Updated: As Timothy B. Lee correctly points out, the Massachusetts Supreme Court decision below is from over a year ago. So why mention it now? Because other states have the same basic questions on their Supreme Court dockets. Florida is up next, and it could have a bigger impact than Massachusetts. The question of how precedence will play out is very interesting indeed.
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Here’s a riddle:
You wish to buy a house for $100,000. I lend you $100,000 at a percent interest rate, and you buy the house. I technically own the house until everything is paid off, and you make your monthly payment checks out to “Dave Martorana.”
A year later, (and really, this is much longer than these things actually take) I decide to sell your mortgage to a friend of mine. The terms of our deal are private, but needless to say, you continue to make payments to “Dave Martorana” and I worry about distributing your payment to the appropriate party.
Now my friend, tired of the risk associated with your mortage, buys up a bunch of other mortgages, and splits them up and packages little pieces of high-risk mortgages with other pieces from low-risk mortgages, and sells little packages of mortgage pieces to buyers. Lets say he sells some on eBay, some on Craigslist, some to people across the country and the world.
Who do you make your payment to? “Dave Martorana” of course. An intermediary will now determine who gets what pieces of what payments from that, and of course I’ll keep my little percent.
Now… who owns your house?
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The Massachusetts Supreme Court, in a hardly-reported-on decision, basically nullified all foreclosures in the state. The boiled-down reason? No one entity owned the title and the lein. In fact, for most houses, it may be impossible to ever run down the title.
Here’s the continuing scenario – you stop making payments to me. I decide to foreclose on your house. But… I don’t own your house anymore. The person I sold it to doesn’t own it. Many people around the world own tiny little pieces of it, but who’s the actual title and lien holder? Is that even a question that can be answered?
So do I have a right to foreclose on you? Massachusetts doesn’t think so. Here’s a much more detailed write-up on the potential consequences of these decisions. With the Supreme Court in Massachusetts being so highly and widely respected, it will be interesting to see how other states rule. Lawsuits will be brought – and if this trend continues, all foreclosures from banks that don’t own your mortgage could be deemed null and void.
So to finish the scenario – if you’ve been kicked out of your house by the Sheriff of the town on orders from “Dave Martorana” who doesn’t have any valid ownership claim to the house to begin with… who do you sue? Who do you seek remedy from?
Well, “Dave Martorana” of course. And if you do that, and everyone else I’ve foreclosed on does that, I’ll drop in to instant insolvency.
As will all the real banks in the US if this becomes a trend. And here comes Florida…
