MORTGAGE LOAN COMPLIANCE®

The Massachusetts Supreme Judicial Court affirmed a lower court judge's ruling against U.S. Bancorp and Wells Fargo invalidating two mortgage foreclosure sales because the banks, in their capacity as trustees for mortgage securities, did not prove that they actually owned the mortgages at the time of foreclosure.

The decision, which highlights the failure of financial firms to adhere to the rules that govern mortgage-backed securities, is likely to lead more borrowers to sue bank servicers and trustees for wrongful foreclosures. It's unclear what the ruling means for people who were forced from their homes after defaulting on their loans or for those who purchased houses in foreclosure sales.

U.S. Bancorp and Wells Fargo, who were not the original mortgagees in the case, did not show that they held the mortgages at the time of foreclosure. As a result, the court found, the banks did not demonstrate that the foreclosure sales were valid.

The banks argued that the securitization documents they submitted were sufficient to prove they owned the mortgages before the publication of the notices of sale and the foreclosure sales.

Wells Fargo said in a statement Friday that as trustee of a securitized pool of loans, it expected those servicing the loans to abide by all applicable state laws, including those governing foreclosure sales.

U.S. Bancorp issued a statement saying that “as a trustee of the securitization trust that it has no responsibility for the terms of the underlying mortgage, foreclosure procedure, the conduct of the servicer, the process by which the mortgage is transferred to the trust, or the sufficiency of the mortgage documentation."

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