexts, if an attorney in fact attempts to delegate, there must be a specific provision authorizing the agent to delegate. The authority documents should be recorded with the Power of Attorney, or referenced by book and page in the signature block. Otherwise, the 183/5(b) affidavit should be employed to connect the documents.
- If relying on the ripening of an Entry as the sole means of foreclosing you will still require compliance with SCRA during the ripening period or if after the fact, by way of a Petition to Remove Cloud on Title in the Land Court.
The Foreclosure Deed
When reviewing a foreclosure deed break it down to its elementary parts:
- Grantor: Is the entity the current holder of the mortgage because:
- It was the original mortgagee;
- It was properly and timely assigned;
- It is the successor by merger; or
- Is there a missing element?
- Is the original mortgage reference information correct; mortgagor, date, book and page?
- Is the amount of the consideration the same as the bid amount as recited in the Affidavit of Sale?
- Signature Clause: Is it pursuant to a Power of Attorney? Is the power referenced in the signature block or recorded therewith, or will a 5(b) affidavit be necessary in order to reference the recording information for a previously recorded POA?
- Power of Attorney: Is it granted by the principal (mortgagee) or is it a granted by a delegatee of the primary attorney in fact, to which reference is made with a book and page, recorded therewith or with the benefit of a 5(b) affidavit?
- Does the Power of Attorney include the power to sign foreclosure deeds?
- Does the Power of Attorney include the power to delegate?
- How does one entity sign on behalf of another?
- If the bank is signing, is its president and treasurer executing the same (or variation on that theme) or is there a vote on record to which reference is made?
- If the agent is signing on behalf of the principal the format should be as follows:
By its attorney in fact
Affidavit of Sale
The affiant certifies that all the requirements under G.L.c. 244 §14 were met, but it is up to you to verify the veracity of their statements:
- Were the three publication dates for three consecutive weeks?
- Is the first publication date at least 21 days prior to the scheduled sale?
- If the sale was postponed, was the announcement of same by public proclamation at the first scheduled date, time and place? Was an additional title rundown made by the foreclosing lender to make certain notice to any additional parties who may have acquired an interest in the property prior to 30 days before the rescheduled sale date?
- Was the sale held at the time and place as advertised?
- Is there a recitation that the lender has complied with c. 244, §14 by mailing the notices certified mail return receipt requested (the green cards)?
- If the grantee is not the highest bidder, was there an Assignment of Bid recorded therewith?
- Is there a recitation that the auctioneer was licensed?
- If the foreclosure is within the past three years (and therefore the Entry has not yet ripened) have you reviewed the Green Cards to make sure everyone whose interest is being wiped out by the foreclosure (whose interest was created up to 30 prior to the sale date) was given notice? The latest the notice may be sent is 14 days prior to the sale.
Caveat: Subordinate lenders may have assigned their mortgage or the entity may have merged or morphed into a new entity or a conservator or receiver; be sure that the correct entity received notice.
Owners of the equity of redemption may have died, and if a probate was opened, the parties named therein must receive notice, as well as any creditors, if any, who filed claims against the estate along with the Department of Revenue and the U.S. Treasury.
Owners may also be deemed incompetent and a guardian or conservator appointed in which case notice must go to their legal representative.
Owners may also file bankruptcy. In case of Bankruptcy, the lender must seek removal of the automatic stay in order to proceed.
If an IRS lien was recorded post mortgage, special notice must be given to it no later than 25 days prior to the sale date. Language must also be included in the affidavit to that effect.
There is a 120- day period after the sale date for the IRS to exercise its right of redemption, and the purchaser at foreclosure takes subject to same.
If a horticultural or agricultural tax lien providing a reduced tax rate is recorded at any time in your chain of title and has not expired or been waived and released, additional notice to the town must be given 90 days prior to the scheduled sale date.
If the property in question is a condominium unit, was notice given to the governing body Association or Trust?
- Is the property description (copy of the newspaper advertisement) identical to the mortgage description? This is critical in order to ascertain that potential bidders had the exact information for what they thought was for sale. If the wrong street address was given and the erroneous address was a dilapidated hunk ‘o’ junk, one could argue that the sale was “chilled” since potential bidders would be discouraged from bidding and the auction bidders were far less vigorous, resulting in a less than fair market value sale price which may force the borrower into bankruptcy, and if sued by the bank for the deficiency owed under the note (creditors’ rights) the foreclosure sale could be voided.
- Was the original mortgage for several condominium units or lots in a subdivision for which several partial releases were granted prior to the sale? If so, and the remaining security under the mortgage was one unit or lot vs. several yet the advertisement failed to recite “less units… or lot…”, many potential buyers could be discouraged from bidding as they perceived the value of the properties (vs. one unit or lot) greater than what they would bid…. another way of “chilling the sale.”
Cures After the Fact
- Due execution authority documents not on record at the time of the signing of the document in question? Recording a vote or power of attorney after the fact with ratifying language may cure the defect.
- Missing Assignments? So long as the actual date of the assignment was prior to the first publication date, not “effective date” it can be recorded after the fact to cure this missing link.
- Failure to notify a party in interest pursuant to c. 244 §14? Obtain and record a waiver.
There is no one-size-fits-all checklist for reviewing a foreclosure. Your best approach is to set aside some uninterrupted time to review the deed, mortgage, and then everything that was recorded thereafter, make notes akin to a roadmap, and once the “journey” has ended with the act of foreclosing or and REO deed, make notes as to what issues may exist.
The underwriters at Stewart are happy to review any issues and are available to review and resolve the same, or better yet, hopefully dispel the notion that an issue in fact exists.